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[HawkItus]

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[bird_dirt]

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The NBA dropped an absolute bombshell last month, and I'm still not sure everyone realizes how big it was.

So it's time for me to get the blinking neon lights and huge capital letters.

As our Marc Stein mentioned a month ago, way down of the last paragraph in the league's memo to teams on the salary cap was the little nugget that the league projects the 2010-11 salary cap will shrink sharply thanks to revenue decline projected for this coming season.

That's only the tip of the iceberg. The big news is that it takes the luxury-tax level down with it. Teams are looking at a tax level of between $61-65 million next season. While some farsighted teams had been projecting such a state of affairs for a while, I'm told that as recently as April the guidance from the league was much more optimistic.

This is huge. People in every front office in the league has been talking about it, especially the ones that were caught off guard. Most of the good ones weren't, it should be said; teams whose bean-counters follow the revenue side closely were projecting a decline in the salary cap for a long time, as I noted at the end of this story in February. (Incidentally, this is one of many reasons I don't believe Billy Hunter's bluster -- some very smart people in front offices around the league were planning for this scenario several months ago.)

For fans the issue is the cap, because that's where all the yummy free-agent stuff will happen, especially the projected circus surrounding LeBron James. And we'll get to how it impacts next summer in a minute.

But for teams the big story is the tax, and fans should care too since it's going to impact a massive number of personnel decisions over the next 18 months. In fact, it's already had a huge effect this summer.

Allow me to explain. The entire guiding principle of most cap-related decisions in the past two decades is that the cap will almost always go up and sure as heck won't go down. It's embedded in the contracts, too, most of which contain either 8 percent or 10.5 percent annual raises. Thus teams feel safe gambling on a $5 million player. If they're wrong, the cap will effectively erase the mistake in a season or two by continually rising.

In the current environment, however, some teams are going to be completely whipsawed by a cap that goes down just as their salaries go up. Clubs that have several players with long-term deals could be well under the tax threshold in 2009-10, and then be well over it in 2010-11 with more or less the same players. This is a real threat for the Philadelphia 76ers and Indiana in particular, and it could grab several other teams depending on what transpires in the coming months.

Those two clubs aren't in the worst situations, however. The New Orleans Hornets are not only over this season's tax line; they're also several million above next season's projected threshold even if they cut Hilton Armstrong and Julian Wright. Or how about Denver? The Nuggets' starting five makes them a tax team even in the league's most optimistic scenario, at $66 million, and that's before adding Chris Andersen, Ty Lawson and at least six other players to the payroll.

Wait, there's more. The Charlotte Bobcats and Golden State Warriors are close enough to the tax that signing a player to the midlevel exception this summer would put them over next season, even if they don't use their draft picks a year from now. Now you understand why each has been so quiet this offseason. And wonder of wonders, even cheapo Memphis could threaten the tax line if the Griz get a high lottery pick and drop another $10 million or so to keep Rudy Gay.

That doesn't include the usual high-spending teams that are likely to go far past the tax threshold. The Lakers are looking at a $25 million tax bill even after holding the line on contracts for Trevor Ariza and Lamar Odom, while the Orlando Magic is looking at nearly as large an assessment without nearly the same revenue streams. The Boston Celtics and Dallas Mavericks also will be way over if they hope to keep some semblance of their current rosters together, and San Antonio may join them if it wants to keep free-agent-to-be Manu Ginobili.

This was liable to happen at some point, of course; the cap wasn't going to keep going up forever. Nonetheless, teams that were caught holding the wrong cards at the wrong time feel burned, especially because the guidance didn't come until well after most of the contracts had been agreed to. Essentially, the horse has already left the barn.

"We felt we were conservative," one such team exec told me when the league's memo came out, "[but] you're shooting in the dark."

So why we are we talking so much about the luxury-tax bill for two years from now? Because the repercussions already are being felt, and will be throughout the league until the 2011 trade deadline.

Take Philadelphia, for instance. The Sixers were at next season's projected tax line even without re-signing Andre Miller, and that doesn't account for a draft pick next year, either. Now you understand why they showed amazingly little enthusiasm for re-signing one of their best players. I'm told Miller entered free agency looking for a $40 million deal, but with cap space tight and his own team sitting things out he had to settle for a third of that.

