The NBA’s salary cap and luxury tax levels are staying flat at $109.140 million and $132.627 million, respectively, under the league’s amended collective bargaining agreement. While that’s unsurprising in light of COVID-19-related financial difficulties, there’s a luxury tax development that’s relevant for the Sixers.
Typically, the luxury tax threshold staying the same wouldn’t be positive for a team like the Sixers set to pay the tax. The salaries of the Sixers’ starting five on opening night last season add up to about $132.8 million for the 2020-21 season, and those players obviously aren’t the only ones with guaranteed contracts. There is, however, a form of relief for taxpaying teams.
Teams' tax bills will be reduced in proportion to the amount the NBA’s basketball-related income (BRI) decreases. While managing partner Josh Harris and the Sixers appear willing to pay whatever’s necessary to contend — substantial contracts for new president of basketball operations Daryl Morey and new head coach Doc Rivers are recent examples that suggest a heftier tax bill wouldn’t dissuade the team from any meaningful moves — these CBA revisions could impact their thinking. If the league had kept the tax level flat and not accounted for a decline in BRI, it would make sense if the Sixers were more reluctant to spend.
It’s still a suboptimal financial situation for many teams, though the cap is guaranteed to go up by a minimum of 3 percent and maximum of 10 percent through the remainder of the CBA. Teams will likely have greater openness than usual this year toward selling second-round picks, and the Sixers have four in next Wednesday’s draft (Nos. 34, 36, 49 and 58), in addition to pick No. 21.
Luxury tax revisions were never likely to have a massive impact on the Sixers in free agency, which will begin on Nov. 20 at 6 p.m. As a taxpaying team, they’ll have veteran minimum contracts and the taxpayer’s mid-level exception, but they don’t have the capacity to sign stars outright. Morey’s done well with minimum contracts in the recent past, signing rotation players like Gerald Green, Jeff Green, Ben McLemore and Austin Rivers.
With trades, though, the BRI-related tax relief could influence the Sixers’ outlook. A trade in which they take on money should be a bit more palatable under these conditions than in a world with a flat tax threshold and no form of tax relief. We don’t officially know yet when the NBA’s transaction window will open, but ESPN’s Adrian Wojnarowski reports that talks are “progressing toward firming a date two or three days prior” to the Nov. 18 draft.
Players will also be able to opt-in and opt-out of contracts when the window opens, which should provide greater clarity on the state of the free agent market. In theory, players should be more inclined to opt-in than usual, given the cap staying flat and the uncertainty about how teams will approach free agency. We’ll see if that’s the case.
Another factor to consider with options and free agency is players’ escrow. If salary reductions are necessary because of a BRI decline, the league says those cuts “would be spread across that season and potentially the following two seasons, subject to a maximum salary reduction in any season of 20 percent.” There’s a big difference between 10 percent and 20 percent of a players’ salary, of course, but the immediate takeaway is that the NBA isn’t taking a massive chunk of escrow right off the bat.
Like so much this year, the final numbers — and, really, whether the season is a success in general — will come down to how the league works around COVID-19.