The NBA trade deadline is known for significant deals and non-stop activity that leaves our heads spinning. Where will Superstar X go? Wait, did Team A really trade for Exciting Player B? Holy crap, another Wojbomb! This is incredible!
This year delivered again on that front, even though we didn’t think it would.
But it’s also a wonderful time for the bean counters and accountants tasked with trimming some loose payroll ends to save their exceedingly rich owners a few bucks. Yes, it’s Avoid The Luxury Tax Week! And we all know that’s why you, the fan, really follows sports.
Let’s rank some of the essential money-saving moves of the past month, from most productive to the actual on-court product you watch to the least productive.
1. Golden State Warriors include Jacob Evans and Omari Spellman in D’Angelo Russell trade
The Warriors are 12-40 this season, yet entered the week $3.7 million over the luxury tax and subject to a repeater rate that would have caused them to pay about triple that in penalties. Trading Alec Burks and Glenn Robinson III nearly eliminated that gap, but they were still barely over the threshold. Thus, they included Evans, their 2018 first-round pick, and Spellman, a promising stretch big man picked in that same class, in the blockbuster trade involving Russell and Andrew Wiggins.
Those moves left the Warriors more than $3 million under the luxury tax, though there is a catch.
If the Warriors are able to add five players to the roster for less than $3.1 million, they will stay below the line and avoid having to pay repeater penalties until 2021-22 at the earliest. That’s certainly doable.
2. Los Angeles Clippers trade Derrick Walton Jr. and cash to Atlanta Hawks
Walton is a 24-year-old point guard who the Clippers signed to an Exhibit 10 contract for training camp before getting his $1.4 million minimum contract guaranteed for the rest of the season on Jan. 8. He’s played less than 16 minutes total since then. Trading him put the Clippers $1.3 million below the luxury tax, enabling them to potentially go over the threshold in the future without incurring the additional penalties that come with being a repeat taxpaying team. It also opened a roster spot which could be used to add a bought-out player — almost certainly one who would cost less than $1.3 million.
The Hawks promptly waived Walton to open up roster space that could be used help more teams tighten their salary belts. To facilitate the transaction, the Clippers paid the Hawks enough cash to cover the remainder of Walton’s $1.4 million minimum salary for the rest of the season.
HOW MUCH SHOULD I CARE? Steve Ballmer’s net worth is $64.2 billion. Hawks owner Tony Ressler’s net worth is $3 billion.
3. Portland Trail Blazers trade Skal Labissiere and cash to Atlanta Hawks
Labissiere is a onetime top high school recruit who has not capitalized on his promise. He showed some usefulness as a backup center with Portland this season, but has not played since December due to a left knee injury. He makes $2.4 million this season. The Blazers are still over the luxury tax, but are now slightly less so after this trade due to dropping into a lesser tax bracket.
HOW MUCH SHOULD I CARE? Jody Allen is the CEO of Vulcan Inc, the holding company that owns the Blazers, and the sister of the late Paul Allen. She is the executor of her brother’s estate, which had an estimated net worth of $20 billion at the time of his death.
4. Dallas Mavericks trade Isaiah Roby to Oklahoma City Thunder for Justin Patton
Patton, a 2017 first-round pick, has a $1.62 million guaranteed contract. Roby, a 2019 second-round pick, makes $1.5 million. The difference trimmed the Thunder’s luxury-tax bill from $2.3 million to $2 million and put them within $800,000 of getting below the line and avoiding any tax payments entirely. (I’m surprised there wasn’t another move on deadline day getting them there, but maybe it’s still in progress).
5. Boston Red Sox deal Mookie Betts and David Price to Los Angeles Dodgers in three-team trade
Betts, a 27-year-old four-time all-star, former league MVP, and best player on a memorable championship team, was slated to become a free agent after the 2020 season. There are suggestions he will desire a contract in the 10-year, $400 million range. He was third in jersey sales last season. Price is about to enter the fifth year of a seven-year, $217 million contract.
Major League Baseball does not have a salary cap. They do, however, have something known as a Competitive Balance Tax, which works as follows:
A club exceeding the Competitive Balance Tax threshold for the first time must pay a 20 percent tax on all overages. A club exceeding the threshold for a second consecutive season will see that figure rise to 30 percent, and three or more straight seasons of exceeding the threshold comes with a 50 percent luxury tax. If a club dips below the luxury tax threshold for a season, the penalty level is reset. So, a club that exceeds the threshold for two straight seasons but then drops below that level would be back at 20 percent the next time it exceeds the threshold.
Clubs that exceed the threshold by $20 million to $40 million are also subject to a 12 percent surtax. Meanwhile, those who exceed it by more than $40 million are taxed at a 42.5 percent rate the first time and a 45 percent rate if they exceed it by more than $40 million again the following year(s).
(Keep in mind that this requires teams merely to pay a portion of each additional dollar beyond the threshold. In the NBA, teams must pay an escalating tax on top of the amount over the line).
The Red Sox paid an additional $12 million on a $239.5 million payroll in 2018, the year Betts won MVP and they won the World Series. They paid an additional $13.4 million in taxes last year, when they missed the playoffs. They feared slightly larger future seven-figure tax payments on top of their eight-figure payrolls down the road.
Thus, they traded away one of the five best players in the league a year before he was slated to get a raise a normal market would have undoubtedly provided.