Miller isn't the only one whose situation changed because of the plummeting tax line. Linas Kleiza of Denver, Ramon Sessions of Milwaukee and Raymond Felton of Charlotte are nominally restricted free agents, but given their team's tax situations it's hard to imagine any of the three getting market-rate offers from their current employers. Jarrett Jack was in the same situation before Toronto came to his rescue.

In addition to the teams I mentioned above, several other clubs are going to have to tread very carefully to avoid the tax line next season, including second-tier contenders like Atlanta, Toronto, Detroit, Portland and Washington.

And now that the A-list free agents are off the board, we're seeing the chilling impact it's had on signings. A lot of people are blaming the economy, and while that's been important in restricting the spending of a couple of teams (Sacramento and New Jersey most prominently), it's the tax that's been the much larger issue.

For instance, the threat of a tax hit a year from now is why several productive unrestricted free agents (such as Drew Gooden, Hakim Warrick and Rasho Nesterovic) had to settle for one-year deals that paid them reasonably this season but wouldn't impact their new clubs' tax number for the crucial 2010-11 season. And it's why several others (such as Allen Iverson, Flip Murray and Joe Smith) still don't have a uniform for next season.

Younger players looking for multiyear deals have been burned even worse than the vets. Quality restricted free agents such as David Lee, Nate Robinson, Glen Davis and the trio mentioned above don't have deals for next season and don't seem particularly close to signing one, even though they're widely acknowledged to be desirable assets. It's why Josh Childress is back in Greece and Carlos Delfino might be going back to Russia.

Of course, anything that creates losers also creates winners. Those teams that are under the cap this season and next basically won the lottery, because teams such as New Orleans, Utah and Philadelphia will clamor for the privilege of dumping a contract on them.

The biggest winner of all, however, might be Miami. While several teams' hopes of cap space were severely diminished by the projected salary cap dip -- most notably New York's sugarplum dreams of inking two max contracts at once -- the Heat are unaffected. They have virtually no money on the books beyond this season and could add one max contract and another fairly expensive star, all while keeping Dwyane Wade.

No wonder the Miami Heat have been quiet this summer and happily let Jamario Moon scoot off to Cleveland. For all the talk from Wade about threatening to bolt if the Heat aren't better this year, it's clear Miami's best shot at contending is to try to find Wade two stellar teammates next season and then continue to build in the following seasons … when the cap and tax levels project to rise just like the good old days.

Unfortunately, for most of the league's 30 teams, the bombshell in that 10th paragraph was far more unsettling. Fans already are weary of hearing about the luxury tax in trade conversations, but in the coming 12 months they're going to hear more of it than they ever imagined.

[bird_dirt]

No wonder the Miami Heat have been quiet this summer and happily let Jamario Moon scoot off to Cleveland. For all the talk from Wade about threatening to bolt if the Heat aren't better this year, it's clear Miami's best shot at contending is to try to find Wade two stellar teammates next season and then continue to build in the following seasons … when the cap and tax levels project to rise just like the good old days.

sounds dangerous being in the same league as miami in the next couple years. hopefully good news (for the hawks) that orlando will price themselves over what they can pay and will have to dump a lot of salary before next year. sounds like atl is about even, so long as jj's deal is within reason, so we could honestly move up a little by more or less keeping our core together, and letting our younger players gain experience together over the next couple years. barring a trade, though, it doesn't seem as though the hawks will have any shot at being players in the free agency market next summer. wonder what those free agents will do? sign horrible contracts?

[HawkItus]

sounds dangerous being in the same league as miami in the next couple years. hopefully good news (for the hawks) that orlando will price themselves over what they can pay and will have to dump a lot of salary before next year. sounds like atl is about even, so long as jj's deal is within reason, so we could honestly move up a little by more or less keeping our core together, and letting our younger players gain experience together over the next couple years. barring a trade, though, it doesn't seem as though the hawks will have any shot at being players in the free agency market next summer. wonder what those free agents will do? sign horrible contracts?

Thanks bird_dirt.

I agree, Miami looks dangerous as hell. I wonder though, if it might be time to get rid of this luxury tax and just go with a hard cap like the NFL.

Edited August 7, 2009 by sultanofatl

[mrhonline]

There's a great chance the Crawford trade will bump the Hawks into the luxury tax.

