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A Taxing Situation

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With the announcement of the 2007 Salary Cap and Luxury Tax figures, now seems as good a time as any to review the Clippers' payroll situation.  I was pretty casual last week with my off the cuff assessment - saying that the team was safely in the 'no man's land' between the cap and the luxury tax threshold.  It's true that's where they are right now - but they're a lot closer to the high end than I thought they were.

According to HoopsHype the Clippers' payroll currently stands at $61,286,610 for the 11 players officially under contract.  The team has agreed to one guaranteed year (and a team option for a second year) with Yaroslav Korolev for about $800,000.  So that brings it a tick over $62M for 12 players.  It's a virtual certainty that Diaz / Jordan / Conroy will sign one contract a little over $600K. which brings the total close to $62.7M.  That leaves Steve Francis, or some other free agent point guard signing.

The 07-08 Salary Cap has been set at $55.63M.  The 07-08 mid-level exception is $5.365M.  The luxury tax threshold is $67.865M.

If Steve Francis commands the full mid-level exception from the Clippers, as I suspect he will, it will actually push the team into the Luxury Tax.  I did not see that coming.  (In my defense, the cap, and therefore the tax threshold, did not increase as much this year as it usually does, but since it is tied to basketball revenues there is no way of knowing how much it will increase or even decrease.) $62.7M plus $5.365M brings the total to just over $68M.  (I'm forced to estimate and round for Korolev and the 3rd point guard so it's not going to be exact.)  By my math, the Clippers end up somewhere between $100K and $200K into the luxury tax, which costs them that much more, as it is a dollar-for-dollar tax.

Now a $200K tax is no big deal on a $68M payroll (the $68M payroll is actually a big deal in and of itself since we're talking about the Clippers).  The Clippers won't hesitate to sign Francis for the mid-level - or rather, they won't hesitate because of an additional $200K tax.  However, it does mean that the team will be limited in what they can do during the season.  They'll have a 15th roster spot open, but filling it will cost double the player's salary.  It's hard to imagine that they'll fill that spot with anything other than 10-day contracts, or possibly another rookie scale player.  For this reason, I expect the team will at least reflect on using the full mid-level to get a veteran point guard.  

Imagine this scenario:  Chris Kaman gets hurt during the season, and a veteran big is sitting on the waiver wire.  If Francis gets $5.3M, it severely limits their flexibility in such a situation (it actually means that they have to pay double for said veteran big).  Signing Jason Hart for half the mid-level leaves them a solid $2.5M below the threshold to react to unexpected developments.

I'm not really advocating one or the other at this point.  I'm just saying it's another consideration.  Frankly, if I was going to play hardball with Francis, it would be to limit the years of the contract, not the starting salary.  I'd much rather have him for 3 years at the full mid-level than 5 years at a discount.

Why?  Because the luxury tax threshold is manageable this season.  The organization can see exactly what they're dealing with, they can pay a small amount of tax, and they simply have to deal with the risk of the unknown.  But next season (and the next and the next and the next) is where it gets ugly.

In 08-09, Cassell, Williams, Ross and Davis come off the books.  In addition, Shawn Livingston becomes a restricted free agent, and Elton Brand and Corey Maggette have player options.  The most likely scenario is that Brand stays, while Maggette opts out.  (Even if Brand opts out, we'll assume that he stays with the Clippers for about the same amount of money - he's already playing under a maximum contract with annual increases built in.)  

There are a ton of unknowns (when does Shaun return, how does he play, what is the market for Q, what is the market for Corey) but four of the top eight rotation players are in that group of expiring contracts.  Ross will certainly command a big raise (of course he's the best bargain in the league right now.)  You have to let Cassell go.  Can you sign Maggette and Livingston and stay under the tax threshold?  If not, are you expecting Thornton to be the starting 3 in 2008?  It begins to get very complicated.  The bottom line it seems is that the Clippers will have to shed Cassell and one more 'biggish' contract (either Maggette or Mobley or Thomas - forget Kaman because he's untradeable) in order to retain Brand and Livingston and Ross.  

The fact that the team is in this situation is remarkable in its own right.  For years the Clippers payroll ran below the salary cap, and it wasn't that long ago that they had to sign a player or two just to reach the league MINIMUM payroll.  Of course, if the team doesn't make the playoffs this year, it's likely that Donald Sterling will return to those days.  If you were the owner, would you rather miss the playoffs with a $70M payroll, or a $50M payroll?