“The idea that the luxury tax hurts small markets is ludicrous. It may impact a small market that is a great team and has to raise payroll. But at bottom, it's designed to eliminate the ability of teams to use their economic resources to distort competition.” — NBA commissioner David Stern, Dec. 25, 2011
Dwight Howard landed with the perennially powerful Los Angeles Lakers last week, leaving most NBA observers outside of Los Angeles County asking a familiar question.
“What exactly was the purpose of the lockout?”
When the league's best center was traded from Orlando to L.A. three days ago, it completed the construction of the NBA's latest, and perhaps greatest, super team. In Howard, Kobe Bryant, Pau Gasol, Metta World Peace and fellow newcomer Steve Nash, the Lakers' starting lineup will feature a combined 33 All-Star selections and three Most Valuable Player awards.
They will be a traveling circus, one that serves as a reminder that not much has changed since the NBA and its fans endured a torturous five-month lockout.
Last year's work stoppage was supposed to be about boosting profits, ushering in competitive balance and devising a plan to help teams keep their stars. It was supposed to stop players like Howard from ditching the small markets that drafted them for more glamorous destinations like L.A.
So much for that.
Howard joined Chris Paul, Deron Williams and Carmelo Anthony as players who in the past 18 months have used the weight of impeding free agency to dictate where they'll play.
Worse, the lockout hasn't stopped the biggest markets from being the biggest spenders. Judging by the first two signing periods post-lockout, a wider gap is developing between the haves and have-nots.
While Miami, New York (Knicks and Nets) and L.A. (Lakers and Clippers) vie for the league's best players — and pony up for the big payrolls that come with them — Thunder fans are left to fume over perceived inactivity on the free agent front and wonder how on earth Oklahoma City will keep up.
So far, we can offer only small reasons for hope.
The Knicks lost “Linsanity” this summer when they decided they couldn't afford to match Houston's offer to point guard sensation Jeremy Lin. At the same time, Chicago deemed Houston's $25 million deal to backup center Omer Asik too rich to match. The Bulls also dumped Ronnie Brewer, Kyle Korver and C.J. Watson this summer, largely for financial reasons.
That's two teams in top three markets essentially saying it's safer to play moneyball instead of monopoly.
But the Bulls have never been big spenders. Chicago is one of just seven teams that never have dipped into the tax, according to shamsports.com. The Bulls' reluctance is more a fabric of their franchise rather than a sign of the times. New York, on the other hand, has never cringed at shelling out more cash. Therefore, the case of Lin stands as the first real indication that we might soon witness a shift in the system.
Dallas and deep-pocketed owner Mark Cuban cut back on spending last season. But the Mavs were jockeying for position in the Howard/Williams sweepstakes, not pulling back out of fear of the consequences.
Last month, however, the Mavs signed center Chris Kaman to a one-year deal, signaling another change in the league's economics. An All-Star in 2010, Kaman normally would command a long and lucrative contract. But short term deals are cropping up more as owners and front offices executives digest the perils of their books being bloated for too long. Other examples include David West (Indiana), O.J. Mayo (Dallas) and Kris Humphries (Brooklyn) all signing for just two years.
The more punitive tax system in theory should help continue to slow spending. This coming season will be the last in which teams must pay a $1 penalty for each $1 of team salary spent above the tax threshold (roughly $70 million). A new incremental tax system will be implemented before the 2013-14 season, with penalty rates starting at $1.50 per $1 above the tax line up to $5 million and increasing to as much as $3.75 for surpassing the tax by $20 million.
What will be known as the repeater tax is designed to further scare teams from spending. Those rates start at $2.50 for every $1 above the tax line up to $5 million and rise to $4.25 for every $1 between $15 million and $20 million above the tax.
But the repeater tax doesn't kick in until the start of the 2014-15 season. Even then, a team will have had to be a taxpayer in all of the previous three seasons. For the 2015-16 season and beyond, the repeater rate applies to only teams that were taxpayers in at least three of the four previous seasons. That gives the big spenders time to bloat the books now and clean it up later.
Additionally, the tax system almost becomes laughable when you compare resources.
The Lakers recently signed a new television contract with Time Warner Cable reportedly worth up to $5 billion over 25 years, a $200 million a year profit — or roughly $70 million less than what Forbes lists the values of franchises to be in Atlanta, Milwaukee, Minnesota and Memphis. The Heat, meanwhile, is on the verge of netting a new television contract estimated to be worth up to $100 million a year, and the Knicks are owned by cable giant Cablevision and its $10 billion worth of backing.
The Thunder's television contract is believed to net the franchise less than $15 million annually.
It's a part of reality that always will prevent the Thunder from being able to do what its big-market competitors are able to — throw money at problems. A revamped revenue-sharing system is supposed to help buoy small market teams, but NBA commissioner David Stern told The Oklahoman in December that the Thunder was a “net contributor” in league revenue sharing because of its success.
“It's far from a perfect agreement,” NBA deputy commissioner Adam Silver said before Game 1 of the Finals, “and it's difficult to predict owner behavior in every league. And I think we won't know until we see the tax provision, until the tax provision becomes fully implemented and we see how, in fact, teams respond to the new provisions of the collective bargaining agreement.”
Unfortunately for the Thunder, a lot of good can go bad in three years while waiting for the new system to level the playing field.