Trading someone like Evans would help tremendously, but it will be a tight fit.

[Traceman]

There's a great chance the Crawford trade will bump the Hawks into the luxury tax.

Trading someone like Evans would help tremendously, but it will be a tight fit.

I have always though that an Evans trade next year to a team under the cap was a real possibility but I wouldn't rule out a trade of Bibby either, particularly if Teague is ready to go.

[Diesel]

I think that there's more to this than meets the eye. This is a huge success for teams with owners who have big pockets.

As Hawks fans, if we want JJ, we better hope that Sund can lock him up this year. The way I see it, NY has more money than the game should allow. They are not a team that is afraid to pay a LT. The same is somewhat true of Portland. In recession times, poor owners are targets or rather their players are targets.

However, what's going to make things very difficult is:

2010 FAcy...

then

2011 LOCKOUT.

This league is headed towards a lockout. Stern is being foolish being that Lebron hasn't shown that he has the ability to carry the league like Jordan did. Kobe is tainted. And Wade is inconsistent. Shaq is old. And KG is not made for television. A lockout could kill this league. But one is coming in 2011.

So the deals that are made now, mean nothing. Unless the Players Union is going to bend a little more?

[capstone21]

I think that there's more to this than meets the eye. This is a huge success for teams with owners who have big pockets.

As Hawks fans, if we want JJ, we better hope that Sund can lock him up this year. The way I see it, NY has more money than the game should allow. They are not a team that is afraid to pay a LT. The same is somewhat true of Portland. In recession times, poor owners are targets or rather their players are targets.

However, what's going to make things very difficult is:

2010 FAcy...

then

2011 LOCKOUT.

This league is headed towards a lockout. Stern is being foolish being that Lebron hasn't shown that he has the ability to carry the league like Jordan did. Kobe is tainted. And Wade is inconsistent. Shaq is old. And KG is not made for television. A lockout could kill this league. But one is coming in 2011.

So the deals that are made now, mean nothing. Unless the Players Union is going to bend a little more?

I am worried about a lockout too. Players have been overpaid for quite a while and the league is finally getting it a little under control.

A lockout could really destroy this league. MLB suffered for years after their last lockout...I don't think they have really recovered from it.

I hope the NBAPA and league are able to figure out how to make all parties happy.

[AHF]

I don't see an issue with players being overpaid personally. The NBA is set up as a profit sharing venture between the players and owners. The players generally get a % of the income which makes it almost impossible for them to be overpaid unless you are unhappy with either the way income is calculated or you think that % is too high or you don't think the enforcement mechnisms (i.e., the cap and the tax) are effective in restraining owner spending. I don't have a problem with the concept of players getting a percentage of basketball related income, though. When income goes down, so do player salaries. When it goes up, so do salaries.

[Diesel]

I am worried about a lockout too. Players have been overpaid for quite a while and the league is finally getting it a little under control.

A lockout could really destroy this league. MLB suffered for years after their last lockout...I don't think they have really recovered from it.

I hope the NBAPA and league are able to figure out how to make all parties happy.

No... the players are not really overpaid. It's a fair deal. Something like the owners get 43% and the players 57%. That's fair. I think that the players Association will have to be willing to bend to 55% Players and 45% owners... but really, the owners are getting a huge payoff for their investment. Everybody should want to be an owner.

[xhawk]

Thanks bird_dirt.

I agree, Miami looks dangerous as hell. I wonder though, if it might be time to get rid of this luxury tax and just go with a hard cap like the NFL.

Looking at the Miami situation....

To talk numbers, Miami has James Jones making roughly 5 million, Beasley at roughly 5 million, Chalmers at roughly 1 Million and a cap hold for Dwayne Wade of at least 20 million. If they trade their 2010 picks and renounce ALL their free agents (except for Wade of course) and if the cap drops to 54 million (for instance), that leaves 23 million dollars under the cap to sign players. That does not leave enough room for 2 max contracts, but maybe two strong players.

However considering that other team's free agents are already taking a salary hit by changing teams, I don't think they will take a further hit to give that team more flexibility (even with Miami's favorable tax situation). Also, considering the possible lockout for the season starting in 2012, they will probably go for the most money. Also, I don't know if Miami is one player away from winning a championship.