How the NBA's New Financial Landscape Will Finally Be Evident This Offseason

D.J. FosterContributor IMarch 31, 2014

Mar 21, 2014; Philadelphia, PA, USA; New York Knicks forward Carmelo Anthony (7) during the second quarter against the Philadelphia 76ers at the Wells Fargo Center. The Knicks defeated the Sixers 93-92. Mandatory Credit: Howard Smith-USA TODAY Sports
Howard Smith-USA TODAY Sports

When the new collective bargaining agreement was established in the winter of 2011, there was plenty of talk about how it would be more punitive toward the league's big spenders. This offseason, we'll finally start to see that really come into play, along with a few other major changes.

Let's start first with the luxury tax. Although we've already seen teams make drastic changes in anticipation of the new rules—like when the Chicago Bulls traded Luol Deng to the Cleveland Cavaliers to get under the line this season—we should see teams be a little more fiscally responsible in free agency.

The reason for that is the harsh repeater tax, which will come into play for the first time next season. Teams that are in the luxury tax and have been in the luxury tax for the past three seasons will pay the repeater rate, which looks like this, via Larry Coon's fantastic Salary Cap FAQ

Team salary above tax levelNon-repeaterRepeater
LowerUpperTax rate Tax rate 
$0$4,999,999$1.50 $2.50 
$5,000,000$9,999,999$1.75 $2.75 
$10,000,000$14,999,999$2.50 $3.50 
$15,000,000$19,999,999$3.25 $4.25 
$20,000,000N/A$3.75, and increasing $.50 for
each additional $5 million.
 $4.75, and increasing $.50 for
each additional $5 million.

As you can see above, teams that pay the luxury tax will pay one dollar more on the dollar than non-repeating teams will. That might not sound like a lot, until you work out the numbers.

The luxury-tax line is projected to be set at $75.7 million, according to Coon and ESPN's Marc Stein. Let's take a team that has a payroll of $84.7 million, for example.

A team that hasn't paid the luxury tax in each of the past three seasons, a "non-repeater," would pay $14.5 million in luxury tax for being over the line.

A repeater team, however, would pay a whopping $23.5 million in luxury tax. That's a huge difference, particularly if it's being paid for a team that isn't a championship contender.

It's also worth noting that for the 2015-16 season, teams will pay the repeater rate if they were in the tax three of the last four seasons. More than ever before, staying out of the tax will be a priority for that reason.

So how does that affect the actual decisions of teams during the offseason?

The first and maybe the most pronounced effect is that draft picks will become even more valuable than they already are. Draft picks offer the chance to control a player for up to his first eight seasons (thanks to restricted free agency), and those first four years can be some of the best value deals in all of sports. If the playing field is becoming more level financially, cheap labor will be in even higher demand.

The other side of that, however, is veteran contracts in free agency shouldn't be as large for those "fringe" stars who aren't quite worth a max deal, like Deng. With so many teams craving financial flexibility and avoiding the tax like the plague, the idea of bringing on a long-term large contract is a little scarier, particularly for those teams with young players who will be due big deals soon.

CLEVELAND, OH - JANUARY 26:  Luol Deng #9 of the Cleveland Cavaliers looks on during the game against the Phoenix Suns at The Quicken Loans Arena on January 26, 2014 in Cleveland, Ohio. NOTE TO USER: User expressly acknowledges and agrees that, by downloa
David Liam Kyle/Getty Images

The spending won't be stopped completely, of course, but the more punitive tax will absolutely have an impact. Some teams simply won't go over the line, as Indiana Pacers president Larry Bird told Shaun Powell of Sports On Earth:

My owner will let me spend up to the (luxury) tax. Will he ever let me go over the tax if we had to? I don't know, but we don't even want to go there. We're going to do whatever we can to stay under the tax and build the best team we possibly can. With all the rule changes lately, it makes the playing field level with the big market teams. I like that. It gives us a chance although there will always be a couple of teams who'll always deal with the tax.

There are other changes that took effect last offseason that we'll see pop up, this time in much more notable cases.

Take the impending free agency of Carmelo Anthony, for example. In the new CBA, teams can't receive a player in a sign-and-trade deal if their team is above the apron ($4 million above the luxury-tax line) at the conclusion of the trade.

In addition to that, if a team acquires a player in a sign-and-trade deal, the apron effectively becomes a hard cap for the remainder of that season, meaning a team can't exceed that line. Teams also cannot use their mid-level exception if they received a player in a sign-and-trade transaction. 

That's all very important, as it makes it much harder for players to force their way onto whatever team they want to play for, like Anthony once did before. Sign-and-trade deals are also limited to four years (the same amount all free-agent signings are), which eliminates much of the incentive for the player to push for such a deal.

The only way for a player to sign a five-year deal is with his own team, which Anthony will be able to do. By lessening the advantages and likelihood of sign-and-trade transactions, the league has taken much of the leverage from players and has given teams a better chance at retaining talent and keeping stars right where they are.

Despite the new limitations and harsher penalties, there will always be ways to navigate the new financial landscape successfully. There are just a few more landmines to avoid now than before, with the luxury tax being the biggest of them all.