The Celtics' Luxury Tax Dilemma

[PhoSita]

I don't think people understand the predicament the Celtics are in.

Yes, this season has been disappointing. Health is a big factor. COVID is a huge factor. Fatigue from the bubble - probably a factor.  So it makes sense to say: well, if they just keep this team together, re-sign Fournier, and get healthy, next year maybe they could make a run.

That's really not an option. I'm not breaking any news to some people who already understand this, but I see the sentiment around here (and elsewhere) often enough that I want to try to inform people about this.

Kemba Walker - $36 million
Jayson Tatum - $28.1 million
Jaylen Brown - $26.76 million
Marcus Smart - $14.34 million
Tristan Thompson - $9.72 million
Romeo Langford - $3.8 million
Robert Williams - $3.66 million
Aaron Nesmith - $3.63 million
Grant Williams - $2.62 million
Payton Pritchard - $2.14 million
Carsen Edwards - $1.78 million

These are the guaranteed salaries heading into next season.  They total $132.57 million.

The team also has $1.13 million in dead cap for Guerschon Yabusele and Demetrius Jackson.

This doesn't include Jabari Parker, who has a non-guaranteed salary of $2.28 million.

The team will probably have a 1st round pick in the mix, probably making around $3 million.


The salary cap for next season is likely to be set around $112 million.  The luxury tax will likely be set around $136 million.


What this means:

Without re-signing or signing anyone at all, even if they don't retain Jabari Parker, the Celtics are very nearly at the luxury tax.  If they sign their 1st round pick, they will likely be right up against the luxury tax.



So ... who cares?  It's the owner's money, right?  The owners should spend money.  We expect the owners to be willing to spend money.

Well ....

The luxury tax isn't as simple as "for each dollar you spend over the luxury tax, you pay an extra dollar in tax."  That would be punitive enough. 

Reference: http://www.cbafaq.com/salarycap.htm#Q18

Instead, the further a team goes over the luxury tax, the greater the tax multiplier becomes.  It starts at $1.5 dollars for each dollar over the limit, then increases incrementally to as high as $3.75 for each dollar over once you're at $20 million over, and it increases in $0.50 intervals from there.


So let's say the Celtics want to re-sign Evan Fournier.  Fournier's cap hold is $25.5 million, but we can probably assume he's not getting that much.  Fournier made $17 million average annually on his current deal.  He will probably expect more money on his next deal, and despite his struggles post-COVID, somebody is probably going to pay him more.

Let's conservatively say $20 million.


If the Celtics go a neat $20 million over the luxury tax to re-sign Evan Fournier, this is how the luxury tax bill would work, as far as I can figure out (remember this is without re-signing or signing anybody else).

For the first $5 million over the tax, the Celtics pay the incremental maximum of $7.5 million. For the next $5 million over, the Celtics pay the incremental maximum of $8.75 million.  Then they pay $12.5 million and $16.25 million incremental maximums for the next two $5 million slots. 

That's a total of $45 million dollars, and we're not done filling out the roster yet! 

For each dollar the Celtics spent beyond $20 million over the luxury tax (i.e. for each player they sign after re-signing Fournier), they would pay an additional $3.75 in luxury tax, plus another $.50 for each $5 million they go beyond $20 million over.


Evan Fournier might be worth $20 million a year.  Is he worth $65 million a year?


Keep in mind that this season the Celtics made a last second trade deadline deal to dump Daniel Theis just to avoid dipping a couple million dollars into the luxury tax.




The basic financial reality, from what I can tell, is that the Celtics are simply not going to have the option of keeping this roster together this summer.  They are going to need to make painful decisions, whether that is finding a way to dump Kemba's contract without taking as much salary back, letting Fournier walk, trading Smart and Thompson for very little return, or some combination thereof.


This is why I am feeling very down about the team right now.  Not only does this feel like a lost season, but the salary cap dynamics are such that it doesn't feel reasonable to me to expect the team to actually improve this summer.  They're probably going to have to take a step back in terms of talent this summer, even as they're coming off a monumentally disappointing season in which the roster was painfully thin and lacking in experienced, reliable players.

Next year could be a "bridge year" where the team has to accept some roster pain in order to fix the cap situation and create some flexibility.  It could be another season of Tatum and Brown's prime spent without a real chance of making a deep run.



Or maybe not.  I'm not an expert at any of this.  Maybe Ainge can find ways to slip through the cracks of the CBA, make some smart deals, and put the team in a good position.  Or maybe ownership will pay a $40-50 million luxury tax bill for a team coming off a season where they struggled to stay above .500.  We'll see.

