Wednesday, June 19, 2024

How the repeater tax looms over Lakers’ failure to trade Russell Westbrook

The events of this past week dealt a serious blow to the thousands of Los Angeles Lakers fans desperately awaiting a Russell Westbrook trade. It started on Wednesday, when Pacers general manager Chad Buchanan revealed that Myles Turner would start the season in Indiana. Team executives are hardly known for their honesty, but with training camps set to begin next week, it’s hard to imagine he was bluffing. A day later, Utah traded Bojan Bogdanovic, the centerpiece of a possible Westbrook deal, to the Detroit Pistons. Never say never in the modern NBA, but with Utah effectively out of the running and Indiana bowing out publicly, it certainly appears as though Westbrook is going to start the season in purple and gold.

Such an outcome felt unfathomable in April, when Westbrook delivered one of the most jarring exit interviews in NBA history. The team has made every attempt publicly to welcome him back into the fold, but he split with longtime agent Thad Foucher in part because Foucher urged him to accept the team’s olive branch. It doesn’t feel as though Westbrook is all that eager to play another season for the Lakers. So why wasn’t the team able to find a satisfactory trade?

We can at least pay lip service to the idea that the Lakers wanted Westbrook back. New head coach Darvin Ham certainly wanted the world to believe that at his introductory press conference when he claimed to have “a clear plan” on how to use the former MVP. Of course, these trade rumors wouldn’t have persisted for five months if the Lakers liked the idea of having Westbrook on their basketball team. After the season Westbrook just had, nobody would.

Price is a reasonable explanation. It has been widely reported that Indiana wanted two first-round picks from the Lakers to consider a package built around Turner and Buddy Hield. The Lakers don’t appear willing to have met that price. But the Bogdanovic trade muddies that idea a bit. The Pistons managed to acquire him without giving up a single first-round pick. Andy Larsen of the Salt Lake Tribune reported that the Jazz could have gotten a first-round pick from other teams, but any such deal would have included long-term salary. Westbrook is on an expiring deal. At the very least, this suggests that if the Lakers wanted to make a trade with Utah for a single pick, they likely could have. They didn’t, and if they were never willing to give up a single pick, they had to know from the beginning that they weren’t going to be able to trade Westbrook at all.

It has widely been reported that one sticking point was that the Lakers didn’t want to take on long-term salary in a Westbrook trade. The Athletic’s Sam Amick and Jovan Buha reported that the Lakers are hoping to add star-level talent via cap space in 2023 free agency rather than giving up their draft picks for immediate upgrades, but as appealing as that vision might appear on the surface, the reality isn’t quite so rosy. The Lakers literally cannot create max cap space next summer.

The projected cap for the 2023-24 season is sitting at $134 million. LeBron James and Anthony Davis alone will combine to make $87.5 million. Even if they dumped every other player and cap hold on their books, the 10 incomplete roster charges the Lakers would be left with alongside their two stars would take them to around $99 million on the books. That’s $35 million or so in cap space, a figure that looks enticing on first glance, but would actually represent pay cuts to Kyrie Irving and Khris Middleton. Andrew Wiggins is right around that number now and could credibly demand a sizable raise. Tyler Herro and Jordan Poole were mentioned by Buha and Amick as possible targets, but both will be restricted free agents. The best player likely to reach unrestricted free agency that the Lakers could sign to a market-value contract would probably be Fred VanVleet. Draymond Green may also be available via a player option, but the Lakers have tried adding an aging non-shooter. It hasn’t gone well.

With all of this in mind, does it really sound like it makes sense for the Lakers to punt away what might be the last season of LeBron’s prime for cap space that doesn’t appear especially valuable? No … until you recognize the secondary value of cap space. From a practical standpoint, it is almost impossible to pay the luxury tax when you operate below the salary cap. Creating cap space usually means renouncing the rights to your pricey free agents. Once you’ve signed new ones, you rarely have the residual rights needed to spend above the line or the leftover salary to trade your way into tax territory.

