How much money does the Thunder have to play with?
A profit does not equate to a spending spree. It’s been reported that the Thunder project to make the fifth-largest profit from the NBA’s revenue-sharing system, trailing only big markets such as Los Angeles, Chicago, Houston and Boston. From Grantland.com NBA writer Zach Lowe:
The Thunder are indeed paying into the revenue-sharing system, rare for such a tiny market, but they’re slated to make nearly $29 million in profit when everything is netted out. That’s the fifth-best projection in the league, trailing only the Lakers ($100.1 million), Bulls ($61 million), Rockets ($40.7 million), and Celtics ($33.1 million). Again: This memo does not capture the complete financial picture for any organization, but between this estimated profit and the general escalating value of all NBA franchises, it’s fair to take these numbers into account when debating the Thunder’s decision to trade James Harden and duck the luxury tax.
I couldn’t help but wonder what the projection means for the Thunder’s free-agency pursuits. I emailed our resident capologist Jon Hamm on what (if any) impact a Thunder profit has on this summer and beyond. He responded with such:
This kind of income certainly could give the team license to spend, if the right opportunity comes along. Making $29 million doesn’t mean they 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.
Signing a shiny free agent would make fans feel better, I guess. But today’s 28-year-old $5.3 million free agent just might be an expensive bench ornament in two years and still have $12.7 million left on his contract. That’ll blow a hole in a team’s profit.
The luxury tax structure can wipe out profits in a hurry. Spending $10 million above the luxury tax line would cost over $16 million in luxury taxes. There’s a $26 million swing. If a team pays the luxury tax in 3 out of 4 years, the rates jump. That same $10 million above the tax line would cost over $26 million under the repeater penalty.
So, $29 million (again, reportedly. These figures have not been confirmed by The Oklahoman) coming in isn’t really what it seems, and the money brought in by NBA teams can evaporate quickly — particularly when in comes to the luxury tax.
Hamm and our Berry Tramel exchanged some emails on whether or not it’s essential to go over the luxury tax to win a title. This is a topic that repeatedly comes up when it comes to the Thunder being aggressive in pursuing free agents, so we’ll circle back to the luxury tax throughout the summer.