Luxury Tax Hell

[DanSchwartzgan]

I thought I'd spend some time talking through what the actual numbers are when Cuban mentions being in Luxury Tax Hell next season.

The line is estimated to be $147mm next season.  The LT rates are like your personal tax bracket in that the more you make, the higher your bracket.  If you search for NBA Salary Tax Calculator, you can plug in numbers for yourself.

As things stand right now, we have 15 slots committed for next season without Brunson.  This includes our pick and the non-guaranteed deals for Maxi and Frank.  If you start there as your baseline, The Mav's are at $152,835,957 (numbers from Spotrac).  It isn't that bad.  As a non-repeater, the tax for being $5.8mm over the line is $8.9MM (you are in the 1.75% tax bracket with a blended rate of 1.53%).  

For the sake of argument, lets instead draft a Euro-stash and sign Brunson into that 15th slot (I'll use $19mm as the starting number).  Total salaries jump to $169,583,457 and the tax is $54.7mm...WOW!  The reason is we are now $22mm over the line and suddenly the rates jump.  The marginal rate is 3.75% and the average rate is 2.42%.  Now things are starting to get painful.  One way of looking at this is signing Brunson in that first year costs Mark his $18mm salary plus an EXTRA $45.8mm in tax or $62.8mm.  

Sorry, but I just don't see it.  Options?

1. Don't sign Brunson.  Yeah, that's probably a bad idea.
2. S&T Brunson to a cap room team and take back a TPE for his starting salary.  If Cuban was willing to spend and Brunson left anyway, this at least provides a path to replacing Brunson.  If he was just being cheap, then he isn't going to spend the TPE as it just racks up the tax bill and he should have kept Brunson.
3. S&T him to NY who sends back D. Rose who is a match for both sides of the BYC calculation.  This at least gives you a body to play the role for a year with a TO for the next season.  Rose at $14.5mm instead of Brunson at $19mm saves $15.8mm in tax.  

I don't think anyone wants to lose Brunson over money, but it may not be the Mav's choice...it is JB's.  But, assuming JB stays, someone else almost HAS to go, right?  Here are two ways of doing that and the tax impact:  

1.  Pay Brunson $19mm, Euro-stash the pick and dump non-guaranteed Maxi?  Tax is $24.6mm, but now you have to use the TP-MLE of $6,149,000 to replace Maxi.  Great...except you are adding almost $20mm in tax to do it.  Bottom line is Maxi has to be replaced and doing so is almost as expensive as keeping Maxi (BTW, don't count on Dallas spending any exception money).

2.  Trade a player for someone making $5mm less.   For instance, trade for someone making $14+mm instead of $19+mm and the LT goes down $16mm-$19mm depending on what else is going on.  That is a big savings, but difficult to execute as the shopping list of players making the right amount less is pretty narrow.  It is probably more powerful if you pile some salaries together and get to the 125% + $100k rule.      

3.  Trade someone with a larger salary into space.  I don't think you can rehab the values of Dinwiddie or Bertans that quickly, so there is only one choice in my mind...the guy we are playing without for the next few months anyway.  If you send off the pick plus THJ, you are only $2.9mm over the LT line.  The tax there is $4.4mm.  

It seems obvious THJ is gone if Brunson stays (unless the new cap guru has magical powers).  The good news is it is a bad free agent class and several teams have space.  Detroit, Orlando and Indy even have reasons to either bring home a hometown hero or reunite Tim with a former coach.  Do you rush him back and hope he lights it up in the playoffs?  Or, do you hold him back fearing he might further destroy his value with a bad showing or additional injury?  Will someone take such a deal straight up and call THJ their "FA signing"?  Or, does it cost us a pick or maybe a swap back into the early 2nd for our first (which saves some more money).  

