Photo: Getty / Mike Stobe
According to reports, the Brooklyn Nets and their Russian oligarch owner Mikhail Prokhorov are pushing hard to bring Dwight Howard to NYC.If the trade goes down (and the Nets sign Deron Williams to a $100-million contract), the Nets will have a mouth-watering core of Williams, Howard, Joe Johnson, and Gerald Wallace.
The only issue: Prokhorov is going to have to go deep into luxury tax territory over the next few seasons.
In case you don’t know, NBA teams have to pay a tax if their total team salary goes over $70.3 million. Right now, the tax is dollar for dollar, so if you are $5 million over the luxury tax line, you pay $5 million in taxes. But starting in 2013-14, the tax comes far more punitive.
We crunched the numbers, estimating the Nets team salaries for every season between now and 2015-16. Then, with the help of Larry Coon’s amazing CBA FAQ, we calculated how much the Nets would potentially owe in luxury taxes if they got Dwight.
What we found is that Prokhorov will owe a grand total of ~$142.9 million in luxury tax payments over the next four seasons.
Here are our projected salaries for next season (2012-13):
- Johnson: $19.7 million
- Howard: $19.5 million
- Williams: $17.1 million
- Wallace: $10 million
- Mid-level exception: $3 million
- 9 minimum salaries: $9.9 million
Total: $79.2 million
There is obviously some leeway in this, especially with the big batch of open roster spots. In addition, Williams’ estimated salary is based on 105% of his salary last year, which is the minimum a team can offer a “max player” like Williams.
But we assume the Nets will be over the tax limit by around $9.2 million. In 2012-13 the tax rules are the same as this year (dollar for dollar), so Prokhorov will only have to cut the NBA a $9.2 million check.
In 2013-14, things start to get interesting.
All three max players will get a 7.5% raise in every year of their respective contracts. Considering those raises, Brooklyn’s total salary jumps to an estimated $83.2 million in 2013-14.
At the same time, the NBA’s luxury tax gets more punitive. It’s no longer dollar for dollar, instead we get this:
- If a team is $0 to $5M over the tax, they pay $1.50 per dollar (so if you’re $3M over, you pay $4.5M in taxes).
- If a team is $5M to $10M over the tax, they pay $1.75 per dollar
- If a team is $10M to $15M over the tax, they pay $2.50 per dollar
- If a team is $15M to $20M over a tax, they pay $3.25 per dollar
- If a team is $20M over, they pay $3.75 per dollar, with the penalty increasing by .50 for every additional $5M it goes over
So in 2013-14, the Nets will be an estimated $12.9 million over the tax. That yields a $23.5 million tax payment that Prokhorov will have to make to the NBA.* (scroll below for full details)
In 2014-15, the Nets team salary goes up to $87.7 million, which is $17.4 million over the tax line. This would yield a $36.5 million tax bill.**
In 2015-16 things explode for Prokhorov because the Nets will be considered “repeat offenders” by that time under NBA rules because they will have been over the luxury tax for three-straight years, and will have to pay an even more punitive luxury tax rate.
Brooklyn’s estimated salary balloons to $92.2 million in 2015-16, meaning they’ll be $21.9 million over the luxury tax line.
As repeat offenders, this $21.9 million would translate into a ungodly $74 million tax bill.***
So Prokhorov will owe the NBA ~$142.9 million between now and 2016, and that’s after he pays $342 million to his players in salary.
What’s it mean?
This is the Prokhorov we thought we’d see when he bought the Nets — a wild oligarch who throws money around like crazy without a care in the world.
A Howard trade would make Brooklyn one of the best teams in the NBA. But is Prokhorov really willing to burn through that much cash?
* There are incremental maximums for all of these tiers. So the Nets will pay $7.5 million for going over the $5M limit and $8.75 million for going over the $10M limit. Then the $2.9 million they went over the $10M limit is taxed at the 2.5X rate, which will cost $7.25 million. Yeah, it’s complicated, but that’s how you get to a $23.5 million tax penalty.
** Again with the incremental maximums: $7.5 million for going over the $5M limit, $8.75 million for going over the $10M limit, $12.5 million for going over the $15M limit, and an additional $7.8 million ($2.4 million taxed at 3.25X).
*** They’ll pay the incremental maximums for all four tiers ($12.5 million for going over $5M, $13.75 million for going over $10M, $17.5 million for going over $15M, and $21.25 million for going over $20 million). Then the $1.9 million that they are over the $20M limit will be taxed at $4.75X. The result: Prokhorov cutting a $74 million check in 2015-16.
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