But just keep in mind that simply "running it back, but healthier" is not the simple and obvious option that many people here seem to think it is.

[Roy H.]

Does that mean Wyc only makes $50 million in profit next year, instead of $90 million?

If Wyc won’t pay tax for a year or two (while still making tremendous profits) he should simply sell the team at a $3 billion windfall.  He owns the 5th most valuable team in the NBA, valued at $3.2 billion.

[PhoSita]

Is there any team in recent league history that paid such a hefty luxury tax bill for a roster that was not an obvious on-paper contender?

I think it's easy to assume a billionaire will not bat an eyelash at several tens of millions, but I tend to think rich people care about the principle of money.

Like I said above, is Fournier worth spending $50 million dollars? It's not like he would be putting the Celtics over the top to contention.


The Celtics have never come close to paying such a large luxury tax bill, even when the team has been a clear contender.

[Moranis]

Is there any team in recent league history that paid such a hefty luxury tax bill for a roster that was not an obvious on-paper contender?

I think it's easy to assume a billionaire will not bat an eyelash at several tens of millions, but I tend to think rich people care about the principle of money.

Like I said above, is Fournier worth spending $50 million dollars? It's not like he would be putting the Celtics over the top to contention.


The Celtics have never come close to paying such a large luxury tax bill, even when the team has been a clear contender.

The Warriors have been doing it for the last two seasons.  The Knicks paid huge tax bills as well in the past (though the numbers were less then). 

But this is why I've made trade proposals where Boston gets a legit potential 3rd piece even at the expense of salary, because the simple reality Boston is paying a huge tax bill next year regardless of what they do, so they might as well try to get something useful long term.

[jambr380]

This is why it's so important for Tatum NOT to make All-NBA this season. That $28.1M you cited balloons up to over $34M next season if he does (or something in that range. Total of 5-yr contract goes from $163M to $195M).

We received some good news on that front this week with it being announced that Embiid is now eligible to make All-NBA as a Forward. Weirdly enough, though, Tatum is now eligible at Guard (that shouldn't make a difference). If it weren't for the injuries to KD, AD, and Lebron, he definitely wouldn't make it. But now he is in that grouping of players (Lebron, Zion, Randle, Butler, George) that may or may not make it. It might all come down to team seedings.

[Celtics2021]

Does that mean Wyc only makes $50 million in profit next year, instead of $90 million?

If Wyc won’t pay tax for a year or two (while still making tremendous profits) he should simply sell the team at a $3 billion windfall.  He owns the 5th most valuable team in the NBA, valued at $3.2 billion.

I think part of that profit calculation depends on ownership’s belief about any further Covid restrictions next season.  They certainly didn’t profit this year with virtually no gate and concessions revenue.  If Covid abates enough so that you’re at full capacity next year, that’s one thing, but if it spikes next winter because vaccines wear off/a new variant comes along and you’re again limited in capacity, that profit calculation differs significantly.   The plus side is that there’s been pretty good vaccination throughout New England, so the odds are better, but will they be confident enough in August to fully make that call?

I do think that Celtics have at least an intention of going significantly in the tax for the right team and attendance levels.  They made the decision to trade two seconds for a mammoth Hayward TPE, and then two more seconds for Fournier who’s a pending free agent.  They’re only seconds, so it’s a cost you’ll walk away from if it doesn’t ultimately make sense, but they’re collectively valuable enough that you’re not making those moves if there isn’t at least some reasonable chance you’ll be willing to be deep in the tax next season, because it was clear at the time what the long-term payroll ramifications might be.

Prediction: They start the season off with an expensive team (i.e bringing back Fournier) but might sell off at the deadline (farewell Smart, Tristan, and maybe Kemba) if they aren’t near the top of the league at that point.

[Goldstar88]

Sounds like they plan on resigning Evan. So either the C’s are going to try to unload Kemba or ownership is willing to go deeper into the luxury tax.

"I think it's a good use of our TPE. ... We don't acquire Evan with the idea that he'll be with us just for this year,' Ainge said. "We acquire him the with idea he could be here potentially for a long time, like all the players we acquire." -Danny Ainge

[Roy H.]

Is there any team in recent league history that paid such a hefty luxury tax bill for a roster that was not an obvious on-paper contender?

I think it's easy to assume a billionaire will not bat an eyelash at several tens of millions, but I tend to think rich people care about the principle of money.

Like I said above, is Fournier worth spending $50 million dollars? It's not like he would be putting the Celtics over the top to contention.


