How to make NBA trades less taxing

The NBA's luxury tax is crippling the way teams do business. Here's how it can be fixed
STEIN LINE: Five changes
Coast to Coast: Gary Payton's contract drive
Slams and Dunks: Mavs search for power forward

Updated: April 16, 2003, 3:27 PM ET
By Marc Stein | ESPN.com

Frankly, folks, we were lucky.

There was indeed a mega-trade Thursday afternoon, even after all those gloomy forecasts warning that mega-trades are impossible in the luxury-tax era.

Something you should know, though.

The luxury tax gets the assist on Gary Payton-for-Ray Allen.

Mark Cuban
The luxury tax even has Mavs owner Mark Cuban watching how he spends his money.
Finances motivated Milwaukee Bucks owner Herb Kohl to sanction the trading of his beloved Allen as much as the Bucks' basketball people liked the idea of jolting Furious George Karl back to full fury by reuniting him with Payton. With the contracts of Allen and Glenn Robinson no longer on the books, and no contractual obligation to Payton beyond this season, it'll be more financially feasible for Sen. Kohl to keep the Bucks instead of selling them. Or it will make it easier for Kohl to sell the Bucks if he still wants to find a buyer.

Either way, it'd be a stretch for anyone to call it a full-fledged basketball trade, maybe because basketball trades are border-line extinct. Monetary implications override team needs everywhere on the NBA map, to the point that even Mavericks owner Mark Cuban nixed a deal for Miami's Brian Grant in part because of the luxury-tax ramifications. Grant's coach, Pat Riley, recently bemoaned that the luxury tax is "what this whole thing is about right now."

So, what to do? Chances are the luxury tax won't be abolished anytime soon, because the NBA does benefit from the fiscal responsibility it forces. In the new NBA economy, Grant would never get the $80-plus million contract that makes him so hard to trade now. Commissioner David Stern is proud, and rightfully so, that markets as small as Sacramento and San Antonio and Indiana can claim teams among the league's elite. This is an everyone-has-a-chance operation, and the luxury tax undeniably plays a role.

Nevertheless ...

What we seek here are some tweaks from Stern and Players Association chief Billy Hunter when the sides start talking in April to extend the current collective-bargaining agreement, as they promised at All-Star Weekend. The current CBA expires after next season, but the owners hold an option to extend it through 2004-05.

The goal is maintaining a landscape that gives every team a chance, no matter their monetary resources, but also restoring player movement to the point that basketball considerations are at least somewhat equal to the money issues. As long as the NBA charges a dollar-for-dollax tax on teams that cross the luxury-tax line -- while redistributing the bulk of luxury-tax payments back to the teams who don't exceed that threshold -- there will be reduced incentive for teams to make midseason moves. Or offseason moves.

Therefore, either the rebate structure has to change, or measures must be taken to make the luxury tax less crippling. Five suggestions, for starters:

Vin Baker
Think the Celtics would use a mulligan on Vin Baker?
1. Give each team a freebie. Once every three seasons, teams could pick a player whose contract is exempt from counting against the luxury tax for that span. They could even call it the Vin Baker rule. That way teams aren't punished year after year for one mistake.

2. Put a limit on the amount of luxury tax one team must pay. You're bound to say that favors Portland, New York, Sacramento and Dallas -- the teams with the four highest payrolls -- who would then just keep spending. The counter: If non-spending teams weren't making so much money in rebates by avoiding the luxury tax, we would probably see sufficient player movement to keep us quiet.

Dan Rosenbaum, an economics professor at UNC-Greensboro who has immersed himself in luxury-tax research, estimates that the aforementioned four teams will pay out $250 million over the next two years. Most of that money would go to teams such as the Clippers, Chicago, Cleveland, Golden State and New Orleans -- the league's most notorious non-spenders.

Another option is capping the amount any team could receive in rebates, to prevent teams from intentionally cutting costs in exchange for hefty rebate checks.

Larry Johnson
Larry Johnson retired due to injury but remains on the Knicks' books.
3. Decree that the salaries of players whose careers have ended because of injury don't count in tax computations. Stern said during All-Star Weekend in Atlanta that he's already open to the idea of making the salaries of 10-year veterans exempt from tax consideration, to create more job opportunities for the players who have served the league longest. An additional step would be pardoning teams who have lost players to career-ending injuries.

We're not saying those teams should get free salary-cap space. What we're saying is that New York shouldn't have to pay millions in tax penalties on the salaries of Larry Johnson ($9.6 million this season) and Luc Longley ($6.9 million) after injuries struck them down. The Knicks have made enough of their own mistakes -- investing rashly in role players such as Shandon Anderson, Howard Eisley and Clarence Weatherspoon -- so there's no need to punish them for stuff they couldn't control.

New York might have been more willing to deal last week, or at least willing to use its Antonio McDyess injury exception earlier this season, if it wasn't facing such a hefty tax payment.

4. Announce an estimated luxury-tax threshold before the season starts. According to some estimates, a team will owe luxury tax this summer if its payroll exceeded $51 million during the 2002-03 season. But it might be $52 million. The exact figure won't be known until after the season, when the league completes its audit to compute revenues for the season.

Of course, this poses something of a problem for clubs, which are forced to guess the number. The teams that are intent on cashing in on rebates tend to take guessing to the extreme and strive to keep payrolls below $50 million.

Somehow there has to be a way for the number-crunchers to establish an estimated tax threshold in October that's close enough, thereby eliminating the guessing. Isn't there?

Gilbert Arenas
APThe Warriors can't afford to keep (and lose) Gilbert Arenas.
5. Revise the rules regarding second-round picks. You might have heard how Golden State was trying to give away half its roster in a bid to create cap room for the re-signing of Gilbert Arenas. That's because league limits on raises will prevent the over-the-cap Warriors from exceeding the league's average salary (an estimated $4.97 million) as a starting point for Arenas' next contract. Meaning that if any team offers more than $5 million, and there will definitely be a few, Arenas can walk. The Warriors will have no recourse because they couldn't get under the cap, thus robbing them of an absolute nugget they unearthed at No. 31 overall in the 2001 draft.

One possible solution is to give teams the option after the first season to extend a second-rounder's two-year contract to three years -- maybe even an option to bump the salary to $1 million for the third season. With such a provision, Golden State could have tried to sign Arenas to a one-year extension over the summer, which theoretically would have led to full Larry Bird rights after three seasons (this July) to exceed the cap and pay market value. There's no guarantee that Arenas would agree, but if the Warriors had been given such an option, and then declined to exercise it, then at least they couldn't complain that they had no chance to keep the young star.

It can happen to any team with a second-round pick or undrafted player who blows up into stardom, because those players rarely receive longer than a two-year deal at minimum wage to start their careers. The union will unsympathetically respond by saying the Warriors should have signed Arenas to a longer, more lucrative deal from the start ... like the two-year, $3 million deal Emanuel Ginobili received in San Antonio. Of course, if anyone could have predicted in October 2001 what Arenas is now, he would have been a first-round pick.

Marc Stein is the senior NBA writer for ESPN.com. To e-mail him, click here. Also, send Stein a question for possible use on ESPNEWS.

Marc Stein | email

Senior Writer, ESPN.com
• Senior NBA writer for ESPN.com
• Began covering the NBA in 1993-94
• Also covered soccer, tennis and the Olympics

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