As the negotiations from the NBA and NBPA heat up this week surrounding the particulars of a revamped 2020-21 regular season, there is one element of those talks Celtics fans should keep a close eye on: Where the luxury tax falls for the 2020-21 season.
Bobby Marks of ESPN.com reported Monday that teams throughout the NBA are strongly advocating for the projected luxury tax threshold ($139 million) for 2020-21 to remain in place despite the fact that the salary cap estimate could drop from its original projection ($115 million) in the wake of declined revenues caused by the coronavirus pandemic. Usually, those two numbers (salary cap and luxury tax) are tied directly, with the tax going up and down in conjunction with the final cap numbers. The league could make a one-time adjustment on that front this season as they rework the CBA in negotiations with the players.
There is good reason for there to be a lot of support for this stance from both sides of the NBA aisle. From a team management perspective, several franchises have already made great salary commitments to their rosters for next season with the projected tax number in mind ($139 million) before the pandemic hit. In the wake of a significant decline in revenue for all franchises over the past several months that is already leading to cost-cutting, the last thing most teams would want right now is dealing with a far lower tax number than initially projected, which would cost most teams million more in luxury tax penalties and limit roster moves this offseason due to that additional spending.
The players union should also be pushing for a higher tax number for that very reason. If teams are losing millions more than expected due to luxury tax penalties, that’s millions of dollars gone that could be going into the pockets of the current free-agent class. All players around the league are going to have to take a 20-30 percent paycut in all likelihood due to escrow holdings as the NBA attempts to balance the budget in the wake of billions of revenue losses, but the current free-agent class will be squeezed even more than that if most NBA teams are not spending significantly in the wake of a cap and tax reduction.
So how exactly does all of this relate to the Celtics situation specifically and why the Hayward contract situation looms so large as a swing factor within it?
Let’s look at their current payroll situation. Assuming Gordon Hayward and Enes Kanter plan to opt-in (barring an extension being reached with Hayward), they have $132 million committed to 12 players next season.
Kemba Walker ($34.3 million)
Gordon Hayward ($34.1 million – player option)
Jaylen Brown ($23 million)
Marcus Smart ($13.4 million)
Jayson Tatum ($9.8 million)
Daniel Theis ($5 million – non-guaranteed)
Enes Kanter ($5 million – player option)
Romeo Langford ($3.6 million)
Vincent Poirier ($2.6 million)
Grant Williams ($2.5 million)
Robert Williams ($2.0 million)
Carsen Edwards ($1.5 million)
Add in salary commitments for a couple of first-round draft picks (the Celtics own three in 2020) and any notable free agency upgrades and it won’t be long until the Celtics are a tax team even if the original tax projection stays steady at $139 million. On the flip side, if the tax number just remains steady with this current season ($132 million), the C’s could be looking at an enormous tax bill if they want to improve the roster.
The math changes for the Celtics significantly however if they manage to get Hayward to agree to an extension at a far lower number than his current $34-million salary for 2020-21.
Let’s say the Celtics and Hayward agree to three more years at $25 million per year to replace the final year left on his current deal. That $9 million reduction in salary (34-25 = $9 million) for next season shrinks the C’s current salary commitments heading into next year down to $123 million. Depending on what they do with their draft picks (keep, stash or trade some), they would have a lot of more flexibility with their offseason moves with the additional payroll flexibility that would allow them to add and remain under the luxury tax threshold (if it holds firm at $139 million). Those potential advantages would include:
1. A full mid-level exception to spend on free agents: There are two types of mid-level exceptions available around the