The side benefit of a 'Tim for Air' move is we are again creating a nice TPE, but this time the tax cost for using some of it would be much less.  If not the TPE, the TP-MLE is back on the table as we are talking a 1.5ish rate instead of a 3.5ish rate if Tim is gone.  Obviously it doesn't have to be a deal for air.  But if you are trade-matching a deal for Hardaway, you better be getting back a REALLY good player to justify the kind of tax you'll have to pay for that player and Brunson.  Be Prepared!

[omahen]

Great piece. A couple of comments.

1. Mavs don't need to solve the tax riddle in the summer, they have until TDL to do it. This means they could do part of it in the summer and then see what makes most sense at TDL. Mavs have three BaE level contracts that are a total waste of money (Burke, Brown, Bobi). I would definitely look into what can be done with them. 

2. A good thing is that it looks like Mavs will be paying tax one time only, as they get into very controllable teritory in 2023, if they don't trade expiring Powell and Kleber into same long term money. So Cuban might be willing to eat those 50 million just to show he is willing to spend. 

3. I will be extremely surprised if Mavs don't make a draft day deal involving the pick. It will be much more difficult for them to make a deal in the summer. I trully hope they have a plan to bring in a star (which might also include some money relief). 

4. Your THJ proposal is good. But, salary dumping guys for weak return would be just another loss of assets and more people asking loudly, if Mavs are actually capable of creating anything next to Luka. It was just a season ago that this same Mavs team thought THJ deal was a great one. 

5. I think Mavs will try to add a significant player using picks. If that fails, I could see them trading for a player and expiring money. Like THJ for Holmes and Holiday (example)

[mvossman]

I think most important thing to look at the rest of the season is how Luka/Brunson/Dinwiddie all mesh together.  My biggest fear is that Dinwiddie is going to take the ball out of Brunson's hands and make him both less effective and less interested in staying here.  

I agree that THJ has to go.  There is virtually no chance that Bertans raises his value such that we could afford the assets to dump him.  THJ already needed to go before this trade, and now we have another one.

If we do manage to re-sign Brunson, I'm not sure we would have to send out a first to dump THJ into air.  That would be such a waste of assets.  

This looks really bleak.  My guess is that Brunson is going to walk, and a few years later Luka will too.  We have a much longer way to go now to turn this into a potential contender, and have very little confidence this FO can pull it off.

[mvossman]

Great piece. A couple of comments.

1. Mavs don't need to solve the tax riddle in the summer, they have until TDL to do it. This means they could do part of it in the summer and then see what makes most sense at TDL. Mavs have three BaE level contracts that are a total waste of money (Burke, Brown, Bobi). I would definitely look into what can be done with them. 

2. A good thing is that it looks like Mavs will be paying tax one time only, as they get into very controllable teritory in 2023, if they don't trade expiring Powell and Kleber into same long term money. So Cuban might be willing to eat those 50 million just to show he is willing to spend. 

3. I will be extremely surprised if Mavs don't make a draft day deal involving the pick. It will be much more difficult for them to make a deal in the summer. I trully hope they have a plan to bring in a star (which might also include some money relief). 

4. Your THJ proposal is good. But, salary dumping guys for weak return would be just another loss of assets and more people asking loudly, if Mavs are actually capable of creating anything next to Luka. It was just a season ago that this same Mavs team thought THJ deal was a great one. 

5. I think Mavs will try to add a significant player using picks. If that fails, I could see them trading for a player and expiring money. Like THJ for Holmes and Holiday (example)

We don't have access to any picks to trade, except our 22 at the draft.  I don't see any avenue to a star.  I do like the THJ for Holmes + Holiday idea.  That is probably best case this coming offseason.

[omahen]

We don't have access to any picks to trade, except our 22 at the draft.  I don't see any avenue to a star.  I do like the THJ for Holmes + Holiday idea.  That is probably best case this coming offseason.

I am not sure what do you mean. With the 2023 owed to NY and protections till 2025, we can move 2022, 2027 and 2029. A capable FO could also do something about those protections which could make picks on a shorter time frame available.

---

Bad thing for the rebuilding process in 2022 is that Mavs can't do SnT and they probably won't take money back.

