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Original Danny Leroux: Rockets’ Repeater Tax fear more excuse than reality article

Discussion in 'Houston Rockets: Game Action & Roster Moves' started by Clips/Roxfan, May 21, 2019.

  1. Clips/Roxfan

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    [​IMG]

    By Danny Leroux Feb 10, 2019

    It certainly appears that Houston Rockets owner Tilman Fertitta is deeply afraid of the repeater tax. After all, he said so himself back in September.



    That “horrible hindrance” is a real thing in the Collective Bargaining Agreement and is what some have used to explain or even justify the cost-cutting moves general manager Daryl Morey has made since the Rockets lost Game 7 of the 2018 Western Conference Finals, including their transactions at the trade deadline.

    That framing is incorrect.

    Instead, Houston’s actions were more about reducing or eliminating the chance that the Rockets pay the luxury tax at all rather than narrowly dodging the looming specter of the dreaded repeater tax down the line.

    The Repeater Tax

    The repeater tax has a substantial effect on a team’s finances but requires a very narrow and rare set of circumstances. When triggered, it forces a franchise to pay an additional dollar for every dollar it is over the tax line, adding another cost on top of the normal luxury tax system. For example, the repeater tax will increase Oklahoma City’s player cost by more than $20 million on top of the $46+ million in tax it would have paid as a non-repeater. Even before they finish filling out their roster this season, the Thunder will spend over $210 million on players: $144 million in salary, $46 million in non-repeater luxury tax and $20 million in repeater tax. That is a ton of money.

    However, the repeater tax is more often an excuse or even scapegoat than actual hindrance. In order to pay that extra money, a team has to have already paid the tax in at least three of the previous four seasons and then be over the line again for the season in question. The Golden State Warriors first paid the tax in the 2015-16 campaign and will not become a repeater until next season, a full four years after their first bill. Oklahoma City this season will be only the third time the repeater tax has been paid since it kicked in for the 2014-15 season.

    Fertitta can be genuinely scared of the repeater tax and use it as a rationale either in reality or rhetoric but there was never a credible reason to fear actually paying it during this era. The last time Houston paid the tax was the same 2015-16 season when the Warriors started, but the Rockets were under the threshold in both 2016-17 and 2017-18, making this the first of that potential four- or five-season cycle rather than the third or fourth. That means that the absolute earliest the Rockets could have become a repeater team was 2021-22 if, and only if, they paid the tax in each of the three preceding seasons and then again in 2021-22, which happens to be when Chris Paul decides on his $44.2 million player option. Ducking it even by a dollar even once in that four-season timeline would push them beyond Paul’s contract and possibly even James Harden’s.

    It is also worthwhile to go through the Rockets’ salary structure year-by-year to explain the significance of their deadline moves and why the repeater tax was never going to affect them:
     
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  2. Clips/Roxfan

    Clips/Roxfan Member
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    The 2018-19 season

    Over the summer, Morey negotiated long-term contracts with Paul and Clint Capela that combined with Harden’s Designated Veteran extension to solidify the Rockets’ next few years of spending. While Paul’s four-year, $159.7 million deal may prove challenging later on, securing Capela’s services on a five-year, $87.5 million agreement helped create the wiggle room for their deadline moves.

    Retaining Paul and Capela was the top priority but those two ended up being the team’s only significant new expenditures as both Trevor Ariza and Luc Richard Mbah a Moute signed elsewhere on one-year contracts. Morey also sent Ryan Anderson and intriguing second-round pick De’Anthony Melton to Phoenix for Marquese Chriss and Brandon Knight in a move that lowered their team salary by more than $3 million.

    Houston ended up not signing anyone for more than the minimum, retaining most of their Mid-Level exception but also keeping their payroll low enough to make subsequent moves. Using cash to dump disastrous minimum signings Carmelo Anthony and Michael Carter-Williams cleared their full salaries off the luxury tax calculations, then trading Knight and Chriss along with a first-round pick as sweetener set the table. On deadline day, Morey shipped James Ennis to Philadelphia for a second-round pick swap and sent a second to Indiana so it would take on the final extraneous money, moves that put the Rockets all the way under the tax threshold for this season.

    It is possible that Morey uses the remaining pro-rated MLE to push back over the tax, but it also took one first and three seconds (Melton, 2020 and 2021) to get there in moves that would have been largely unnecessary if they intended to pay the tax this season. Furthermore, there is the opportunity cost of using those picks in this manner, especially since the front office could have utilized their 2019 first-round pick to improve its talent rather than save the owner money with a different direction from the top. Their priorities become clearer when looking forward but not in a way that is particularly favorable to Fertitta’s public rationale.
     
