I really don't want to be the guy to rain on everybody's parade.
Over the past two weeks, the NBA community has been a witness to arguably the greatest stretch of basketball we have ever seen played. LeBron James--you know him as that guy who was once thought to have been mortal--has been on a tear as of late and recently set an NBA record with six consecutive games of scoring at least 30 points and shooting at least 60 percent in each of those contests. His Miami Heat have won each of those games and LeBron has cemented himself in the annuls of NBA lore.
That's why this article pains me. Because while we're all viewing some of the best individual basketball we've seen played since Michael Jordan in his prime, there's also the disturbing reality that we may not be a witness to it much longer due to the revised restrictions of the CBA, which was tooled with during the NBA's lockout last year.
A key component of the revised CBA included a new luxury tax system that judges a team on how far over the NBA's salary cap they are. Although the NBA employs a soft cap, certain NBA organizations are going to end up paying penalties in the form of the luxury tax if their team is over the cap. The more they are over the cap, the more they end up paying to the NBA and putting into the pockets of teams with lower payrolls.
The tax level for the 2012-'13 season is $70 million and the salary cap is at $58 million. The Miami Heat's current salary is at a hefty $84 million. $52 million of that is invested in LeBron James, Chris Bosh and Dwyane Wade alone, each making over $17 million while Bosh and James lead the way raking in $17.5 million per year.
The seldom-played Mike Miller is making the fourth most and will be owed $5.8 million this year and a staggering $6.2 million next season. Miller, Udonis Haslem and Mario Chalmers are all commanding at least $4 million for this season, while Joel Anthony, James Jones, Shane Battier and Ray Allen all bring in at least $3 million.
Anthony, somehow, is set to bring in $3.8 million per over the next two seasons and has a player option worth $3.8 million in the 2014-'15 season. Meanwhile, Mario Chalmers has a team option worth $4 million next season. The Heat certainly have the option to let Chalmers go and instead go with Norris Cole as their long-term option, but they will be losing a key perimeter and off-ball defensive threat.
When the luxury tax kicks into gear next season, the Heat will be paying $85.6 million to their roster. Jones and Allen both have player options worth a combined $4.7 million and Dexter Pittman has a qualifying offer worth $1 million, although that may be taken away due to how ineffective the Heat center has been in his three years with Miami.
The L.A. Times' Mike Brensahan gives a thorough run-through of the penalties the Heat and other teams over the tax threshold could face:
"For the 2013-14 season, the luxury-tax penalty moves from dollar for dollar to a $1.50-to-$1 ratio for the first $5 million a team is over the threshold, a $1.75-to-$1 ratio if a team is $5 million to $10 million above the threshold, a $2.50 ratio for $10 million to $15 million, and a $3.25 ratio for $15 million to $25 million beyond the threshold."
There is also a repeater tax for teams who are over the luxury tax threshold in four out of five seasons. The Heat are also on the brink of being guilty for this.
You don't need too much experience in the math field to know the Miami Heat are going to be hit and hit hard if they don't curtail their spending, or if they begin to drop salaries.
Say a salary of one of the Big Three?
It's something that nobody in Miami, or any lover of good basketball, wants to talk about, but it's creeping up on us and we're going to have to talk about it at some point. With nearly $60 million tied up in three players, the Heat are already $10 million away from hitting that luxury tax limit, and they're only $4 million away when they take in Mike Miller's $6 million he's owed next year.
I hate to be the bearer of bad news, but the Heat can't just simply amnesty Miller and his ludicrous contract without taking a hit. Miami wouldn't have to pay the rest of Miller's entire salary, but they will have to pay for more than half of it when Miller eventually gets signed. The amnesty clause can only be used once, so this would be the one and only time the Heat will be able to utilize it.
And it doesn't get much better financially speaking for the Heat. Because by the time the 2014-'15 season comes around, each member of the Big Three will be taking in over $20 million if they pick up their player options. Each player has an opt-out clause in their contract, giving them the freedom to possibly move to another team.
Thus, the reason why you are hearing of a possible LeBron return to Cleveland. Because unless the Heat either sign a plethora of players to the veterans minimum or the mid-level deals, they're going to have to end up giving up a member of the Big Three in order to avoid the luxury tax. Sadly, at least for Miami, it seems like the most plausible option at this point.
The Heat aren't going to be able to possess three deals worth $20 million apiece and then fill out the roster with $10 million. Even with guys like Battier, Allen and Rashard Lewis making far less than what they are worth, those three players are combining to make $7 million. Combine the Big Three's with those salaries and that's $65 million invested in a starting lineup and a sixth man.
This isn't just a nuisance to the Heat, either. Oklahoma City and Memphis have already been victims of this new deal. The Thunder were forced to give up James Harden because he was asking for a max-deal that would have put Oklahoma City far over the tax threshold. With Kevin Martin now on the team and making less than what Harden was demanding, the Thunder's salary for this season is $69 million.
