Is Les Willing To Pay Luxury Tax Next Year? (I Think He Is)

This topic has been brought up in a couple of different threads, but I thought it deserved its own thread.

For all of those who are convinced that Les Alexander will not pay one cent of luxury tax this year (as he has consistently done in the past), I am inclined to disagree. Most years, I would definitely agree with you. But this year may be different, and here's why:

--With Yao likely out the entire season and T-Mac likely out most of the year, the Rockets will have to fight very hard just to make it to the playoffs. While several people like to point to the Rockets' lack of apparent talent as causing the Rockets to inevitably fall to the bottom of the standings and be in line for a top 5 pick, I just don't see it that way. Winning in the NBA is about much more than pure basketball talent. Go ask the Clippers how far their talent carried them last year. The Rockets have a great coaching staff, a great system, and players who are familiar with and know how to run that system effectively. Guys like Battier, Hayes and Scola are proven winners, and each is the very definition of the word "overachiever". I truly think that the Rockets could still compete for one of the final playoffs spots in the West. The likeliest outcome is that the Rockets either get the 8 seed or fall just outside the playoff picture. They definitely will not have one of the bottom five records in the NBA, that's for sure. That being said, if the Rockets are just one or two minor moves away from getting into the playoffs, I truly believe that Les will pay up to make them happen. Heck, he's already paid $6M just to get three second round draft picks. If he has to exceed the luxury tax by a few million dollars to secure a playoff berth, he'll do it. The additional revenues generated by hosting at least two (and possibly three or more) playoff games will largely make up for (or even surpass) a minor dip into luxury tax territory.

--Brian Cook WILL be traded shortly before the February trade deadline to help alleviate the Rockets' overall luxury tax picture. And it will likely be an almost identical trade to the Steve Francis deal from last year. Cook plus a future second round pick and/or cash to a team under the salary cap in exchange for a (lesser) future second rounder. Contrary to popular belief, Brian Cook's $3.5M expiring contract is not the least bit desirable to other teams simply because it is an expiring contract. Heck, Steve Francis only made $2.6M, and the Rockets had to pay someone to take him. They're not going to find a taker for Cook that would involve them getting anything of value in return except luxury tax relief and a trade exception (which actually would prove helpful in the summer of 2010 and at the February 2011 trade deadline). The Rockets (or, more accurately, the other team) will wait until Cook has already been paid as much of his salary as possible by the Rockets before he is traded. The other below-the-cap team will absorb the full $3.5M cap figure but will only actually have to pay about $1.6M in actual paychecks to Cook, which will be more than offset by the cash thrown in the deal by the Rockets. My point here is, Cook's salary will likely be cleared off the Rockets' books before the end of the season, opening up more room (albeit still a little above the luxury tax threshold) to spend--via S&T using trade exceptions--on players who can actually, you know, contribute.

--According to several ESPN sources, the total pot of luxury tax payments that is shared in equally be all teams not paying the tax--which is THE reason why most owners refuse to pay even one cent of luxury tax--is expected to be significantly lower in 2009-10. The main reason is because the Knicks and the Mavericks (far and away two of the top luxury tax payers) are expected to have much lower total team salaries next year. For instance, the Knicks will be shedding around $20M in salaries next year, meaning $20M less in the luxury tax pot. Whereas non-tax-paying owners could usually expect to receive over $3M in shared luxury tax revenues, this year that number will be closer to $1.4M. With that said, if making a couple of minor moves to get into the playoffs will only cost a couple of million dollars in luxury tax plus "only" $1.4M in lost shared revenues, Les will be much more likely than in years past to exceed the luxury tax threshold. Again, the additional team revenues generated from hosting playoff games will more than make up for the lost shared revenues.


I have seen a couple of posters state that they don't want to pay ticket prices to see the Rockets tank next year. If the team were to tank (which I don't think they will), the team would probably end up losing more in revenues than they would save in luxury tax. I'm sure that Daryl Morey and the Rockets' front office has considered this. Les Alexander, a successful businessman, sure as hell has.

So, with (1) the team needing only a little push to help get it into the playoffs (with the added revenues attendant thereto), (2) Brian Cook expected to be dumped on someone in order to lessen the luxury tax load, and (3) the luxury tax pot expected to be significantly lower than in years past, I can definitely see Les paying a little luxury tax if it means the Rockets could add a guy like Zaza Pachulia or someone else of that caliber.

The Rockets would likely get no higher than the 13th pick in next year's draft, even with its current roster. I don't think Les and Daryl view the fraction of one percent chance at a top 3 pick as worth it to not make the playoffs and reap the benefits of additional games pumping cash into Les's pockets.

If push comes to shove, Les pays the tax next year. Just my opinion.

 

True, but Les said this a few weeks ago, when (A) Yao's injury status was "8-12 weeks" and he was deemed a no-brainer to be ready for training camp in October, (B) the team expected to retain Ron Artest and (C) the Rockets had their full MLE to work with in free agency. Since then, the Rockets' team picture has completely changed. Hence, the need to revisit this issue.

Great catch. I actually meant to mention that in the OP but forgot before clicking. The insurance payments (from a purely financial--not competitive--standpoint only) are essentially a windfall for Les. The salary cap does not allow him to spend much more money on team salary, imposing an artificial ceiling (subject to certain small exceptions). Meanwhile, he is reaping the benefits of not having to write paychecks to Yao and T-Mac for most of the year. That financial windfall is more than enough to allow Les to go into luxury tax territory.

From a financial standpoint, dipping into the luxury tax territory in order to get your team from a 6-seed to a 5-seed is oftentimes "not worth it" to the team owner. However, there is a big difference between that sort of situation (which is essentially the situation in which the Rockets found themselves the past couple of seasons) and one in which paying a little tax could be the difference between being just barely out of the playoffs and getting the 8-seed. Making the playoffs provides a good deal of extra revenue.

 

Good point. It's a good thing that the Rockets implemented their heavy season ticket renewal push during last season's playoffs. But the need to bring fans back to Toyota Center may be that factor that gets Les to pony up a few million in luxury tax. If there's one thing about Houston, they show up for the playoffs.