Jerry Buss, Lakers Face Heavy Luxury Tax Penalties, But It’s All Good

As Eric Freeman of Ball Don’t Lie reports, the Lakers are in for some huge luxury tax bills in the near future. He also states that the Lakers are one team that can afford it, and have figured these taxes into their budget. Nonetheless, here’s the breakdown of the taxes by Larry Coon, who e-mailed Henry Abbott of TrueHoop the particulars:

The Lakers will have a tax bill of around $30 million next July, and in retrospect, will view this season as their salad days — it’s the last one where the tax rate is dollar-for-dollar. Starting in 2013-14 the new “incremental” tax takes over, where being $30 million above the tax line will mean paying a whopping $85 million tax bill.

And it gets worse. Starting in 2014-15 teams will pay an even higher rate for being repeat offenders — defined as paying tax in at least three of the four previous seasons. A team $30 million over the tax line will pay — brace yourself — an additional $115 million in luxury tax.

After adding up their payroll, luxury tax bill and revenue sharing contribution (projected to be $49.4 million in 2013-14), even the Lakers have to stop to consider whether this simply can be written off as the cost of doing business — and that’s the future if they’re paying players with salaries like Bryant, Howard, Gasol and Nash.

Now I’m no expert on the way the new Collective Bargaining Agreement (CBA) works, or even too savvy on how the league’s finances work, but assuming the Lakers keep their core roster featuring the four aforementioned salaries in tact, the Lakers will be taking some serious financial hits in the upcoming years.

Those estimates are assuming the Lakers maintain a total payroll of $30 million over the salary cap. Should Dwight Howard re-sign for a maximum contract, however, those taxes could be even higher.

As for whether the Lakers plan on making any budget cuts in the near future to lighten up on their expenses, don’t count on it. If they manage to win championships (yes, multiple), I see it as highly unlikely that Dr. Buss will order a roster shakeup in the name of saving money.

If they fail to win, however, players such as Pau Gasol  and/or Metta World Peace may be the first to be shipped off for trade exceptions or other measures that may lower the total payroll. Gasol is set to earn $19 million next season, and slightly more in the 2013-2014 season before his contract is up while World Peace will make approximately $7.2 million next season, and $7.7 million in the season after that before his contract expires.

Should everything go as hoped and the Lakers win championships during those seasons, I wouldn’t be surprised if Kobe Bryant decides to sign a one-year deal for the 2014-2015 season. The Lakers then would then have to hope the Black Mamba is willing to take a significant pay-cut in the name of chasing another championship, as would Pau Gasol, should his services be requested as well at age 34 in 2014.

In either event, the Lakers face steep taxes in the near future that could equal their total payroll, or potentially even exceed it.

However, by striking a 20-year, $3 billion deal with Time Warner Cable, the Lakers remain one of the few–if not the only–teams able to afford such high expenses. Throw in the added marketability of a super-team in one of the largest sports markets, and the Lakers will definitely have to pay up, but aren’t going broke any time soon, either.

Next Page: Jerry Buss’ Vision

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