Joel Embiid is still #good at basketball. De’Anthony Melton was one of the best under-the-radar moves of the offseason. James Harden may or may not be the right long-term answer alongside Embiid and Tyrese Maxey. P.J. Tucker will hit a shot eventually… right?
The Sixers’ plethora of unanswered questions will make it difficult for them to know which upgrades to target at the trade deadline. The looming threat of the repeater tax could also influence their approach.
“There is a rising expectation that Philadelphia will look to move either Jaden Springer or Furkan Korkmaz before the Feb. 9 trade deadline in hopes of shedding luxury-tax dollars,” longtime NBA writer Marc Stein reported over the weekend.
Right now, the Sixers are only $1.2 million above the $150.3 million luxury-tax line. They were also taxpayers in the 2020-21 and 2021-22 season, which puts them in danger of becoming subject to the more punitive repeater tax next year.
The normal luxury-tax penalties begin at $1.50 per dollar for the first $5 million and go up incrementally from there ($1.75 per dollar for the next $5 million, then $2.50 per dollar, $3.25 per dollar and an additional $0.50 for every additional $5 million increment). If a team has paid the tax in three of the past four seasons, it has to pay the repeater tax rate the following year, which begins at $2.50 per dollar and increases from there.
Got all of that? No? Here it is in visual form:
The Sixers figure to be well over the tax line next year if they re-sign Harden to a max (gulp) or near-max contract. They already have $117.1 million in guaranteed salaries on their books for only seven players, and the tax line is currently projected to land at $163 million. Harden isn’t the Sixers’ only notable free agent, either. Georges Niang, Shake Milton, Paul Reed and Matisse Thybulle will all be free agents as well, and Danuel House Jr. and Montrezl Harrell could join them by declining their respective player options for the 2023-24 season.
So, let’s walk through a few hypotheticals to demonstrate why the Sixers might look to duck the tax this season, thus pushing back the clock on the repeater tax for at least a year.
If the Sixers finished next season $20 million over the tax threshold, they’d owe $45 million in tax if they weren’t subject to the repeater penalty. If they were, their tax bill would be $65 million instead. The gap only grows from there.
If they were $30 million over the tax line, the non-repeater tax bill would be $85 million, while the repeater tax bill would be $115 million. In the unlikely event that they were willing to go $40 million over the tax line, the non-repeater bill would be $140 million, while the repeater bill would be an unprecedented $175 million.
The Golden State Warriors had an NBA-record $170.3 million luxury-tax bill last season, but their gross revenue was north of $800 million (including non-NBA events), according to Sportico’s Kurt Badenhausen. Therein lies the benefit of owning a privately financed stadium, which the Sixers won’t have until 2031 at the earliest, and going on a fourth championship run in eight seasons.
The Warriors ($170.2 million), Los Angeles Clippers ($144.7 million) and Brooklyn Nets ($108.0 million) are all currently in line to pay nine-figure tax bills this year. As a result, the teams that finish the season under the tax line will likely receive a payout between $12-14 million, according to John Hollinger of The Athletic.
No Sixers fan should be rooting for the team to duck the tax so majority governor Josh Harris can line his pockets with an extra eight-figure check. But knowing the exorbitant tax bill that may await next season, don’t be surprised if the Sixers front office does operate with that goal in mind, especially with a new collective bargaining agreement looming.
In late October, ESPN’s Adrian Wojnarowski reported the league is pursuing a “upper spending limit”—in other words, a hard cap—because it believed “the current system fails to provide a level enough playing field to make more of the 30 teams competitive.” The league is arguing “that the spending disparity of top teams has made the imbalance ultimately unsustainable,” although the proposal is a non-starter for the National Basketball Players Association.
“There will be a lockout before there’s a hard cap,” a source from the players’ side told Stein in October.
Even if the league’s push for a hard cap falls short, it may compromise by further stiffening the luxury-tax penalties. That could have huge ramifications for the Sixers’ long-term team-building approach with Maxey eligible for an extension after this year and just about every key contributor not named Joel Embiid set to become a free agent by 2024 at the latest.
The league office and the NBPA have until Feb. 8—one day before the trade deadline—to opt out of the current CBA, which would make it expire on June 30. Unless the two sides reach an agreement on a new CBA before then, the Sixers likely won’t know what changes could be coming to the luxury-tax system in 2023-24 or 2024-25.
In other words: If the Sixers make what appears to be a financially motivated deal in the next few weeks, don’t say you weren’t warned. The uncertainty about the new CBA gives them even more incentive to push back the clock on the repeater tax for a year.