The Lakers have paid the tax over the past two seasons. Barring something drastic, they’ll pay it again this season. So why would ducking it for the 2023-24 season matter? The repeater penalty. When a team has paid the tax in three of the previous four seasons, it is subject to an extremely punitive repeater penalty. Essentially, it adds one dollar for every dollar you spend above the tax line on top of what your tax bill already would have been. The Lakers paid an estimated $202 million in combined salaries and taxes last season. Had they been considered a repeat offender, that total jumps to around $222 million.

Reaching the tax line will be a good deal harder next season than it has been in years past because of how quickly the cap is rising. The projected tax number for the 2023-24 season is $162 million. But salaries add up. Imagine, for instance, the Lakers had made the trade with Indiana for Turner and Hield. Add Hield’s $19.3 million to what James and Davis are set to make and you’re already up to nearly $107 million. Turner would need to be extended, and while he won’t approach the max deal DeAndre Ayton just signed, a fairer analog might be the $100 million deal Jarrett Allen inked in Cleveland before becoming an All-Star. Adjust that contract for inflation and Turner would come in at around $24 million per year. Already, that figure gets the Lakers above $130 million with only four players accounted for.

From that perspective, expiring contracts do carry a long-term cost if you plan to retain them. The Lakers likely weren’t especially enthused about giving up first-round picks for players like Bogdanovic, Clarkson and Malik Beasley if tax concerns were going to lead them out of Los Angeles after only a single season. They already gave up Talen Horton-Tucker to get Patrick Beverley, a player whose cap hold they’d need to renounce next offseason to maximize their cap space. While Austin Reaves will have a low enough cap hold to retain in restricted free agency even after spending cap space, his final salary will count toward the luxury tax line.

All of this is to say that trading for even expiring salaries would have put the Lakers in a difficult position, especially from an optics perspective. They could keep all of those impending free agents after trading for them just like they can keep Reaves and Beverley … but doing so would not only mean eschewing cap space, but also approaching and perhaps exceeding the tax line. They could let some of those players walk, but doing so would not only represent wasted assets, but would anger a fanbase that expects the NBA’s third-most valuable franchise to spend in accordance with its considerable revenue. Building for cap space, which in all likelihood takes the luxury tax off the table entirely, solves this problem at the cost of the 2022-23 season.

The 2022-23 season doesn’t seem a fair price to pay for future tax savings when the team paying those taxes earns an estimated $150 million annually in local television revenue alone, but the Lakers don’t operate like their big-market rivals. Forget about matching payrolls with the Clippers, Warriors and Nets, who operate in a different financial stratosphere than the rest of the sport due to the wealth of their owners and, in Golden State’s case specifically, the revenue it can generate with its privately-owned arena. The Lakers just spent less on their roster than the small-market Milwaukee Bucks did in what was ostensibly an all-in season.

That season began when they allowed star defender Alex Caruso to leave for Chicago without compensation despite Caruso’s willingness to take less and stay put. They frequently start seasons with an empty roster spot as a cost-cutting maneuver. They only granted Frank Vogel, a championship-winning coach, a one-year extension after already refusing to give him (or Ty Lue) more than a three-year deal during the 2019 coaching search.

None of this is to suggest that the Lakers are cheap by typical NBA standards. It’s an acknowledgement that they operate within a budget that franchises in similar markets don’t seem to. Given the budgetary limitations they’ve displayed in recent years, it’s simply hard to envision the Lakers eagerly paying the repeater tax.

Was that the only reason they kept Russell Westbrook? Almost certainly not. But given the way the Lakers have operated over the past few years, it certainly seems likely that the repeater tax was a factor in how they chose to construct this roster. Trading Westbrook would have cost picks in the distant future, but it also would have cost dollars in the interim, and in the end, the Lakers seem to have decided that they are unwilling to pay both for a chance to compete this season. 

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