Salary Cap and Luxury Tax

The NBA institutes a soft Salary Cap, which means that the Salary Cap can only be exceeded if a team has an available Exception to exceed it. The Salary Cap is not yet set (it will be by July 6th), but Jeff Zillgit of USA Today reported that official NBA projections currently peg it at $92 million. In addition to the Salary Cap, the NBA also mandates a Luxury Tax which is currently projected to be $111 million. Whenever a team's salary exceeds the Luxury Tax, the NBA will charge a team at least 150% for each dollar spent above $111 million.

It is important to note here that the Luxury Tax may not necessarily be something that an owner can pay. This is not because an owner is not willing, but simply because that $19 million difference between the Salary Cap and the Luxury Tax requires Exceptions that a team may not have. For Atlanta, this is pretty much the case.

I have detailed the Hawks Salary Cap Standing numerous times, so I won't rehash this discussion here. I will go through this mental exercise with nice round numbers so as to not get too mathy.

Atlanta Uses Cap Space, Gets Stuck Below Luxury Tax

For all intents and purposes, if Atlanta is using their cap space then either Al Horford has left or the team plans to sign Al after using up all of their cap space. Under the scenario that Al Horford leaves, then the Hawks have pretty much no recourse to reach the Luxury Tax. The Hawks would have their cap space to use, but then once they reach $92 million in salaries they would only have the Room MLE ($2,898,000) and Minimum Salary Exception (will count as $980,431 for each player signed) to add more free agents. In order to reach the Luxury Tax, the team would need to sign someone to the Room MLE and then more than 16 players to minimum salaried contracts. Because of roster constraints, this would imply multiple players being signed and then waived which makes this a ludicrous suggestion.

However, if Al Horford re-signs with the team, then the team could have a higher team salary but still likely fall short of the Luxury Tax. Al's max under the current projections is around $26 million. If the Hawks spend their cap space and then sign Al to a max, that would put the Hawks at $100 million once accounting for Al's $18 million cap hold. The Hawks then would have only the Room MLE and minimum salary exception to sign free agents. In order to reach $111 million, Atlanta would need to sign someone with the Room MLE (getting to around $103 million) and then at least 9 additional minimum salaried contracts. Again, a ludicrous suggestion.

Under any reasonable scenario where the Hawks use cap space, the team will get stuck below the Luxury Tax. The willingness of Tony Ressler to pay the tax simply does not come into play. It's the rules of the CBA, and Tony was not a part of the NBA when that was negotiated in 2011.

Atlanta Stays Above The Cap, Still Not Likely To Pay

I took some time a few weeks ago to document some interesting strategies that would allow the Atlanta Hawks to stay above the salary cap for the entirety of the off-season. There are benefits to staying above the cap, which mainly revolve around being able to use the more valuable Non-Taxpayer ($5,628,000) or Taxpayer ($3,477,000) Mid-Level Exception and Bi-Annual Exception ($2,203,000). The Non-Taxpayer MLE is a bit of a misnomer as a team can still pay the Luxury Tax and use that particular exception, they are simply hard capped at the Apron (which is $4 million above the Luxury Tax). The same is for the Bi-Annual Exception. So if the Hawks are only going to exceed the Luxury Tax by $4 million, then they have $7,831,000 in Exceptions available to them. If they want to exceed the Luxury Tax by more than $4 million, then they only have $3,477,000 available...which makes it even more unlikely to reach the Luxury Tax.

If the Hawks stay above the Salary Cap for the whole Summer, then it means that there was some significant trades which occurred. Possibly, this involves a sign-and-trade of Al or Kirk or Kent. Whatever it is, the Hawks would need to find a willing trade partner that simultaneously increases the Hawks salary by significant amounts. Which, again, is not necessarily dependent on an owner willing to pay. There needs to be a trade which makes sense.

Luxury Tax Only Realistic Through Trades

About the only way to realistically see this team reach the Luxury Tax is through multiple trades. But even then, it's going to be tough to see it happen.

If we assume that Atlanta uses it's cap space and then re-signs Al, we're back to around $100 million. Atlanta is then bound to various trade rules in matching salaries. Realistically, the Hawks would need two separate trades where they send out $10 million in salary to then bring back $15 million in salary. Two trades like that would lift the Hawks up to $110 million and then they could tack on the Room MLE in order to reach the Luxury Tax.

There's an added twist with the Luxury Tax and the trade rules though. If the team ends up over the Luxury Tax immediately after a trade, then they can only receive a smaller amount of salaries in matching. The limit would be 125% + $100,000 of outgoing salaries. This is another mechanism in which the CBA, and not the owner, limits the ability to spend.

I Lied, There's a Simple Way To Pay The Luxury Tax

Give Kirk a maximum contract of $30 million. That'd put the team in the Luxury Tax. But is this what you wanted to hear?