With key-players entering restricted free-agency and a rising payroll, the Toronto Raptors need to be willing to pay the Luxury-Tax next season.
During the summer of 2016 the NBA saw a historic change in the league’s revenue. Earlier in the year the league signed an extension on their current television contract with TNT and ESPN, worth approximately $2.6 billion per year. As a result the salary cap increased from $70 million in 2015-2016 to more than $94 million the following season.
With the players association electing not to “smooth” the cap, teams saw their annual budget increase more than 30%. The results were not pretty. With sensibilities similar to a teenager with a high-limit credit card, NBA General Managers had themselves a spending spree. Timofey Mozgov, Evan Turner, and Bismack Biyombo (he did have a great postseason) all earned themselves greater $64 million on the open market.
Now, two years later, that credit card bill is due, and teams are paying the price for their previous spending liberties. For the Toronto Raptors it wasn’t the summer of 2016, but the following summer, which backed them in this particular corner. With a rising payroll and Sixth Man of the Year candidate Fred VanVleet entering restricted free-agency, the team finds itself in a “cap crunch”.
Why Toronto needs to pay the tax
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There has been much speculation on different ways Toronto can unload cap-space, from Serge Ibaka trades to moving on from star-player DeMar DeRozan, nearly every angle has been taken. Yet, rarely has the bigger question been asked, “Do the Toronto Raptors NEED to avoid the tax next season”.
The NBA’s estimated Luxury Tax threshold for next season is $123 million. With a current payroll of $127 million, prior to signing FVV, Toronto will need to move on from a big contract if it wants to remain under the tax.
Moving Kyle Lowry or DeMar DeRozan impacts the team for obvious reasons, while getting off Serge Ibaka’s over-inflated deal will require additional assets to be attached.
If Toronto wants to remain somewhat competitive for next season and doesn’t want to deplete future assets, their only remaining option is to pay the Luxury Tax.
Paying the Luxury Tax for a team that has no real shot to win the NBA title is never ideal. Last season only four teams paid the luxury tax, the Golden State Warriors, Cleveland Cavaliers, Washington Wizards, and Oklahoma City Thunder. Two of those teams (Golden State and Cleveland) were essentially printing money at the gate, making revenues far greater than what Toronto can expect next season. The other two, are comparable if not significantly worse, than the Raptors project to be next season in both winning pedigree and revenue.
Another important factor is how much luxury tax Toronto will need to pay. If VanVleet is signed to a reasonable ($10 million or under) deal, Toronto will be no more than $15-16 million over the tax. With Toronto’s solid attendance numbers and good-sized market, those numbers are more than reasonable.
A $15 million tax payment is a reasonable request. A $50+ million repeater tax payment is not. If Toronto enters into the Luxury Tax next season, they will try to duck it the following year. With Lowry, Ibaka, and Valanciunas all on expiring deals at that time, it should be an easy enough proposition. A slight increase in the cap will also help clear the books.
No team wants to pay the tax, particularly when there is no real shot for an NBA title, but the Toronto Raptors will need to if they want to do what is best for both the short and long-term health of the franchise.