I had an interesting five-minute chat with NBA commissioner David Stern last night.
With just minutes to spare before tip-off between the Thunder and Magic following his 25-minute pre-game press conference with reporters, Stern stuck around after I snagged him off to the side for a couple of quick follow-ups. There were two topics I wanted to inquire about: the so-called Derrick Rose rule and the more punitive luxury tax. More specifically, I wanted to know from the commissioner how he felt the presence of those two issues in the new collective bargaining agreement would impact Oklahoma City and markets like it.
It doesn’t take a salary cap expert to figure out that rising salaries (the Derrick Rose rule) coupled with stiffer penalties (a more punitive tax) is a mix that ultimately will put pressure on teams and perhaps might soon limit their ability to retain their stars and remain competitive. But Stern stood behind both rules and others, leading to my story today in which Stern admitted the Thunder would eventually have to be a taxpayer if it had any intentions on winning big with its current talented core. In my humble opinion, it was by far the most interesting thing that came out of opening night in Oklahoma City.
For years we’ve wondered how will the Thunder keep its core intact. And on opening night, Christmas night, the commissioner came to town and confirmed it can’t.
“People are saying to Miami, ‘Well, you’re going to have a decision to make with respect to one of your big three,’” Stern said. “And they may say the same thing to Oklahoma City, and that’s a good thing. That means you’ve arrived and you’re out there being competitive.”
Translation: you can have two stars, but you can’t have three. Not in the new NBA. Not unless you want to pay big bucks.
In other words, bye, bye James Harden. So long, Serge Ibaka.
The Derrick Rose rule gave Kevin Durant nearly $15 million more over the life of his five-year extension. Stern downplayed that near $3 million annual raise that the Thunder had no say in, but the fact is it pushes the Thunder closer to that tax line. With Russell Westbrook almost certainly headed toward being eligible for the same incentive, the Thunder have become the Heat’s Western Conference companion as the poster child for a roster that could soon be a victim of the pitfalls of this new CBA.
“Teams will not be able to carry the burden of having a roster that gets paid and paid and paid,” Stern admitted. “And it’s not a small market team (issue)…There are large (market) teams that are not going to make the payments.”
That seemed to be Stern’s biggest point of contention during our chat. Big market teams will bleed just as much as their small market counterparts. The new deal, Stern said, was “designed to eliminate the ability of teams to use their economic resources to distort competition.” Theoretically, that’s where the stiffer tax is supposed to level the playing field.
Currently, teams can exceed the $58 million salary cap with no penalty. But when teams surpass the $70.3 million tax level, they are charged $1 for every $1 they exceed it. The penalty becomes harsher in two seasons. Starting in year three of the new CBA, teams that exceed the tax threshold will be charged as follows:
$0 million-$5 million: $1.50-for-$1
$5 million-$10 million: $1.75-for-$1
$10 million-$15 million: $2.50-for-$1
$15 million-$20 million: $3.25-for-$1
The tax rate increases by 50 cents for each additional $5 million teams spend from there. For example, a team $20 million to $25 million over the tax line will pay $3.75-for-$1. Additionally, starting this year, tax rates will increase by $1 for teams that were taxpayers in any four out of five seasons. For example, a team that is in the tax in any four out of five years would see its $5 million to $10 million rate increase to $2.75 for every $1.
With what seemed like unshakable confidence, Stern told me not even the biggest markets would consistently make that commitment.
“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,” Stern said.
My counter was teams like the Knicks and Lakers can eat those inflated costs far more easily than teams like Oklahoma City and Milwaukee. Their market sizes allow them to. Their television contracts are far greater. Their sponsorship and advertising prices are steeper. Their price of admission is significantly higher. Comparing big market revenue streams to small markets is about like comparing apples to tow trucks. The Lakers, I told Stern, are in a much better position to eat that penalty than the Thunder.
“They could,” Stern said, “but they won’t.”
Won’t, or won’t as often? It’s a critical question that is at the heart of the competitive balance theory. If a large market team can decide it’s their time to “go for it” six out of 10 years and a small market can only make that call twice over the same span, has the league really done anything to usher in more competitive balance?
It has if you’re buying what the commissioner is selling.
“You’ll see. It’s beauty,” Stern said. “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.”