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  3. Clips/Roxfan

    Clips/Roxfan Member
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    The 2019-20 season

    Before trading Knight, Chriss and a first-round pick to Cleveland the day before the deadline, Houston had three players outside of Harden, Paul and Capela on significant multi-year contracts: Eric Gordon, P.J. Tucker and Knight. None of those salaries are as large as the big money trio but their combined obligation for 2019-20 was about $38 million, enough to put the team in the luxury tax. Since Gordon and Tucker are both important parts of what the Rockets do well, Knight made sense as the player to go, though he carries the most baggage as the weakest player on a massive contract. After all, that is why he was a part of the Suns/Rockets deal in the first place.

    After Wednesday’s trade, Houston has commitments worth $115.1 million to Harden, Paul, Capela, Gordon and Tucker for the 2019-20 season. With a projected luxury tax threshold of $132 million, that leaves only $16.9 million for everyone else. That is not too much per player when filling out the other seven roster spots but even with Nene’s $3.8 million player option, retaining 2018 additions Isaiah Hartenstein and Gary Clark on the team and filling up to 13 roster spots with veteran’s minimum players, the Rockets would have a few million in wiggle room under the tax.

    It would not be quite enough for the projected $5.7 million Taxpayer Mid-Level exception, much less the more robust $9.2 million Non-Taxpayer MLE, but that flexibility still enables the team to add talent either in July or on the buyout market. Offloading Ennis on Thursday arguably mitigates some financial risk for that season, though I would argue his player option at the minimum would have been team-friendly or at least tradable if picked up, despite a somewhat disappointing season.

    Moving Nene would open up additional spending power and should be possible depending on how potential trade partners feel about the 36-year old’s viability as a backup center, plus any cash or assets Morey is willing to include as enticement. Additionally, we already saw a template this season for how the Rockets can get ill-fated small contracts off their books to avoid having them count at all for the tax — a tactic that should be emulated around the league by teams in similar situations.

    As such, it is fair to assume that the Rockets can stay below the luxury tax next year should they choose to. There are many potential motivations for going over, including the right player committing for their MLE, but the financial shift that happened this season feels predictive.
     
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  4. Clips/Roxfan

    Clips/Roxfan Member
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    The 2020-21 season and beyond

    The Rockets stand out among competitive teams because they do not have any clear-cut players on roster who are in line to get substantial pay raises now that Capela is off his rookie scale deal. That means each passing season has both the per-season bumps for their holdover players and an increase in the salary cap. From 2019-20 to 2020-21, the current projections have the cap rising $9 million and the Harden/Paul/Capela trio making an extra $7 million, so the two shifts almost offset. Since Gordon’s contract expires in 2020 and Tucker’s is either $8 million to stay on the team or $2.6 million to play elsewhere, Houston’s books get cleaner unless Gordon returns at a higher salary, which appears unlikely at this moment since it will be his age-32 season. July 2020 will also be when Nene comes off the books if he has not been moved before then.

    It is far too early to break it down beyond a single number but a preliminary look gives Houston about $35 million to spend on everyone outside of Harden, Paul, Capela and Tucker at his full contract value. That $35 million would need to cover holdovers like Gordon, their 2020 first-round pick, MLE and any players Morey signs this offseason to multi-year contracts, which opens up another fascinating wrinkle of the Knight move.

    Since the Rockets look to have meaningfully more flexibility in 2020-21, they could theoretically offer a more significant contract for two or more seasons with their 2019-20 MLE, which may attract a superior talent. It is entirely possible that the best players would prefer to get back out on the market in a remarkably weak 2020 free-agent class but that ability to offer something longer may help.

    As such, it should be abundantly clear that even with Knight on their books, Houston’s set salaries and lack of imminent, significant pay raises made it exceedingly unlikely it would be over the tax in 2020-21, much less 2021-22, which was the earliest possible year they could be a repeater. That rationale became even more strained when the Rockets moved under the tax for this season, as that pushes back going into the repeater until after Paul is off the books entirely, even before the savings in future years made them a significantly less likely tax team between now and then.

