CapTalk: The Lakers and The Luxury Tax

In the NBA, it is common knowledge (and common sense) that some markets are just bigger than others. According to Forbes, the LA Lakers are valued at $560 million, ranked 2nd in the NBA in terms of franchise value (behind the ailing NY Knicks) in 2007. "Good for the them, they still didn't win the championship last year," you may say. This is true. However, having such a high market value gives the Lakers a noticeable advantage over other teams: their tolerancy level with regard to the luxury tax. As I explained in my last post, the luxury tax is calculated as such:

Total Team Salary - Luxury Tax Level = Luxury Tax Payment

Thus, for each dollar a team is over the luxury tax level, they pay two dollars, one which is already going to their players and one to the League, which then distributes the money to all the franchises that are under the luxury tax (a great boon for teams such as San Antonio, which classically enjoy running their team as just below salary cap level, thus giving them a several million dollar swing in overall revenue).

During the 2007-08 season, the luxury tax level was set at $67,865,000 (TrueHoop), with the Lakers being over the cap by $5,131,757. One might think that this is a lot of money, but the Lakers payment was almost one-fourth that of the NY Knicks and the Dallas Mavericks (both around $19 million). Looking ahead, the NBA announced that the salary cap for the 2008-09 season will be $71,150,000, with the Lakers salary (assuming they make no roster cuts) will be $82,305,701, giving them a luxury tax payment of around $11 million, a huge increase from last year. This is mostly due to a full-year of Pau Gasol and the new contract received by Sasha Vujacic.

However, there are two large variables that may affect these numbers in the coming years. First is whether the Lakers wish to retain Lamar Odom, who is currently making a cool $14 mil as the Lakers 4th best player, and the second is how large of an extension they give to Andrew Bynum.

Purely from a basketball stand-point, if someone were to ask, "do you want to keep Lamar Odom," I'm pretty sure Lakers GM Mitch Kupchak would say, "hell yeah," or something along those lines (maybe a more business-like line, such as "why yes!") However, with the twin towers of Bynum and Gasol taking up the power forward and center spots in the lineup, Lamar Odom is relegated to either starting at small forward or coming off the bench as either a center or PF.

Both of these propositions come with negatives. If Lamar starts at small forward, his best qualities become nullified: he has excellent speed and ball-handling skills for a guy who's 6'10", and he's an excellent rebounder. Starting at small forward would cause Lamar to be guarded by a smaller player, negating his speed and slashing ability, and take him further away from the basket, where most of the rebounds will be gobbled up by Bynum or Gasol. If Lamar comes off the bench as center or PF (most likely PF), he will have to be focused and ready to come into the game cold and contribute immediately (something which he has had problems with in the past). Plus, Lamar is making far too much money to be on the bench playing only 20-25 minutes a game (which will be all he gets with Bynum and Gasol ahead of him).

I have a tendency to lean towards the second option, with Lamar playing some sort of point forward role. Given that his contract expires this year, and he comes back at a discount (somewhat unlikely, but possible), which let's say will be around $12 mil, it will lessen the blow the Lakers take in terms of luxury tax. However, I do think shedding Lamar's contract in a trade or free agency will be a mistake, considering how well Lamar played last year.

Next is the contract extension of Andrew Bynum. Bynum will be making a little less than $3 mil this year, obviously way below his market value (with last year's averages of 13 pts, 10 rbs, and 2 blocks per game). Given that Elton Brand just signed a new contract that tops at $18 mil a year and Emeka Okafor signed an extension that tops at $14 mil a year, you can expect Bynum to be somewhere between there. Let's assume a round $15 mil per year over 5 years for Bynum as an extension. This will put the Lakers at somewhere around $30-$35 mil over the cap next year. Needless to say, this is a massive amount of money.

Honestly, I do not think the Lakers will be able to keep Odom long-term unless he takes a massive pay-cut. They are just too far over the salary cap, and their only short-term source of relief will be when Odom's contract expires next summer. An interesting point of intrigue comes in the form of Kobe Bryant's player option after next year. Bryant can choose to opt-out of his current contract and sign a new deal after next year. If Bryant were to take a marginal pay-cut (say $5-$8 mil), this would go a long way toward keeping Odom. Yet, there's really no end in sight for the Lakers.

With the contracts of Trevor Ariza, Jordan Farmar, and Chris Mihm expiring in the near future, the Lakers will have to extend deals to these key role players as well, probably pushing them further over the luxury tax level. However, without any financial ramifications, the Lakers are built to win, right now. If they want a championship, though, they may have to hurry. Those luxury tax bills will add up quickly, even for the Lakers.

The main problem children for the Lakers are the contracts of Vladimir Radmanovich (VladRad, as I like to call him) making a cool $6 mil a year to shoot three's, give up lay-ups, and sit on the bench in crunch time, and Luke Walton (or SonofBill, as he is often called on Forum Blue and Gold, the most insightful Lakers blog I've found), who signed a lucrative 6-year, $30 mil deal and promptly decided to start sucking again. The worst part is that both of their contracts are untradeable; they're too long and too costly for such little return in play.

For all their salary cap problems, the Lakers are still possibly the best positioned team in the NBA to be successful for the foreseeable future (the other being the Portland Trailblazers....*sniff*, I smell another blog post coming soon). But, championship teams have been derailed by the salary cap before, and it wouldn't be surprising if the salary cap cut the Lakers contention window a little short.