FanPost

A way to avoid the luxury tax repeater penalty?

Had this imbedded in comments for another post, where it wasn't getting any Love - just like the dubs so far...

So, let me trot it out here, so someone can educate me.

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Surely someone has thought of this, and/or there is some rule against it. But.

Couldn’t the warriors set up their players’ contracts to have enough contracts have one year where everybody gets paid a smaller amount, so that the repeater tax resets that year?

Let me if I can illustrate the idea, using a grossly oversimplified example:

Assume a fictional 3 player per team league, with a luxury tax level at 30 million. (again, this is for purposes of this simplified example only). Go ahead and the presume that the repeater penalty kicks in the 2nd year that a team is in the luxury tax, and costs double the luxury tax. (I know these figures are not accurate, but I am just trying to illustrate the concept.) Also, sadly, since I haven't reinstalled MS office on my new computer yet, no tables...

Traditional contract Model
Contracts go up a little every year, the way they usually do:

Player A: (33 M, 3 years): (year 1): 10M; (yr2): 11M; (yr3): 12M
Player B: (27 M, 3 years): (year 1): 8M; (yr2): 9M; (yr3): 10M
Player C: (42 M, 3 years): (year 1): 13M; (yr2): 14M; (yr3): 15M
Amount over tax line (luxury tax): (year 1): 1M; (yr2): 4M; (yr3): 7M = 12M over 3 years
Repeater tax penalty (if in luxury tax in consecutive years): (year 1): 0; (yr2): 8M; (yr3): 14M = 22M over 3 years
The luxury tax is one thing, but that repeater tax really adds up in years 2 and 3.

But then:

Proposed contract Model
We have the contract dip in the 2nd year - redistributing 2M from each into the other two years:

Player A: (33 M, 3 years): (year 1): 11M; (yr2): 9M; (yr3): 13M
Player B: (27 M, 3 years): (year 1): 9M; (yr2): 7M; (yr3): 11M
Player C: (42 M, 3 years): (year 1): 14M; (yr2): 12M; (yr3): 16M
Amount over tax line (luxury tax): (year 1): 4M; (yr2): -2M (thus 0 tax); (yr3): 10M = 14M over 3 years
Repeater tax penalty (if in luxury tax in consecutive years): (year 1): 0; (yr2): 0; (yr3): 0 = 0 over 3 years

This would result in a slightly higher luxury tax over the three years, but the repeater tax resets to zero in year 2, just by having all the contracts dip in that one year. In this model, you'd get a net savings of 20M over the three years.

For the players, all money is still guaranteed over the life of the contract, and an equal amount is front loaded as is back loaded, so it should be roughly the same value for them.

Does this work? Why aren’t teams doing this?

Did that make sense?



This FanPost is a submission from a member of the mighty Golden State of Mind community. While we're all here to throw up that W, these words do not necessarily reflect the views of the GSoM Crew. Still, chances are the preceding post is Unstoppable Baby!

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