The Celtics have never come close to paying such a large luxury tax bill, even when the team has been a clear contender.

The Warriors.

And, regardless of Wyc’s own cheap precedent (along with the other owners) the fact is that he’s raking in money hand over first.  The franchise value has appreciated $2.84 billion, in addition to over $600 million in yearly profits ($359 million from 2017 until 2020).  And that’s not accounting for related ventures.

[PhoSita]

This is why it's so important for Tatum NOT to make All-NBA this season. That $28.1M you cited balloons up to over $34M next season if he does (or something in that range. Total of 5-yr contract goes from $163M to $195M).

We received some good news on that front this week with it being announced that Embiid is now eligible to make All-NBA as a Forward. Weirdly enough, though, Tatum is now eligible at Guard (that shouldn't make a difference). If it weren't for the injuries to KD, AD, and Lebron, he definitely wouldn't make it. But now he is in that grouping of players (Lebron, Zion, Randle, Butler, George) that may or may not make it. It might all come down to team seedings.

How perverse to have to hope our best player doesn't make All NBA

[PhoSita]

Is there any team in recent league history that paid such a hefty luxury tax bill for a roster that was not an obvious on-paper contender?

I think it's easy to assume a billionaire will not bat an eyelash at several tens of millions, but I tend to think rich people care about the principle of money.

Like I said above, is Fournier worth spending $50 million dollars? It's not like he would be putting the Celtics over the top to contention.


The Celtics have never come close to paying such a large luxury tax bill, even when the team has been a clear contender.

The Warriors.

And, regardless of Wyc’s own cheap precedent (along with the other owners) the fact is that he’s raking in money hand over first.

Aren't the Warriors paying so much because they knowingly locked themselves in for several years of huge bills back when they were winning titles?


I think it must be pointed out as well that Boston is neither New York nor the SF Bay.  Those are much larger markets.

[Goldstar88]

This is why it's so important for Tatum NOT to make All-NBA this season. That $28.1M you cited balloons up to over $34M next season if he does (or something in that range. Total of 5-yr contract goes from $163M to $195M).

We received some good news on that front this week with it being announced that Embiid is now eligible to make All-NBA as a Forward. Weirdly enough, though, Tatum is now eligible at Guard (that shouldn't make a difference). If it weren't for the injuries to KD, AD, and Lebron, he definitely wouldn't make it. But now he is in that grouping of players (Lebron, Zion, Randle, Butler, George) that may or may not make it. It might all come down to team seedings.

How perverse to have to hope our best player doesn't make All NBA

If him making the all NBA team hurts the teams ability to upgrade or re-sign players, I hope he doesn’t make it this year. Care about the team winning now and in the future over individual accolades.

[Celtics2021]

Is there any team in recent league history that paid such a hefty luxury tax bill for a roster that was not an obvious on-paper contender?

I think it's easy to assume a billionaire will not bat an eyelash at several tens of millions, but I tend to think rich people care about the principle of money.

Like I said above, is Fournier worth spending $50 million dollars? It's not like he would be putting the Celtics over the top to contention.


The Celtics have never come close to paying such a large luxury tax bill, even when the team has been a clear contender.

The Warriors.

And, regardless of Wyc’s own cheap precedent (along with the other owners) the fact is that he’s raking in money hand over first.

Aren't the Warriors paying so much because they knowingly locked themselves in for several years of huge bills back when they were winning titles?

They re-locked themselves in when they signed Klay to a max deal after he tore his ACL and Durant had left.  Further, they made a S&T to get Russell (and his salary) when KD departed.  They weren’t going to contend that year without Klay, but they chose to stay in the tax (and the repeater tax no less) to keep salary on the books for future deals (Russell turned into Wiggins and a nice pick).  This offseason they also picked up Kelly Oubre and his $14 million salary using a TPE, after Klay had gone down and they again weren’t going to contend for a title.

[SHAQATTACK]

I m very liberal minded with Wyc s money   

[td450]

The Celtics' Luxury Tax Dilemma is the Kemba Walker dilemma.

He takes up shots, minutes and money. You can lavishly spend those things on an all-star, or you can spend them on making younger players better, but if you can't do either, you are in trouble.

[Roy H.]

I think it must be pointed out as well that Boston is neither New York nor the SF Bay.  Those are much larger markets.

We’re #5 in valuation.  Our profits are quite impressive.  For perspective, the Celts earned more from 2017 to 2020 than the Heat have since 2008 (by $40 million)!