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What the Celtics can and can’t do in luxury tax territory, Part 1

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(Barry Chin/Getty Images)

The Celtics have positioned themselves firmly in luxury tax territory over the last few weeks with their moves to round out the 15-man roster. First, they rewarded Marcus Smart with a four-year deal worth an average annual value of $12.5 million instead of playing hardball with the point guard with all the leverage in the world. That signing sent the Celtics over the luxury tax line by a couple million dollars, and the team added to that number last week by signing Jabari Bird to a two-year contract that includes a fully-guaranteed deal for next season.

The front office could have limited the luxury tax bill by keeping a roster spot open on the 15-man roster heading into next season. However, they filled it with Bird and his $1.3-million salary instead, after a strong performance during summer league. It was a smart move from a depth standpoint, but also a costly one with the tax.

For now, the Celtics are $3.85 million over the 2018-19 luxury tax threshold of $123.7 million, according to cap expert and friend of the site, Ryan Bernardoni. There is no guarantee that the C’s will be a tax-paying team this year, since a variety of moves could get them under the tax threshold. However, none of those moves (trading Marcus Morris for no returning salary, etc.) would be beneficial for the Celtics this year from a basketball standpoint. Given the team’s title aspirations, any action that would hurt the team’s depth seems unlikely.

So we know that Celtics ownership is willing to be hit a bit harder in the wallet with a luxury tax bill this year. However, there are other limitations that impact luxury tax teams beyond just the added expense from the payroll. The team has fewer resources to work within trades and free agency once they enter tax territory. Since Boston is on track to be a tax team for 2018 and beyond, let’s take a closer look at what the C’s can and can’t do, and how it could impact their future plans.

Most of what impacts the C’s strategic planning when they are in the luxury tax is a CBA threshold called the “apron.” This figure is $6 million dollars above the luxury tax number. Teams that go slightly into the luxury tax ($1-5 million over) don’t have many restrictions caused by entering the tax. However, when a team spends over the apron ($129 million for the 2018-19 season), they have fewer options available to them in trades and free agency. We’ll dissect all of these specific limitations in greater depth over the next few weeks, but here are a couple of the bigger ones that will come into play for this season and next season to start.

1. A smaller mid-level exception: There are two types of mid-level exceptions available around the NBA during any given offseason for teams without cap room. Most teams that don’t have cap room have access to the non-taxpayer mid-level exception, which is worth $8.6 million. Teams using this exception can offer four-year deals to a player (or divide it between several players) with five percent annual raises worked in. Any team that uses the full MLE automatically enacts the apron ($129 million) as a “hard” salary cap for the rest of the year. Essentially, it means they can’t go over that threshold no matter what. Therefore, most tax teams shy away from using the full MLE so they aren’t hard capped at the apron (in case they need to add more salary for whatever reasons).

Instead, the majority of tax teams opt for the taxpayer mid-level exception which is only worth $5.3 million for this season. Teams can only offer three-year deals with the taxpayer mid-level and annual raises worked in. Since the Celtics are currently $3 million over the luxury tax, this is the mid-level they will use this season, if they choose to use it at all. With the roster full already, the odds are the C’s would use it to try to land players that get brought on after the trade deadline. However, for the foreseeable future, the taxpayer mid-level will be what the C’s are limited to as long as they are well into the luxury tax each offseason. They will need to convince better players to take less, based on this restriction.

Short summary: C's will only have $5.3 million to use (plus veteran's minimum) for each offseason for the foreseeable future to sign free agents from other teams.

2. An inability to receive players in a sign-and-trade (if Celtics finish trade above salary apron): This rule didn’t impact the Celtics this offseason but it will in the future. Once the Celtics go deep into the luxury tax and above the apron (which will happen in the summer of 2019), it will limit the C’s ability to receive any players in a sign-and-trade. The only way a tax team is allowed to acquire a player in a sign-and-trade is if they finish the transaction below the apron and stay below it all season. With the big salaries that the C’s will need to start handing out to retain their core next summer, they won’t be getting below the apron anytime soon.

So why is this a big deal for the Celtics in 2019 and beyond? Look no further than a hypothetical disaster Kyrie Irving scenario. If the point guard decides to walk away from Boston to another team, the C’s would not be able to trade him in return for another player as part of a negotiated sign-and-trade, assuming that deal would keep them above the apron (which is almost a certainty). That fact increases the likelihood that Irving walks away for nothing if he does, in fact, decide to move on next summer. It’s hard to imagine a team giving the Celtics draft picks for Irving in a sign-and-trade if Irving is willing to sign outright there with cap room.

The sign-and-trade limitation will also limit the C’s options for smaller transactions as well. Moving a restricted free agent (like Rozier) in a sign-and-trade next summer leaves fewer options now for return compensation (i.e. only draft picks). We haven’t seen many sign-and-trade deals across the association for the past few seasons because of these restrictions for tax teams and the C’s are about to become another reason why.

Short summary: C's can't receive a player back in a sign-and-trade due to CBA tax rules unless they cut a ton of salary (which probably won't happen).

Danny Ainge has never liked to let valuable free agents walk away without getting compensation for them. It’s going to be tougher for him to achieve that goal in the years to come.

Part 2 coming next week.