[cow]

-If we aren't returning a pick in the 'Tim For  Air' scenario, Cuban should bite the bullet and hang onto him for a year.  He'll be a + asset the last two years of his deal.
-We need to draft a contributor with our '22 FRP.

[loki]

My money is on the pick being used to dump either THJ or Dinwiddie. Then re-sign Brunson and try to find a center with the taxpayer MLE. Some smaller contracts like Burke or Brown could also be moved quite easily. Oh, and see you later Frank!

I know everyone wants an upgrade rather than a salary dump, but realistically an early 20's 1st attached to a bad contract isn't returning a better player. I'm not even 100% sure it can get rid of THJ at this point. Dinwiddie's two years may be easier for another team to absorb.

[cow]

My money is on the pick being used to dump either THJ or Dinwiddie.

If we use our FRP for a dump...

[Mavs2021]

If we use our FRP for a dump...

What would be the point to keep our 2022 1st round pick?

It will fall between #18-22 and we need rebounding and interior defense.

Look at the current rebounding leaders of the NBA and their draft position:

#27
#41
#25
#11
#16
#5
#15
#3
#16
#22
Undrafted
#7
#7
#27
#12

Impossible to find a good PF/C in that range.

[Jommybone]

Gotta pay to play. Either Cuban wants to win really bad. Or he doesn’t. 

The OP is a great post. Appreciate the info. But I haven’t joined the Cuban haters’ club cause I’ve always believed he’d pony up once it’s obviously a competitive advantage to do so. And next year sure looks like the time.

Wonder if Boban will turn into a medical retirement exclusion.

[Kammrath]

@"DanSchwartzgan" great post!

My gut feeling is that this move by Nico (getting off of KP at seeming rock bottom value) was a precursor kind of move. It feels like the Mavs know something about this summer about a possible big trade they are lining themselves up for. 

My point being, I will be surprised if all they do this summer is "stand pat" and trade off THJ for some tax relief. If they surprise in the playoffs, maybe that is the course they go, but it seems to me that they know they are desperately missing that 2nd guy and will be willing to overhaul the roster to get there.

I personally think JB is still the path to that 2nd guy. I don't see him as the 2nd guy and so I think you need to be willing to move off of him to get that guy. 

Any thoughts on all that?

[DanSchwartzgan]

I will be surprised if all they do this summer is "stand pat" and trade off THJ for some tax relief. If they surprise in the playoffs, maybe that is the course they go, but it seems to me that they know they are desperately missing that 2nd guy and will be willing to overhaul the roster to get there.

I personally think JB is still the path to that 2nd guy. I don't see him as the 2nd guy and so I think you need to be willing to move off of him to get that guy. 

Any thoughts on all that?

I'm afraid the time of greatest leverage with JB has passed.  Detroit is probably the biggest threat among cap room teams.  They MIGHT do us a favor and give us a TPE (which we might not spend) in exchange for a second.  I think Lowry shows the example of what is likely if Brunson insists on going to NY.  Lowry brought back expiring Dragic (probably expiring Rose or Walker in this case) and Achiuwa (probably Grimes, Quickley, Reddish or McBride, but it won't be S&T Robinson now).  Miami didn't give up a pick.   

A more optimistic view was the Conley deal of Grayson Allen, Crowder, Darius Bazley, the corpse of Kyle Korver and a strangely protected first.  Crowder was obviously s still useful role player, Bazley had just been drafted 23rd overall and Grayson was coming off of an unimpressive rookie year after being drafted 21st the year before.  That package in NY is basically Rose or Walker, our 23 pick back and two youngsters (McBride and Grimes I like actually).  That kind of deal now lets you go big game hunting armed with 23, 25 and 27.

