Luxury Tax Amnesty a Big Hit With Big Spenders
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
So long, Ron Mercer. Sayonara, Junkyard Dog.
The NBA’s deadline for the new luxury tax amnesty passed on Monday at midnight, and 18 of the league’s 30 teams took the opportunity to ax a contract. While the teams still have to pay the remaining dollars on the contracts, they will nevertheless benefit financially. Under this provision of the collective bargaining agreement, teams got a one-time opportunity to waive a player and avoid paying the league’s “luxury tax” on that player’s salary. The “tax” is a dollar-for-dollar penalty teams must pay the league on every contract dollar above the $63 million luxury-tax threshold.
For a team like the Knicks, whose payroll is tens of millions of dollars above the threshold, the tax amnesty had obvious allure. By dropping the last three years of Jerome Williams’s contract, the Knicks sidestepped paying the league $21 million in luxury taxes. Better yet, it doesn’t affect the Knicks on the court, since the club already has more power forwards than you can fit in a Volkswagen. (Of course, the Knicks could have saved $30 million by cutting Jerome James, with zero impact on their win-loss record. Has an off-season pickup ever been cut in the same off-season?)
The surprise in the Knicks’ announcement was that the team didn’t release Allan Houston. Cutting Houston loose would have saved the Knicks nearly $40 million, which is why the tax amnesty provision was widely known as the “Allan Houston rule.” Owner James Dolan expressed warm, fuzzy sentiments about wanting Houston to play out the remainder of his contract, but there’s a better reason the Knicks didn’t cut him: They can save more if he retires.
Should Houston hang up his sneakers this fall, which is a distinct possibility if his creaky knees fail to respond in training camp, New York’s savings would be immense. Not only could the club take Houston’s contract off their salary cap, they also would have insurance cover 75% of what’s left on Houston’s deal.
That would save the Knicks close to $70 million, in addition to the $21 million they saved by cutting Williams. So as long as Houston retires, the Knicks would reap roughly $90 million – more than double the amount available simply by cutting Houston on Monday.
Of course, it didn’t have to be Williams, or Houston, or James. A sad legacy of the Knicks’ free-spending ways is that as many as seven players were legitimate candidates to be set free on Monday, including Tim Thomas, Penny Hardaway, Malik Rose, and Maurice Taylor, in addition to the aforementioned trio. Even if New York had cut all seven, they’d barely be under the cap.
As for New Jersey, cutting Ron Mercer carried much less financial wallop. The Nets will save $1.7 million if they go over the luxury tax line – they’re perilously close at the moment. The Nets already have Mercer’s successor picked out, and ironically it’s another luxury tax casualty: former 76er Aaron McKie. McKie was even worse than Mercer last season, if you can believe that. He averaged a pathetic 5.4 points per 40 minutes, the second-worst rate in basketball.
However, only about $400,000 of his $1.1 million “veteran’s minimum” salary will count for luxury tax purposes, so the Mercer-McKie swap could potentially save the Nets over $1 million in tax. The addition of McKie would give the Nets 12 players and likely bring their off-season shopping close to completion, though the team still has a chunk of its mid-level exception available should the right player come along.
Mercer and Williams weren’t the league’s only casualties on Monday. Most notable was the Mavericks’ long-expected waiving of shooting guard Michael Finley. Finley easily was the best player among the league wide cuts, and his release has unleashed a bidding war among five contending teams. Phoenix, San Antonio, Miami, Detroit, and Denver all want to bring the productive wingman aboard, with Miami rumored to be the leading contender because it has its full mid-level exception available. If Miami succeeds, it would top off an unbelievable off-season and cement the Heat as the team to beat in the East.
Meanwhile, Dallas has already picked out Finley’s replacement, and it’s yet another tax casualty. The Mavs agreed to a deal with Doug Christie after the Magic released the veteran guard last week. Although Christie is 35 and was hobbled by foot injuries last season, he should be able to serve as a defensive stopper that Dallas can use against the McGradys and Ginobilis of the West.
Another amnesty-day casualty, the Lakers’ Brian Grant, has found a new home. Grant agreed to terms with Phoenix yesterday, and like Christie, the 33-year-old forward will be hoping to bounce back from an injury plagued season.
One player whose release raised eyebrows was Minnesota’s Fred Hoiberg. Hoiberg shot the lights out last season, leading the league in 3-point shooting and easily posting the best Player Efficiency Rating (PER, my rating of a player’s per-minute statistical production) among amnesty cuts. However, he had heart surgery in the off-season and is likely to need the whole year to recover. Since he had only one year left on his contract anyway, the T’wolves didn’t see much drawback to releasing him for the tax amnesty.
Other cuts included Milwaukee’s Calvin Booth, former Knick Clarence Weatherspoon of the Rockets, and Portland guard Derek Anderson. Several teams also took advantage of the rule to “cut” players who had already been released, avoiding the luxury tax on those contracts. Those included Boston (Vin Baker), Memphis (Troy Bell), Toronto (Alonzo Mourning), Phoenix (Howard Eisley), Detroit (Derrick Coleman), Miami (Wesley Person), and Chicago (Eddie Robinson). Additionally, Indiana released guard Reggie Miller, who had already retired.
So after months of speculation about assorted max-contract players suddenly becoming free agents, the reality of the tax amnesty deadline was a bit of a letdown. Nonetheless, the Knicks were able to shed millions, while the Nets staved off the luxury tax reaper. Both should now be able to spend more freely to fill out their rosters, as will the other teams who cut players at the deadline. As a result, we should see the benefit of the tax amnesty in the form of renewed free-agent activity in the coming days. Gentlemen, get your checkbooks ready…
Mr. Hollinger is the author of the “2005–06 Pro Basketball Forecast.”