    That means the Rockets’ personnel decisions since the ownership change have a more simple and straight-forward explanation: rather than fearing a repeater tax bill that was never going to come, management prioritized fiscal responsibility, often at the expense of team quality. It is possible, if not probable, that Houston was not going to reclaim its place as a top-tier championship contender this year even if it spent significantly more money. While ownership can set directives and priorities as it sees fit, that is an entirely different justification than deftly avoiding the dreaded repeater tax.

    https://theathletic.com/810477/2019/02/10/leroux-rockets-repeater-tax-fear-more-excuse-than-reality/
     
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  5. Haymitch

    Haymitch Contributing Member

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    This was talked about here 3 months ago.
     
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  6. crimsonghost

    crimsonghost Member

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    I think he and Tinman should go get a heart together. Follow the yellow brick road!
     
  7. napalm06

    napalm06 Fire Bill O'Brien
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    Morey attempted a failed trade with Memphis and/or Miami at the deadline which might have invalidated the many pages of GARM speculation about Tilman's evilness.

    I'd say the premise of this article requires that failed trade to be taken into account. Unfortunately non-insiders don't have any information.
     
    #7 napalm06, May 21, 2019
    Last edited: May 21, 2019
  8. lnchan

    lnchan Member
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    Why are we reviving old articles that have been hashed out without crediting the original poster?
     
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  9. Raven

    Raven Member

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    No one bought the party line.
     
  10. J.R.

    J.R. Contributing Member

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    Rockets won the Luxury Tax Savings championship.
     
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  11. Clips/Roxfan

    Clips/Roxfan Member
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    Old Red 94 podcast trade deadline podcast that also talked about the trade deadline and tillman's luxury tax fears..

     
  12. Clutch

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    I never understand at all what Leroux was trying to say.

    If the Rockets paid the luxury tax this season, they risk paying the repeater tax in 2021-22. He even admits that.

    That is what they're trying to avoid. Once they could not get Butler or others that would've kept them over the tax, this season looked like the best chance they had of ducking under the luxury tax of the next four, given Harden, Paul, Capela are here.

    Granted he tries to say otherwise, that it is fair to assume they could duck under the tax next year if they choose to, but then proceeds to say they'd have to limit themselves, like by not signing anyone with the MLE.

    Once the Rockets couldn't significantly improve their chances this season by being over the tax, why not dodge it to NOT limit yourself next year?

    But that's not easy to do if you're hoping to add another big-dollar star, hence why they ducked it now to protect themselves during the length of Paul's contract. It's also why it's premature to assume anything about the salaries in 2020-21, which he does to claim the Rockets won't be over the tax then.

    I don't like that the Rockets gave up pick assets to do it. I'm also not sold on "Fertitta the Big Spender" yet. But I do understand it.
     
  13. TipsyDixit

    TipsyDixit Member

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    Danny and Nate will continue to push this line because their core audience, Warriors fans and people who want a smart way to call Harden a chucker, will eat it up.

    Also, Danny is just doing the thing where you've found an angle and you gotta keep doubling down, facts be damned.

    My man even had the timeline completely wrong on when Tilman took over the team. The article says Tilman bought the team AFTER last year's conference finals run!
     
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  14. Derp McFlopsky

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    I feel like he’s explaining exactly why they chose to duck the tax? But like, in a disagreeable tone? Super weird.

    Pretty easy to talk about irrationally fearing a 40 million dollar bill when your bank account just has the one comma. After Ariza left day 1....Melo-drama....losing record to start...Bzdelik bailing and coming back...CP hurt, Gordon hurt and pouty, Capela hurt...Butler getting traded to philly...now what? Now Miami or Memphis fiddle around on deals...hey you know, maybe THIS team, THIS season just ain’t got it. What’s looming large now, irrational playoff hopes or the idea that all the contracts you gave out are going to turn into luxury taxes for an underperforming team AND eventually they’ll just like double AAAAND maybe you just don’t have to do that for James Ennis or Danuel House?

    I’m about where Clutch is. I don’t like how it ended. Proof will be in the pudding for sure...but I understand it.
     
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  15. Corrosion

    Corrosion Member

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    The thing is they did limit themselves for next season in terms of ability to add salary / talent by dumping that contract and the first round pick that went along with it.


    You simply cant add much salary if you don't have exceptions or take back increased salary via trade. This is what so many are overlooking - how can they add salary / talent to put them far enough in the tax for it to matter ?

    How are they going to get very deep into the tax when they are so limited in ability to add salary ?! One T-MLE and a bunch of veterans minimums.