Yeah, the hope is certainly that someone wants to give up something useful for THJ.  He'd be a fairly highly ranked FA if he were free this summer.  My hope would be he's a hair better than neutral value and if you pair him with a pick, it isn't paying the pick to get rid of him, it is combining player and pick to upgrade another position.  People seem to agree that starting C is the biggest need here.  The pick and either Maxi or Powell could also be the outgoing in a deal that replaces one of them.  Something has to give as both are 32/31 year old free agents in 23.  I'm not sure you want to pay for the declining years on both of those guys.  If you really want to dream, it is THJ + Maxi (or Powell) and 3 picks for the star.  So, in a sense, you'd be right that Brunson might be the path that gets us there.

[Branduil]

Personally I do not care how much money Mark Cuban has to spend on payroll+taxes so I hope any trades he makes do not make our team worse on talent. Of course flexibility is a good thing, and it would be better if we didn't spend $15 mil+ on bench players, but after a decade in the wilderness Mark owes it to Luka and Mavs fans to do right by them. Of course he has already said they will do what it takes to keep Brunson, so that's a positive.

[Mavs2021]

You know what is most annoying about this. It once again smacks of no long-term planning at all.

The contract extensions for DFS and Brunson are nothing new, neither is the Porzingis contract (or the replacement contracts). So why sign THJ to that extension, when you basically already know that you do not want to pay the luxury tax. I guess there is still a chance Cuban will pay, but I think 99% of us expect him to package the 2022 1st round pick with one of the bad contracts to get out of the money.

So basically we´ll have to pay up a 1st round pick, because Cuban extended THJ, but doesn´t want to face the consequences. If he simply let the contract run out last summer or turned a S&T into better manageable contracts, we could keep our 2022 1st round pick.

Also bad planning with Boban/Burke/S. Brown. That´s 10M in combined salaries that barely play.

That´s why a lot of top team use rookies. It´s cheap talent. Guys like Maxey and Bane outplay Dinwiddie or THJ on lowly rookie deals. We are going to lose that 2022 pick. Don´t have a 2023 pick and don´t have capspace. Honestly if you ask me Cuban is all-in with the Nikola Jokic free agency. It either works or Luka is gone. I really see no other end game to this, unless some people truly believe Brunson, Bullock and DFS can be the 2nd, 3rd and 4th best players on a championship contender.

[DanSchwartzgan]

Great piece. A couple of comments.

1. Mavs don't need to solve the tax riddle in the summer, they have until TDL to do it. This means they could do part of it in the summer and then see what makes most sense at TDL.  

Certainly true they can wait, but bigger deals with multiple players are easier in the summer when roster restrictions are eased.

2. A good thing is that it looks like Mavs will be paying tax one time only, as they get into very controllable teritory in 2023, if they don't trade expiring Powell and Kleber into same long term money. So Cuban might be willing to eat those 50 million just to show he is willing to spend. 

I'm not confident of this.  If they pay Brunson and do nothing else, they are already at $142mm for Luka, THJ, Dinwiddie, Bertans, DFS, Bullock, Green, Brunson and the 2022 pick.  Who plays 48 minutes of C for the money that is left.

3. I will be extremely surprised if Mavs don't make a draft day deal involving the pick. It will be much more difficult for them to make a deal in the summer. I trully hope they have a plan to bring in a star (which might also include some money relief). 

Agreed

4. Your THJ proposal is good. But, salary dumping guys for weak return would be just another loss of assets and more people asking loudly, if Mavs are actually capable of creating anything next to Luka. It was just a season ago that this same Mavs team thought THJ deal was a great one. 

"My" plan wouldn't be to dump THJ.  "My" plan would be to get a return for him.  But, based on how I valued KP, I'm a little gun shy about putting a value on THJ.  I've said twice now that my hope is teams may look at a crappy free agent class and view THJ as an asset on a three year deal that is fairly reasonable.

5. I think Mavs will try to add a significant player using picks. If that fails, I could see them trading for a player and expiring money. Like THJ for Holmes and Holiday (example)

I can live with that.  I'm not sure the team needs Holmes, Powell and Maxi.  So, there could be another move after securing Holmes.

