James Harden would already be signed to a long-term deal with the Thunder if not for the luxury tax.
Or so the thinking goes.
The assumption is that the Thunder isn't going to be willing to pay top dollar for Harden, then have to pay millions in luxury tax to the NBA. If the team antes up anything close to what Harden would be worth on the open market, it is going to push the Thunder way above the league's luxury tax threshold.
No way the Thunder would pay $10 million or $20 million or more in luxury taxes.
Or would it?
I decided to ask Sam Presti. The Thunder general manager held his annual preseason press conference Wednesday morning, and Harden was the leading topic of conversation.
No surprise there.
With Kevin Durant, Russell Westbrook and Serge Ibaka already committed to long-term deals, Harden is the last of the young stars without a new contract. Sign the versatile guard, and the Thunder's already bright future is even more brilliant.
So, is it out of the question that the Thunder might bite the bullet and pay a big chunk in luxury tax, even if for a few years?
“There are certain realities that we face, and there are some inherent challenges that we face,” Presti said. “I don't feel comfortable, quite honestly, talking about limitations and things that we ultimately will have to decide on. But I think we're making a commitment to try to continue to put a competitive team on the floor.
“But we also have to do the right thing for the organization in the short and the long term.”
The quick translation of what Presti said — the Thunder isn't going sign Harden to a max deal if it means having to pay a bunch in luxury taxes.
The decision could put the Thunder in a financial hole so deep that crawling out of it might take years.
A new luxury tax scale kicks in next season. At this point, any team that goes over the luxury tax threshold pays a dollar for every dollar. Go over the threshold by $5 million, for example, and you owe $5 million in luxury taxes. But the new scale is much more punitive.
Here's the new luxury tax rates:
The first $5 million over, it's $1.50 for every dollar.
The next $5 million, it's $1.75.
The next $5 million, it's $2.50.
That means that a team that exceeds the limit by, say, $15 million would owe $28.75 million in luxury taxes.
That's a range the Thunder would approach if it signed Harden to a max deal. And remember, that tax would be paid in addition to the combined payroll of all the players. That would put the Thunder on the hook annually for well more than $100 million.
And that's just the beginning. The luxury-tax liability is almost sure to increase because the yearly salaries for the likes of Durant and Westbrook increase each year of their contracts. That means more in guaranteed salaries and more in luxury taxes.
Plus, if a team exceeds the luxury-tax threshold for four out of five seasons, the rates increase substantially. It's such a big jump that a team could easily pay more in luxury taxes than in salaries.
In a big market, such a significant payout is more easily stomached. That's because in places like Los Angeles and New York, the revenue streams are so much bigger, the biggest being their TV deals. The Lakers and the Knicks have annual TV deals in excess of $100 million, so paying $20 million or $30 million in luxury tax isn't nearly the gut punch that it is in a place like Oklahoma City.
The Thunder's TV deal is less than $15 million a year.
Because the number of potential viewers is less, a small-market team is never going to be able to do a TV deal that compares to what those big markets have. That means a team like Thunder can't spend itself out of a problem.
But does that mean the Thunder is willing to pay nothing in luxury tax?
I say no.
And even though Presti isn't going to come out and say it, I don't think the franchise is opposed to paying some luxury tax.
Consider this: the Thunder has been negotiating with Harden. That alone is a signal that the team would be willing to pay something in luxury tax. If the team wasn't, it wouldn't even be talking with Harden's representatives because the number it would be offering would be laughable.
Just going to the table means that the team is willing to pay something in luxury taxes.
But the Thunder isn't going to do something outrageous. It's never been willing to do that. Look at the Jeff Green situation. Presti loved Green, even tearing up about him. But Green clearly wanted more than the Thunder thought it could handle because Presti ultimately had to pull the trigger on a trade with Boston.
“At the end of the day, you have to do the best thing for the organization,” Presti said Wednesday when I asked him what he'd learned from the Green situation. “That's what my job is. The day that I stop doing what's in the best interest of the organization is the day that they should get somebody else.”
Presti had to balance the short-term on-court benefits and long-term financial obligations. He did with Green, and that's what he'll have to do with Harden.
For this deal to get done, the Thunder is going to have to pay more than it'd like and Harden is going to have to take less than he'd like. Both sides are going to have to sacrifice.
Is paying luxury taxes among the sacrifices the Thunder is willing to make?
Is Presti willing to bite that bullet?
Depends on how big the bullet is.