Here's an underappreciated aspect of the Nets-Celtics trade: by dumping Gerald Wallace's contract on the Celtics, the Nets will likely go under the luxury tax in 2015-16. Wallace is scheduled to make $10,105,855 that year, and no one expects that Paul Pierce, Kevin Garnett or Jason Terry will be on the payroll then.
Losing Wallace's final year has two advantages for the Nets: they avoid the dreaded repeater tax and if they can work with their cap space, they could have the MLE and the BAE, as well as the ability to accept players in sign-and-trades. Could.
Between now and then? The picture is quite different. The Nets will set records in paying luxury taxes, payments so staggering, so astronomical that they will dwarf what teams have paid in the past.
According to data provided by league sources, if the Nets supplemented the current roster with veterans' minimums, and did not sign a 15th player or used the mini-MLE, the team's payroll would top out at $98.9 million, meaning a luxury tax of $73.9 million. If they sign a player to the mini-MLE, as expected, the totals jump to $101.2 million and $83.5 million. The highest previous luxury tax was the $52 million figure paid by the Trail Blazers, owned by Paul Allen, another of the world's richest men, in 2002-03. Portland won 50 games and lost in the first round. (Second highest amount was $45 million, paid by the Knicks in 2006-07 when they won 33 games.)
The reason why the bill will be so high is the addition of Paul Pierce, Kevin Garnett and to a lesser degree, Jason Terry plus the new method for computing the taxes, which kicked in this year. In the past, the tax was dollar or dollar above the tax threshold. This year, for the first time, teams pay an incremental rate based on their team salary.
According to Larry Coon's authoritative CBA FAQ, teams must pay $1.50 in tax for every dollar in salary above the threshold, up to $5 million. If a team is between $5 million and $10 million, it's $1.75 for every dollar in salary above the threshold. From $10 million to $15 million, it's $2.50; $15 million to $20 million, it's $3.25. It's $20 million or more, the tax is $3.75, and increasing $.50 for each additional $5 million. Those numbers will remain in place for another four years, meaning the Nets luxury tax bill is likely to rise with the team's payroll.
That kind of onerous tax system makes signing a vets minimum player at the end of free agency very expensive, as much as nearly $4 million. If the team hadn't gotten out of Wallace's contract, the situation would have reached even more absurd levels. Teams pay the repeater rate if they were taxpayers in at least three of the four previous seasons. In that case, the Nets would have paid a dollar more in each of those categories.
Of course, Mikhail Prokhorov has done well with his investment in the Nets. He paid out $223 million in cash --and agreed to service 80 percent of the team debt-- for an 80 percent share of the team, 45 percent of the Barclays Center and an option to buy up to 20 percent of the overall Atlantic Yards project at a very favorable price. (Prokhorov also financed $76 million in arena infrastructure.) Today, ownership has said the value of the investment is probably between $750 million and $800 million, with the expectation that it could grow to $1 billion by 2015.
As Devin Kharpertian wrote in a similar analysis, "Still: an enormous price to pay for the billionaire owner. Let's hope it leads somewhere worthwhile."