Los Angeles Lakers: Why This Season Is Win or Bust for L.A.

Joshua J Vannuccini@@jjvannucciniSenior Analyst IIIAugust 14, 2012

EL SEGUNDO, CA - AUGUST 10:  Jim Buss and his sister Jeanie Buss of the Los Angeles Lakers pose with  new member of the team Dwight Howard at the Toyota Sports Center on August 10, 2012 in El Segundo, California. The Lakers aquired Howard from Orlando Magic in a four-team trade. In addition Lakers wil receive Chris Duhon and Earl Clark from the Magic.  (Photo by Kevork Djansezian/Getty Images)
Kevork Djansezian/Getty Images

After months of twisted stories and decision-making, the Los Angeles Lakers were able to pry Dwight Howard away from the Orlando Magic

First reported by ESPN, LA gave up just Andrew Bynum and managed to somewhat complete its roster by receiving Howard, point guard Chris Duhon and small forward Earl Clark. Earlier in the year, the Phoenix Suns shipped franchise player Steve Nash to LA for a bundle of draft picks. Now the Lakers have added free agents Antawn Jamison and Jodie Meeks in an effort to improve their bench and the overall scoring dynamics of the team. While it is far too early to predict, LA is easily a title contender and should be right behind the Oklahoma City Thunder chasing that first seed in the Western Conference.

However, this team is built to win this season. Much like the Miami Heat in the 2010-11 season, it must be a championship-or-bust mindset from the entire organization. While the Lakers now possess one of the more talented starting lineups in the league, it has not cheap. 

The league office of the NBA sets the salary cap limit for teams each season. This year it is set at $58.04 million. Not only does this ensure competitive balance to an extent, but it is the first roadblock in overspending.

Once teams exceed this limit by a certain amount they are hit with what is called the luxury tax. This is a penalty team's face when payrolls surpass the total salary amount of $70.3 million. Presently, this is a dollar-for-dollar system, meaning each dollar a team is over the luxury tax threshold is how much they are required to pay. Starting next season, a new incremental system will be put in place. It will look like this:

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Amount of Tax Threshold Standard Tax Repeat Offender Tax
$5 million or less $1.50 $2.50
$5 million to $10 million $1.75 $2.75
$10 million to $15 million $2.50 $3.50
$15 million to $25 million $3.25 $4.25

What this system quantifies is for an amount between $0 and $5 million over the tax limit, it is $1.50-per-dollar that team is over. If the amount is $9 million for example, the team would pay a penalty of $1.50 for the first $5 million, and $1.75 for the remaining 4 million. The repeat offender tax is an increased payment system, which is forced upon teams who have paid luxury tax in four of the past five seasons.

The payroll for the Lakers presently amounts to a league-high $99.9 million. The aforementioned luxury tax limit is $70.3, so LA is required to pay $29.6 million in tax penalties this season. While I'm sure team owner Jerry Buss, whose net worth equates to approximately $600 million, is content losing such an amount of money if LA wins the title, it is still a disastrous waste of money and a clear indication of poor management.

The team's management is no doubt intelligent for bringing in many complimentary players to surround Kobe Bryant, but the Lakers are in one of the worst situations financially. This is where the 'repeat offender tax' picks the Lakers roster apart.

Unfortunately, LA has exceeded the tax limit in four of the past fives seasons. The incremental tax system does not come into effect until next season, yet it is widely assumed Dwight Howard will re-sign with the team. Before I shock you with the financial implications of what the Lakers will go through, their cap without Howard is already at $80.6 million and $10.3 million over the tax limit. This will equal $26.2 million in fines before the team has even begun to work on its roster. 

Since Howard was traded on his original contract, the Lakers will inherit his Bird Rights, and can re-sign him for the maximum amount, even if it exceeds the salary cap. While it is highly doubtful Howard would take a significant pay cut, we can safely assume his contract will come to approximately $20 million a season (5 years, $109 million is a maximum deal). That adds an additional $20 million onto the previously noted $80.6 million. 

LA's cap at $100.6 million gives it an astonishing $107.5 million tax penalty that must be paid to the league.

$107.5 million.

Jerry Buss might be one of the wealthiest men in LA, but I seriously doubt paying a sixth of his fortune in punishment will go down well. Owning a NBA basketball team is all about revenue, and there is significantly less to gain when you're paying about $208 million for one season.

However, this is easily avoidable for LA. They are subject to the $29.6 million for this year, but a plethora of situations can slide them away from being more than $100 million in tax. Yet this points to the Lakers desperation to winning this season. If they cannot secure a title, the roster will be pulled apart to avoid the tax threshold. Overpaying players like Kobe Bryant ($27.8 million this season, $30.4 million next season) and Steve Nash ($8.9 million this season, $9.3 million next season) is a large part of this, as those two almost make up an entire salary cap by themselves.

Don't get me wrong, Bryant and Nash are two of the greatest players to ever grace the NBA, but when such penalties like the luxury tax are looming, it is inconsequential to offer such contracting. 

If LA does not make the NBA Finals we could easily see management trading or amnestying Pau Gasol, Steve Blake or Metta World Peace, who are the only players that qualify for amnesty (besides Kobe Bryant, but it would be idiotic to include him as a possible amnesty target, right?). However, it is most likely we will see Gasol traded for cheaper, younger players and Blake amnestied.

Another possible scenario is trading both Gasol and Blake, as they will have expiring contracts. It is known league-wide that teams wishing to clear cap space enjoy trading for expiring deals, which would make both Gasol and Blake that more valuable, regardless of their on-court production. World Peace has an early termination option in his contract, and it is quite possible LA could convince him to leave money on the table and re-sign for less. Additionally, the contract for Chris Duhon is not fully guaranteed, and LA can waive him to save about $2 million. 

If you are still reading at this point, well done. This is an underlying reason as to why LA must, quite literally, win this season or shred the roster apart. Restoring competitive balance was a reason for the NBA lockout last year, and the new tax system was a solution.

From what we can see now, it will work.

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