[omahen]

2. A good thing is that it looks like Mavs will be paying tax one time only, as they get into very controllable teritory in 2023, if they don't trade expiring Powell and Kleber into same long term money. So Cuban might be willing to eat those 50 million just to show he is willing to spend. 

I'm not confident of this.  If they pay Brunson and do nothing else, they are already at $142mm for Luka, THJ, Dinwiddie, Bertans, DFS, Bullock, Green, Brunson and the 2022 pick.  Who plays 48 minutes of C for the money that is left.

What I meant. I think Cuban will pay the 50 million of tax, which you calculated equals to current team + Brunson. In my example, I take into account a trade (or more of them), however assuming that total salaries after the the trade(s) will be approximately the same as you calculated.

I think Mavs will make their trade(s) on draft day and then more or less just resign Brunson in the summer. At least flexibility will be far bigger on draft day. I hope they already have something lined up. A couple of teams will have to make a decision about their players. Will they resign, are they in long term plan? Grant, Turner, Wood for example. Teams will be setting up for FA.

[SleepingHero]

You know what is most annoying about this. It once again smacks of no long-term planning at all.

The contract extensions for DFS and Brunson are nothing new, neither is the Porzingis contract (or the replacement contracts). So why sign THJ to that extension, when you basically already know that you do not want to pay the luxury tax. I guess there is still a chance Cuban will pay, but I think 99% of us expect him to package the 2022 1st round pick with one of the bad contracts to get out of the money.

Because you assumed that THJ would maintain his 40% 3pt shooting and provide 15-16ppg. On a declining contract that is a valuable asset. He regressed which hurt his value. He got injured which cratered whatever value was left. It was a worst case scenario. 

If THJ left for nothing, I'm sure you'd be lambasting the front office for not retaining Timmy or getting some assets for him.

So basically we´ll have to pay up a 1st round pick, because Cuban extended THJ, but doesn´t want to face the consequences. If he simply let the contract run out last summer or turned a S&T into better manageable contracts, we could keep our 2022 1st round pick.

Also bad planning with Boban/Burke/S. Brown. That´s 10M in combined salaries that barely play.

I don't think the Mavs will "pay a 1st" to get off of THJ and avoid the tax. Especially since they have maybe 2 of those available for the foreseeable future. I think Dan is trying to point out that there is an excess amount of salaries, heavily stacked in one area of the roster. And if the Mavs want to be smart they'd use THJ along with our first to upgrade another position of need. 

Of course we can also assume that Cuban really wants to avoid paying an excess of 50 mil bill for THJ and or Brunson and if thats the case then sure we can criticize Cubes. We haven't gotten any indication that's the case so far. In fact Cuban kind of alluded to the tax hell in an interview regarding Brunson, and he didn't seem against paying it to retain talent. 

Boban is here because of his locker room presence and general fan engagement. I promise you Cuban is making more on Boban promotional deals than his 3.4 mil salary he's paying. Burke is a vestige of Donnie Nelson, and I agree it was/is a bad contract. Brown is 3 mil for a wing that doesn't care if he plays and can hit a 3. I don't think we've seen enough to be mad about him yet. 

But given that we aren't going to be close to the tax line in 22-23, there really is no penalty for staying in it 1 year in the worst case scenario. So I don't think that the Mavs will rush to sell off THJ and use our first to make him attractive. TDL is the real hard deadline if the Mavs want to avoid the tax. By then THJ should be back to recoup his value.

[Jason Terry]

Gotta pay to play. Either Cuban wants to win really bad. Or he doesn’t. 

The OP is a great post. Appreciate the info. But I haven’t joined the Cuban haters’ club cause I’ve always believed he’d pony up once it’s obviously a competitive advantage to do so. And next year sure looks like the time.

Wonder if Boban will turn into a medical retirement exclusion.

