(04-10-2021, 01:23 PM)omahen Wrote: Just to add. Lakers are the last to care about tax. They are in prime position to contend for a couple of titles. It doesn't matter if tax bill will be 100 mil or 200 mil. Who knows when will be next time they will be so close to making it. One would expect a steep drop off in results once LeBron falls of the cliff or retires.
Ok, people keep saying this, so I think it’s worth analyzing a bit.
Does luxury tax matter for teams during the championship window?
Remember that the reason owners have the money to own a team is that many of them were successful in business first. You don’t find success in business by making dumb business decisions. And let’s remember what players and teams say over and over, this is a business.
So now let’s talk about the Lakers specifically, they have approximately $122M committed to 7 players next year. This includes Harrell, and for simplicity sake let’s assume he picks up his option. They don’t have any point guards among these seven players. So let’s assume they retain Schroeder for $15M and Caruso for $5M. Let’s also assume they let fill out 4 of the 5 remaining spots with min contracts worth $1.5M. That’s $148M, $12M over the luxury tax line for next year.
Now let’s look at THT. Say the Mavs offer him a $15M contract. If the Lakers want to retain him that would take their team salary to $163M.
The total cost of THT’s contract for the Lakers (including luxury tax implications ) would be $51M PER YEAR. (If you up the contract to $18M per year this implies a cost of $63.75M per year for the Lakers)
now let’s say they hypothetically let him walk and sign a ring seeking vet with 7 years of service to fill his role for the vet min of $2.2M. This contract would have a total cost (including luxury tax) of $8M per year.
This means that an owner has to make the business decision to spend an extra $43M per year for THT over this vet to come off the bench. Let’s assume the window stays open for 4 years. That’s $132M MORE for THT over a vet min during that time. This is simple economics, is the marginal benefit of THT over a ring seeking vet greater than $43M/year (and $132M total)?
People on here are concerned about paying him $20M/year with no current tax implications....
I’ll agree that owners are willing to pay luxury tax during their championship window. I’ll even give you that they will pay well over $100M, but I would say owners will only pay luxury tax for the right players.
I think we need to reframe the way we talk about contracts. When discussing what to offer THT and whether we think the Lakers match, instead of asking “is he worth $15M/yr” we need to ask 3 separate questions:
1) Is he worth $15M/y to the Mavs?
2) Is he worth $51M/y to the Lakers?
3) Would the Lakers rather let him walk and fill his bench roll with a ring-seeking-vet for $8M/y ($2.2M/y before taxes), saving them $43M/yr ?