Luxuriousness of being luxury less

Posted by Johnathan Kendrick on July 14, 2008

If we have learned anything from the fiasco in Seattle the last few years, it’s that NBA ownership is not for everybody. Basketball is a game, it’s also a business. You have to manage both sides to make it work.

The one area that Jazz owner Larry H Miller draws the most criticism is his unwillingness to pay the NBA luxury tax. The luxury tax is different than the salary cap. The NBA salary cap is what is referred to as a “soft cap” – meaning teams can go over the cap to resign their own players and or free agents to various minimum contracts or yearly exceptions. Last year the salary cap was set at just under 56 million. The luxury tax is figured by a complicated formula and is set considerably higher than the salary cap. Last year the luxury tax level was around 68 million. Teams who exceeded that level paid a tax of one dollar for every dollar they spent above that threshold.

Last season 8 teams exceeded the luxury tax level by a combine 90+ million dollars. Here is the kicker though, the 22 teams that did not have to pay the luxury tax get to split that 90 million. The Jazz will be getting a check from the league for between 3 and 4 million dollars. That is enough to – for example – buy out the contract of a third string point guard. Or maybe it will just help fund a team who could have a payroll this year of around $64 million.
When you hear Larry H Miller or any other owner say they will not go over the luxury tax level by even $1. It’s because the first $1 actually will cost them millions.

It’s been a few years since the Jazz were in this situation. Not since Donyell Marshall expected the Jazz to break the bank to keep him around as the eventual building block of the team. I think we are all thankful that didn’t happen. Going over the luxury cap on that one could have crippled the organization for years.

Regardless – not going over the luxury tax limit is a smart move for teams in the NBA. It’s good business. Good business and winning keeps a team competitive and off the relocation market. Championships can be won without exceeding the limit (see the Spurs and Pistons). Exceeding the limit does not guarantee success (only 3 of the 8 teams over the limit made it out of the first round in the 2008 playoffs – the Knicks and Blazers, 2 of the top 3 spenders didn’t even make the playoffs).

3 Comments

Jared Conger on July 14, 2008 said:

so does this translate into savings at the gas pump?

Linda McFarland on July 15, 2008 said:

One more big reason to appreciate the people who run the Jazz organization!

justalars on July 15, 2008 said:

If I owned an NBA franchise. O’Connor would be the first guy I called. He knows the business and builds good teams while he’s at it. We can harp on what we are missing all we want, but the fact of the matter is. We are spoiled fans with as much as we win.

Leave Your Comment

How do I get an avatar for my comments?
It is easy and completely free. Just go to Gravatar.com and sign-up with your email address. Gravatar is globally recognized, so your avatar will show on every Gravatar-enabled website or blog.