Upcoming Tax Threatens a Potential Dynasty for NBA Teams

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Whether you love or hate the Miami Heat, you ought to appreciate their runs at the championship over the next two seasons. Because owner Micky Arison may not be able to afford his team by 2014-15.

In that season the “repeater” tax will kick in, bringing with it the most gruesome financial penalties for high-payroll teams that the league has ever seen. The repeater tax threatens to change the way business is done in the NBA, and its first major victim could be the reigning champion Heat.

As its payroll stands today, Miami is committed to seven players in 2014-15 at a total cost of $78.4 million. The bulk of that guaranteed money is scheduled to go to LeBron James, Dwyane Wade and Chris Bosh, who will be paid $61.4 million altogether that season.

It’s important to note that Miami’s payroll for 2014-15 does not yet include low-salaried players who are crucial to its championship hopes — contributors like Ray Allen, Shane Battier, Mario Chalmers, James Jones and Rashard Lewis, each a member of the Heat’s current team. Those five players are making a combined $14.9 million this season.

Let’s say that Miami, in order to remain in title contention in 2014-15, will add $14.9 million in cost-efficient role players to the seven men already contracted for that season. (The Heat may have to pay more than $14.9 million for similar complementary talent two seasons from now, but let’s stick with that conservative figure for the sake of argument.) Here’s what it means: If their ambitions remain high and they’re able to keep costs as low as possible, then the Heat will be responsible for a payroll totaling $93.3 million — and that’s before the brutal impact of the repeater tax kicks in.

At the conclusion of 2014-15, the repeater tax will make its dreaded debut by punishing teams that have paid a luxury tax for four consecutive seasons. Miami is on a path to be hit with an enormous penalty in the summer of 2015.

As a repeat taxpayer, the Heat will be facing the highest incremental tax rates in NBA history. If, for example, the luxury-tax threshold is established at $75 million — a highly optimistic gain of roughly $5 million from this season — the Heat could be faced with a tax bill approaching $48 million. In total, they would be paying $141.3 million for 12 players.

read the rest of the story on Page 2

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