Paying Taxes, A New Luxury for Clippers

Since drafting Blake Griffin and trading for Chris Paul, there has been a constant narrative surrounding the Clippers describing the evolution from cellar-dweller to legitimate NBA franchise. One of the most telling signs that metamorphosis was occurring in Los Angeles was not only the product on the floor, but the money spent to procure it.

For many years Donald Sterling was known for being "economical" in his spending on the Clippers if you're being kind, dirt-cheap and embarrassing if you're being realistic. Sterling had determined it was more profitable to have his teams be terrible rather than spend more money to have his teams be average. In some fairness, in recent years when the team had some promise of being competitive Sterling shelled out money to give Baron Davis huge dollars, if only to heckle him about it later, gave Chris Paul and Blake Griffin max contracts, built a new practice facility, and even was willing to pay the luxury tax.

While Sterling did seem to slowly loosen his purse strings to allow the Clippers to be more competitive, his historical frugality was always a point of concern. Money doesn't win championships, look at the Brooklyn Nets, but the license from your owner to spend more than other teams can certainly help. Under Steve Ballmer, the Clippers have the 35th wealthiest person on the planet, more than an any sports owner in North America, writing their checks. In his one season of tenure, Steve Ballmer paid $4.8 million dollars of luxury tax. For comparison that is over 3.5 times the amount Donald Sterling ever paid, only one season paying $1.3 million. Ballmer has shown his willingness to invest heavily in his team in order to win a championship, with this upcoming season being the greatest example.

The Clippers' roster currently has 14 guaranteed contracts and a non-guaranteed in Hamilton totaling a team salary of $96,521,131 for the upcoming 2015-2016 season. With the luxury tax line sitting at $84,740,000, the Clippers are currently $11,781,131 over, although the final determination of team salary for tax purposes isn't made until the last regular season game. The Clippers certainly have a trade or two that could be made looking at their roster pieces, so we can expect this number to change. However, let's calculate how luxury taxes are paid in order to get a rough estimate of the Clippers looming bill.

The amount a team pays in luxury tax is based upon a progressive tax system. In the first bracket from $0 - $4,999,999 dollars, you pay $1.5 for every $1, with a maximum of $7.5 million. From $5,000,000 - $9,999,999 the rate is $1.75 for every $1, with a maximum of $8.75 million. This rate continues to increase for every five million dollar bracket, and the official rates are shown in the table below to help you picture it better.

For the Clippers they currently stand at $11,781,131 in luxury tax. For the first incremental level, they hit the max so they pay $7.5 million. For the next incremental level, they also hit the max of $8.75 million. In the next incremental bracket, they don't hit the max, and thus pay $2.5 multiplied by 1,781,131 equalling $4,452,827.5 million. Then everything is added together meaning the Clippers' current luxury tax bill heading into the season stands at $20,702,827.5. While it may not seem like much in comparison to the astronomical tax bill the Cleveland Cavaliers are set to have this summer, it's still a very costly amount; their taxes paid for this upcoming season would be fourth highest since the new CBA, in Laker territory.

One thing you may have noticed is the tax rates in the table for repeaters and how much more expensive they are than for non-repeaters. This was a part of the 2011 CBA which attempted to curb massive amounts of spending by large market teams like the Lakers and Knicks by setting forth a much harsher tax penalty. If the Clippers were a repeater this season, instead of paying $20,702,827.5 they would have a bill of $32,483,958.5, about a 157% increase. The rule for determining if a team qualifies as a repeater is if they were tax payers in at least three of the previous four seasons. Thus, while the Clippers are not repeaters this year, as they have only paid the tax the previous two seasons, next year they will be. If the Clippers are a luxury tax team next year, they will be paying the repeater penalty. However, the good news is the cap is jumping next year to about $89 million, which will put the tax line at about $107.8 million. With little cap flexibility next season, the Clippers will likely not be tax payers and will avoid the repeater penalty.

The potential trouble could come in the 2017-2018 season. This is the year both Chris Paul and Blake Griffin can exercise their early-termination options and again become free agents looking for the max. Paul would be looking at a starting salary around $35.5 million and Griffin starting at about $30.4 million. Adding DeAndre Jordan and you have three players making about $88.6 million, or about 82% of the entire cap. When you have that much money wrapped up in three players it either means you are going to have little financial flexibility or are going to be a high paying team in the luxury tax utilizing things like Bird Rights and trades to add on players. For instance this season the Clippers' big 3 makes about 85% of the cap, which is a large reason they are paying such a substantial bill. In 2017-2018, if the Clippers are tax payers again they will qualify for the repeater penalty, and again in the 2018-2019 season. The caveat to all of this is there could be a lockout after the 2016-2017 season, meaning a new CBA with new rules.

These types of future projections are what smart teams must project and plan accordingly for. With new media money coming from the league and locally in the near future as the Clippers renegotiate their own rights, the team should have a substantially higher revenue to help offset some of these costs. But having a rich, kirby-dancing, mega billionaire owner willing to spend always helps.