    Sure , they may pay the tax next year …. but it'll be a miniscule amount because all they have to spend is the $5.7M MLE and veterans minimums - With those , you aren't going deep into the tax. I haven't done the math but they might creep 3m over in that case. And there is also the possibility they don't use the MLE again which without they wont reach the tax line …. they didn't use that MLE this year.
    Even if they take back salary in trade - use EG for example , They can only take back 120%+100k of his $14,057,730 …. that equates to $16,969,276. A difference of only $2,911,546.
    So if they use the MLE and move EG for the max allowed amount , they are only paying tax on about ~$6m with the repeater still at least 3 years away.
    Paying the tax on such a small amount is pretty trivial …. even in the repeater year.

    If they are really worried about the repeater - its 4 years down the road and they could easily dump salary in that season to avoid paying it.

    There are two exceptions to the above - Shumpert's Bird Rights worth $13.2m and GG's Early Bird Rights worth $9.6m. They can sign both to two year deals with team options for the second at those numbers creating $22.8m in expiring contracts movable December 15th.
    Doing this would push them deep into tax territory …. but still with the repeater 4 years away.
     
    #15 Corrosion, May 22, 2019
    Last edited: May 22, 2019
  16. RayRay10

    RayRay10 Houstonian
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    I’ll throw out an unlikely scenario, but it is possible to add salary another way.

    Rockets do have 9 trade exceptions, totaling around $16.8M, that they could use to take back salary without giving up salary. None of them are large and can’t be combined, but they do have the Knight (3.6M), Chriss (3.2M) and Anderson (2.5M) exceptions that could bring back non min-sal players.

    In theory, Morey could use all 9 of the trade exceptions to bring in 9 separate players after the year rolls over to bring in $16.8M worth of players. The team is allowed to carry 20 contracts in the offseason and I believe they have 10 that would currently be under contract going into the new year (not counting cap-holds or free agents) so they’d be able to fit all 9 players onto the roster with 1 additional space to sign or re-sign players if they don’t release or send out current players in a trade and receive less back. He could then wait the two months needed to be able to aggregate those players in a trade and then use them all to go after a bigger fish prior to the season. He’d likely need a number of guys on non guaranteed deals in order to make it work, but it is possible.

    If Morey’s target is Jimmy Butler, and Butler opts in, Rockets could make,the trades using the trade exceptions in early July, wait two months, and then use those players, along with Nene or 2 of Hartenstein/Clark/Chiozza/Frazier to get Butler here without giving up Gordon. Granted, this would require the 76ers to have enough open roster spaces to take back each of those players (unlikely since they’d be adding at least 9) or to involve other teams in the trade to take on those players in order to facilitate the trade. It would likely require the Rockets to give up numerous draft picks and or cash to facilitate a deal like this.

    A deal like this would also have to take a large amount of coordination outside of the trades.
    - Jimmy Butler has to opt in by the end of June.
    - The Sixers would then have to wait until September before trading him which means the enticement from the Rockets would have to be high (rumored 4 1st round draft picks might have to be on the table again).
    - They’d then have to bring in an additional team or two to help facilitate the deal by taking on some of the contracts as I doubt the Sixers are going to want to sit at 10-11 players on their roster until September. Likely means adding on 2nd round picks or cash to get those teams to take the players off the Rockets hands
    - Rockets would have to sit with 10-11 (or more) guys on the roster until September that would not be on the team come the regular season. Would likely mean losing out on potential free agents in the meantime...including their own. However, if they could make it work, it might be worth it.
     
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  17. BamBam

    BamBam Contributing Member

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    I’m amazed at how many intelligent people participate on Clutchfans! Kudos to my Rockets brethren! Some of you could actually work for Moories some day! o_O

    Gator Don Morley!!!

    .......
    .......
    .......
     
  18. daywalker02

    daywalker02 Easter Egg Hunter - Tell me why? نحن عائلة
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    Morey would say though that he encourages people to outsmart him and take his place.
     
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  19. don grahamleone

    don grahamleone Contributing Member

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    Terrible article. This guy basically said, 'don't worry about the future, spend stupidly today!'.

    I wonder how much credit line the bastard has left. This 'brilliant' type of thinking leads to crippling debt.
     
  20. Mr. Clutch

    Mr. Clutch Contributing Member

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    I think the argument is that the Rockets are contenders now, so we should go over the tax with guys like Ariza or whomever now.

    In 20-21 or 21-22 Paul will be old, we might not get Butler, etc. So might be better to duck under then because there's no guarantee we'll be contenders for the next 3 years.

    Of course if we do get Butler, that does screw us. So hopefully that shows Morey is confident in getting him.
     
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