When the NBA's owners and players finally ended the lockout in 2011, the agreement included a much stiffer luxury tax, one that finally takes effect this season. Fans and media were skeptical of it, assuming that rich owners in big markets would keep shelling out anyway and all this competitive balance crap the league was preaching was mostly just a cash grab.
David Stern said this on opening night in December 2011: "People are saying to Miami, 'Well, you're going to have a decision to make with respect to one of your big three.' And they may say the same thing to Oklahoma City."
They did say the same thing to Oklahoma City. Pretty much a year ago to the week, the Thunder pulled a stunner and traded then 23-year-old James Harden, fresh off winning a gold medal for Team USA and Sixth Man of the Year, to Houston for Kevin Martin, Jeremy Lamb and some future draft picks. The first team faced with making an economic decision because of the new collective bargaining agreement was the Thunder, and it meant breaking up a core that just went to the NBA Finals. In the name of competitive balance, one of the smallest markets in the league had to trade a key player to a bigger market. Backward, right?
More 2011 Stern: "A team that goes into the tax in year three, with a $20 million player, is going to pay $45 million in tax money. We'll see who does that."
So, now that we've reached year three, who's doing that? To begin this season, six teams out of 30. Those six: the Nets, the Knicks, the Bulls, the Clippers, the Lakers and the Heat. The Nets are the most egregious taxpayers by far, sitting at $30.4 million over the tax threshold, with a whopping tax bill of $87.1 million. No bother to owner Mikhail Prokhorov who probably just made that much as I typed this sentence.
The Knicks sit about $17.2 million over, owing $36.1 million. The Heat are $11.7 million over and owe $20.7 million. The Lakers are $7.9 million over and owe $12.5 million. The Bulls sit $7.5 million over and owe $11.9 million. The Clippers are $1.6 million over and owe $2.5 million.
There's a strong possibility that both the Bulls and Clippers could get under the tax line at the trade deadline before the bill is due at the end of the season. There are multiple teams though that are right at the threshold, clearing intent on remaining under it. The Thunder are a measley $70,000 under the line, the Celtics about $130,000 under it, the Raptors just $800,000 under. Teams are making a clear effort to stay under the tax not just to avoid the stiffer bill, but to also stay away from adding a year toward becoming a tax repeater, which only makes the penalty worse.
What does this tell us? The NBA still has its haves and have-nots. Under the old tax system, however, as many as 16 teams paid it any given year. On average 8.4 teams were in the tax the past 10 seasons. Fewer teams are paying the tax and the ones that are, are in the biggest markets. I don't think that's exactly the leveled playing field Stern and Adam Silver hoped for, though in all fairness we're only in the first year of it.
The Thunder's decision to deal Harden a year ago was directly a product of this new system. With Kevin Durant and Russell Westbrook already locked into maximum level deals and Serge Ibaka fresh off receiving a near $50 million extension, paying Harden what he was due would've put the Thunder as the seventh taxpayer, and somewhere in the neighborhood of $9 million over, for a bill of roughly $14 million. And that was merely this season. It would only escalate and end up costing Oklahoma City somewhere around $120 million for a four-year, $60 million max extension. Yikes.
When the Thunder made the decision to deal Harden, it was met with mostly an understanding of the realities and economics, but as Harden blossomed into the superstar he is now, the criticism has reached its boiling point. What the Thunder offered -- four years, $55 million -- would've made Harden the highest ever paid sixth man, but it was clear that Harden wanted not only the money he deserved, but an increased role.
Which is another thing Stern talked about in 2011, that the league wasn't just trying to redistribute wealth, but also talent. He called it "player sharing" then, with the idea being that good teams like the Thunder couldn't stockpile four good players under 25 and keep them all. It's unfair, because it just means that the Thunder did their job drafting and developing and ended up doing it for someone else to poach their players because they couldn't afford them, but that's sports economics. Ask the Oakland Athletics (I saw "Moneyball," you guys).
That idea has worked out exactly as Stern predicted. The Rockets landed an under-25 superstar in Harden, which then led to them landing Dwight Howard last summer. The NBA still has a contender in Oklahoma City, but now also has one in Houston, a prime market. In terms of the overall health of the league, the Thunder not being able to keep Harden was a good thing. Harden would've always been limited in OKC playing alongside Westbrook and Durant, but in Houston he could spread his beard and explode into the superstar talent he is.
In 2011, Stern was almost arrogant in his assurance of how the new system would work. He couldn't anticipate an owner like Prokhorov basically ignoring it entirely, but other than that, we've seen franchises make tough decisions regarding the tax. The Thunder with Harden, the Grizzlies moving Rudy Gay, the Knicks not matching on Jeremy Lin's offer sheet, the Heat amnestying Mike Miller and all the other teams doing their damndest to stay under the threshold by even pennies this season. Even the teams like the Nets, who will shell out almost $90 million extra for their roster, Stern saw that as a short-term play.
"They could, but they won't," he said in 2011. "There are going to be very few circumstances where someone is going to go $20 million over to pay $65 million in total unless they're sure this is their time and they're going for it once."
That was the Thunder's perspective with dealing Harden. The philosophy of the organization the day Sam Presti took over was sustaining success over an extended period of time, not just a short-sighted "go for it" year-over-over approach. Presti's mindset is to go for it everyseason, and to do that, he has to put a highly competitive team on the floor every season. Breaking $10 million into the luxury tax would cripple them for the long-term.
Consider: Under the 10 seasons of the old tax, 16 teams had at least consecutive seasons of paying the tax. Seven of those paid it for three or more consecutive seasons. Four of those paid it for six or more consecutive seasons. The Mavericks had nine seasons in a row of paying the tax.
This season is patient zero for the new system and teams like the Lakers will be interesting to watch in how they approach next offseason with a pile of cap space. Because if they spend, talk about one of your all-time backfires.
"You'll see. It's beauty," Stern said in 2011. "It's all going to happen and then we'll look back at it rather than prejudge it. I happen to think it's going to be good for all of us, and it's going to hit small market and large market teams alike."
So far, it's hit the small ones especially hard while the six paying the tax all have a certain largeness in common. As this plays out, there could be a new worry that the system has exaggerated the class system of the league, essentially mimicking real life economics. There will be the poor, the middle class and the top one percent. The distance between the haves and the have-nots might become more extensive.
I suppose, we'll just have to wait and see if it is indeed beauty.