This is my take as well. It will be a competitive advantage for us to have one year with a high tax bill. Cuban needs to prove his value to the franchise 

Option 1 - one of the big contracts plus 22 FRP for a slight upgrade at a needy position 

Option 2 - small contracts of burke plus brown plus 22 FRP for a rookie contract player…..something like what NYK did with Reddish 

Both of these options would save us money but keep a good team


hardaway for air makes us worse

[StrandedOnBeauboisHill]

Funny to still see so many people 100% certain that Cuban won't eat the tax this year even after what we said which showed he understood it would be just one year and he can try to work under the tax before hitting any sort of repeater number (which is acknowledged here).  I understand that there's not a lot of reason to trust what anyone says in this industry but the KP trade certainly acknowledges that reality.

Unless there is a trade where we can move Hardaway without attaching our pick, I feel that we will carry him on the roster until at least the trade deadline.  My guess is that we move Burke for air to make room for the 2022 pick and then we start understanding our best paths forward after that.

[Mavs2021]

Because you assumed that THJ would maintain his 40% 3pt shooting and provide 15-16ppg. On a declining contract that is a valuable asset. He regressed which hurt his value. He got injured which cratered whatever value was left. It was a worst case scenario. 

If THJ left for nothing, I'm sure you'd be lambasting the front office for not retaining Timmy or getting some assets for him.

I agree they should have gotten something for THJ in a S&T. Didn´t need to be much. Diallo (player option 5M) + Olynyk would have been enough. Even better would have been going after Markkanen, with the decision against Porzingis seemingly already made or being discussed.

I don't think the Mavs will "pay a 1st" to get off of THJ and avoid the tax. Especially since they have maybe 2 of those available for the foreseeable future. I think Dan is trying to point out that there is an excess amount of salaries, heavily stacked in one area of the roster. And if the Mavs want to be smart they'd use THJ along with our first to upgrade another position of need. 

Doesn´t seem realistic to me, that they´ll be able to upgrade the roster that way. What position would that even be? PF/C are probably cheaper than anything else on the free agent market and that is our biggest need. Players like Favors, Robin Lopez etc. will likely go for  $5M or less.

Of course we can also assume that Cuban really wants to avoid paying an excess of 50 mil bill for THJ and or Brunson and if thats the case then sure we can criticize Cubes. We haven't gotten any indication that's the case so far. In fact Cuban kind of alluded to the tax hell in an interview regarding Brunson, and he didn't seem against paying it to retain talent. 

The problem is that I don´t think Cuban ever views a 18th to 22nd pick as an asset. Maybe the new MBT will challenge and change that Cuban idea, but with everything I´m at the seeing is believing stage. I don´t think he cares as much about paying the tax per se, but the amount and who he is paying for. Getting off the bad contract and a useless asset to save millions will seem like a no brainer to the (old) MBT.

Boban is here because of his locker room presence and general fan engagement. I promise you Cuban is making more on Boban promotional deals than his 3.4 mil salary he's paying. Burke is a vestige of Donnie Nelson, and I agree it was/is a bad contract. Brown is 3 mil for a wing that doesn't care if he plays and can hit a 3. I don't think we've seen enough to be mad about him yet. 

I´m just looking at ways to reduce the tax bill without giving up the 2022 pick.

But given that we aren't going to be close to the tax line in 22-23, there really is no penalty for staying in it 1 year in the worst case scenario. So I don't think that the Mavs will rush to sell off THJ and use our first to make him attractive. TDL is the real hard deadline if the Mavs want to avoid the tax. By then THJ should be back to recoup his value.

Well let´s hope so, cause even with the crutch Porzingis gone, this team is still short of talent to make a competitive title challenge. Nailing that 2022 pick provides one of the best chances to upgrade our roster/outlook, because....

To me Mark Williams, who is currently projected around #19 has one of the most fluent running styles and speed I have seen on a seven footer recently. He seems to have sure hands inside and excellent footwork, too. People will view him as a dinosaur 7´0 C with an outdated back to the basket game and he´ll hopefully drop. I see Rudy Gobert/DeAndre Ayton/Clint Capela potential. I´ll eat the remaining cartilage in Porzingis´ good knee, if that guy doesn´t have a very productive 12 year NBA career.