Aug 10, 2012
Dwight Howard Traded For the Love of Money
A gain for the Lakers is also a gain for the Nuggets— in luxury tax payments.
When Dwight Howard was traded to the Los Angeles Lakers last night it left a lot of people scratching their heads.
It was a great trade for the Lakers who get Howard to team with perennial all-stars Kobe Bryant, Pau Gasol and Steve Nash—but why would the other teams be willing participants in a trade that appears to make the Lakers an abominable force for years to come?
It may simply be for the love of money.
One not-so-well guarded secret of the NBA luxury tax is where the money goes. Unlike money from player fines that generally goes to charities selected by the National Basketball Players Association, luxury tax money goes back to the other teams, with teams that are well below the salary cap getting first crack at it and a larger chunk, and teams that are above the salary cap getting what’s leftover.
This is prima facie communism–to each according to his needs, from each according to his abilities–but it seems to have inspired some very capitalistic moves from shrewd general managers looking to line their team’s pockets.
In the trade, which is a four-team move including the Philadelphia 76ers and Denver Nuggets in addition to the Lakers and the Orlando Magic, Howard will go to the Lakers, Andrew Bynum will move to Philadelphia, the 76ers will move Andre Iguodala to the Nuggets and the Magic will get a bunch of leftover players, draft picks and cash money.
From a player standpoint the obvious winner is the Lakers. From a money standpoint, it’s the Nuggets, because they will be big beneficiaries of the Lakers enormous new luxury tax payments.
The new NBA collective bargaining agreement (CBA) fines teams $1 for every $1 they’re over the cap this year. Starting next season teams pay an incremental tax that increases with every $5 million they are above the tax threshold ($1.50, $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 even larger – $1 more at each increment ($2.50, $2.75, $3.50, $4.25, etc.)
If they keep Howard, the Lakers are undoubtedly going to be repeat offenders, as his $18,091,000 salary is more than $3 million higher than the player he’ll replace, Andrew Bynum, and he’s all but guaranteed to get a max deal when his contract expires next year.
The Lakers paid $19.9 million in luxury tax last year when the tax was dollar-for-dollar. Under the new system, being that far over the tax line would cost them $44.68 million. If they are a repeat offender, which they will be, they will be paying $64.58 million to the rest of the league.
The new CBA also adds approximately three times the amount of money that is revenue-shared from large-market teams to small-market teams.
So, teams like the Lakers, that have a $3 billion local television contract, pay teams like Denver that don’t.
The Nuggets stand to benefit monetarily in two different ways – first, by pushing the Lakers further over the cap to increase their luxury tax burden and second, by pushing another superstar into Los Angeles that will no doubt increase the revenue they have to share.
Even though fans won’t like it, the team's GMs have made its owner very happy.