Skip to content

New CBA Luxury Tax System will severely hamper Orlando Magic flexibility

2011 November 28
by Brian Serra

The following information stems from Larry Coon’s new Collective Bargaining Agreement breakdown on ESPN:

Luxury tax

2005 CBA: Teams paid $1 for every $1 their salary was above the luxury-tax threshold.

2011 CBA: Teams pay $1 for every $1 their salary is above the luxury-tax threshold in 2011-12 and 2012-13. Starting in 2013-14, teams pay an incremental tax that increases with every $5 million above the tax threshold ($1.00, $1.75, $2.50, $3.25, etc.). Teams that are repeat offenders (paying tax at least four out of the past five seasons) have a tax that is higher still — $1 more at each increment ($2.50, $2.75, $3.50, $4.25, etc.).

Who benefits? I’ll tell you which teams don’t benefit — the perennial taxpayers, like the Lakers and Mavericks. When the league was unable to negotiate a hard cap, they settled for the next best thing — a more punitive luxury tax that will make teams think twice before committing to a higher payroll. For example, the Lakers’ tax bill in 2011 (when the tax was dollar-for-dollar) was about $19.9 million. Under the new system, being that far over the tax line would cost them $44.68 million. If they were a repeat offender (paying tax at least four of the previous five years) they would owe $64.58 million!

So what does that mean for the Magic? As one of the 7 tax paying teams (Magic, Lakers, Celtics, Rockets, Blazers, Mavs and Jazz) in 2010, they faced a ~$20M tax payment. Their total salary number was ~$90M with the luxury tax threshold at ~70M.

If the 2011 CBA were to kick in for this season with the salaries that are on the current books, and assuming the same $70M threshold and roughly $90M payroll after free agency is over (currently at $76.2M with 10 roster spots filled), the Magic would be on the hook for a $42,500,000 payment. More than double! Can somone tell me how that is NOT a hard cap?

The slightly good news is that it does not take effect until the 2013-2014 season.  If the deals on the current roster stay intact, only Gilbert Arenas, Quentin Richardson and possibly Daniel Orton would still be on the books in 13-14.  All 3 of those are big “if’s” for various reasons.

Assuming Dwight Howard is back at a max salary and that the Magic add another max level player, the flexibility to fill out the roster will be greatly diminished. With all teams forced to spend 90% of their salary cap by that point  in the new CBA, average players will continue to be overpaid by desperate owners, leaving nothing but scraps for the tax paying big market teams. Wait, did they want parody or parity?

Of course Rich DeVos and BVW could always decide to say “eff it” and spend the money regardless.  You Magic fans better be buying your Amway products!

***You can follow Magic Basketball Online on Twitter and add MBO on Facebook to get the latest story updates! ***

Powered by
One Response Post a comment

Trackbacks & Pingbacks

  1. Recommended Tax Magic 2011

Leave a Reply