Recent reports that the Oklahoma City Thunder cleared a sweet $29 million in profit for the 2013-14 season caused quite a stir. It’s an eye-popping number. It is significant. It should also be of little surprise to anyone who has been keeping tabs on such things.
According to Forbes, the franchise had a negative operating income of $9.4 million in 2007-08, the last season in Seattle prior to relocating to Oklahoma City. That number apparently does not take into account the $30 million relocation fee paid to the NBA, nor the $45 million settlement paid to the city of Seattle.
In subsequent seasons, Forbes reported positive operating income of $12.7 million in 2008-09, $22.6 million in 2009-10, $24.5 million in 2010-11, $25 million in 2011-12 (a season shortened due to a lockout), and $33.3 million in 2012-13.
Providing these numbers requires the usual disclaimer: the NBA often advises against treating numbers reported by Forbes as gospel. Even if the numbers aren’t rubber-stamped and certifiably authentic, it’s probably safe to say that business has been good for the Thunder.
Strategic salary cap management
The organization’s salary cap strategy plays heavily into this. Since the franchise was purchased by The Professional Basketball Club, LLC, the team has eschewed expensive and risky free agent signings and relied on a steady stream of young talent on inexpensive rookie scale contracts to build the bulk of the roster. Those that prove themselves worthy of lucrative extensions, both through their on-court play and their ability to buy into the team concept, are rewarded accordingly. Those that want out are shown out.
The reaction to the idea that the Thunder made money should be one of admiration. At minimum, the front office deserves a slow golf clap for putting together a perennial Finals contender in the league’s 27th largest market without spending recklessly (friendly reminder: the NBA has teams in 28 markets). Somehow, the narrative shifts back to the James Harden trade of October 2012 and the mistaken premise that the Thunder were “too cheap” to sign him to an extension. That oft-repeated idea runs afoul of the facts.
(Harden) we go again
The Thunder made numerous offers to Harden over the summer of 2012, including a final one reportedly worth $55 million over four years. Had Harden accepted the offer, as well as his role on the team and place in the team hierarchy, the Thunder would have almost certainly have been taxpayers the past two seasons. Many have assumed that the Thunder would have used the one-time amnesty provision on Kendrick Perkins to avoid any tax penalties under this scenario. The team still would have had to pay the remaining guaranteed money left on Perkins’ contract, minus any amount paid by another team had he been claimed via the amnesty waiver process. The more likely scenario is that Perkins would have remained, lest the Thunder attempt to compete with the likes of Cole Aldrich, Hasheem Thabeet or Daniel Orton patrolling the paint. To be fair, an argument can be made that the Thunder would have made additional money-saving trades if one wanted to venture down that rabbit hole.
Assuming the stars and planets aligned for the Thunder and all egos had been stowed away, there likely would be no stories of massive profits. Under the NBA’s new progressive luxury tax model, a payroll $5 million over the luxury tax line results in a luxury tax bill of $7.5 million. Going $10 million over the luxury tax line (a realistic scenario under the “stars and planets align” notion) would cost a team an additional $16.25 million in taxes. If a team is a taxpayer in three out of four seasons the rates jump even higher. Those same levels above the luxury tax line would generate bills of $12.5 and $26.25 million.
However, the fuzzy math in the previous paragraph is irrelevant since it required James Harden’s capitulation. Harden knew his own potential and decided to capitalize on it, a decision that is difficult to criticize a young player for. Sam Presti could have exercised the considerable grasp the franchise had on Harden and wrangled at least one more season out of him, if not two or more, against his wishes. Presti opted instead to cut ties and leveraged multiple assets in exchange for him.
And so the team reportedly profits instead. The annual profits can’t be rolled back into the team immediately, however. A $29 million profit doesn't mean the Thunder can make $29 million worth of improvements this summer. There are salary cap rules that curb such an idea, and the Thunder payroll is over the NBA's salary cap. The more promising thought is that years of windfall profits will allow the Thunder to give extensions to its current core and re-sign its stars at the appropriate time.
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