The Grizzlies were planning on paying Rudy Gay up to $17.9 million next year, but ended up trading him to Toronto for the contracts of Tayshaun Prince, Ed Davis and Austin Daye. Instead of paying Gay $18 million, they end up paying Prince and Davis $10.3 million next season. Daye has a qualifying offer worth $4.1 million.
Memphis will be paying $60 million next season, but will be faced to make a decision on Tony Allen, who becomes a free agent, and the qualifying offers towards Daye and Jon Leuer. Even if they re-sign Allen, they won't end up over the luxury tax threshold because they were able to trade away the lucrative contract of Gay.
As a result, the Houston Rockets and Toronto Raptors come out sitting pretty with the floor-leaders they've been pining for. This luxury tax was created for the sole purpose of penalizing teams that have stockpiled on stars, teams like the Heat, Thunder, Lakers and Knicks. The Big Threes of Memphis and Oklahoma City have already been disbanded as a result.
Could Miami end up being next? It all depends on how much their willing to spend or not spend.
Other teams that will have to react to the deal include the Los Angeles Lakers owing $78 million next season, the Brooklyn Nets owing $89 million, the Orlando Magic owing $73 million, the New York Knicks owing $76 million, Golden State owing $74 million, Chicago owing $73 million and Denver owing $72 million.
Teams like the Warriors, Magic, Bulls and Nuggets won't have as much to worry about because they aren't too far over the limit, but the Lakers, Heat, Nets, and Knicks will end up paying large penalties if they don't end up dropping salaries.
For perspective, the Lakers would pay $68 million in penalties if their roster was at $91 million, according to the math of Bresnahan. The Heat would be paying a similar amount since their 2013-'14 salary is currently at $85.6 million, making their roster the second most payed in the league. Only the Nets would be paying more.
There are two options for the Heat in this scenario.
Option 1: Trade Chris Bosh and/or Dwyane Wade.
The Heat aren't giving up LeBron James any time this century, so it would be natural to expect if the Heat are going to drop one or two of the Big Three salaries that it's going to be anybody but LeBron. That leaves hometown hero Dwyane Wade and the Heat's most important player in Chris Bosh as the players who could possibly be playing somewhere else come next year.
Miami will certainly receive a plethora of role players to complement James and whichever member of the Big Three stays behind, if the Heat decide to keep one of the players. However, they will be without a key member of not only the 2012 NBA championship but possibly even the 2013 NBA championship if they continue playing as well as they currently are.
There are few trade chips on this team outside of the Big Three: Norris Cole, Ray Allen and a first-round pick the Heat received from Philadelphia in last year's draft. Nobody is going to want to take on the deals of Miller, Anthony and Haslem and for good reason, leaving the Heat with not much to offer with the exception of Wade and Bosh.
Or there's this option, which is probably the consensus favorite of those in the Miami area:
Option 2: Pay the luxury tax
This Heat team wasn't granted the good fortune of netting LeBron, Dwyane and Chris simply because of the location. They're on this team because the Heat's front office is one of the best in the business. Team president Pat Riley is a proven champion who played a heavy role in attracting LeBron and Chris to come to Miami and team owner Mickey Arison has had no problem in investing in this Heat team.
Arison is the CEO of Carnival Corporation, the world's largest cruise operator, and was recently calculated being worth $4.7 billion as recently as 2012. Despite the country being in a recession and being in a business that's for the privileged, Arison has only continued to thrive off of his cruise line. In 2011, Carnival's revenue was at a mind-numbing $15.8 billion.
Arison is a businessman. He knows how to make money and he knows how to manage it, otherwise his cruise line would have gone under like so many other businesses have since the economy's crash in 2008. He also knows that he is making money off of the Miami Heat, specifically the Big Three.
He also wouldn't be the first owner to take such a hit. New York Knicks' owner James Dolan also paid a hefty amount prior to the revised luxury tax. His team was $74.5 million above the salary cap and $62.3 million over the tax line. As a result, he ended up paying nearly $200 million for the salaries on his team's roster and the tax that came with it.
Arison won't have to pay as much because he was smart enough not to give $100 million to Allan Houston.
I shouldn't have to say but I'll say it just to be clear: the Heat are obviously worth as much as they ever have been in franchise history at $425 million. The worth is only going to continue to climb with the Heat generating income off of their success. Compare that to 2009 when they were only worth $364 million. Not even the Wade-Shaq years were worth as much, topping off at $418 million in 2007.
The Heat would still bank with LeBron selling out every home game, but it would also hinder the organization if they were to possibly trade away Dwyane Wade, even if it may be the logical choice in the matter. Even trading away the prince of the mid-range in Bosh would possibly cause a backlash from the fans and even in the dynamics of how the team is run.
The Big Three could absolutely be kept intact once teams begin to get hurt by the luxury tax. It comes down to whether or not Arison is willing to shell out the money to pay for the expensive penalties that will come down upon the Heat if they do keep this current roster.
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