There is something important to consider as the Cavaliers line up to accept their rings Tuesday night and fans cheer the championship banner raised to the rafters: Success in this league is fleeting and winning is fragile. Cherish this moment. Even with this talent and Dan Gilbert’s checkbook, hard financial decisions are looming.
The Cavs are on pace to enter foreign waters next season, even by Gilbert’s lofty spending habits. At their current rate, they will be slapped with the dreaded repeater tax status for 2017-18, when the tax threshold is projected to rise to $122 million.
The Cavs have nearly $124 million committed to their top eight rotation players: LeBron James, Kevin Love, Kyrie Irving, Tristan Thompson, J.R. Smith, Iman Shumpert, Channing Frye and Richard Jefferson. They also hold a $5.2 million option on Mike Dunleavy for next season, so it could be worse. The fact the nucleus of this team is under contract for multiple years certainly helps.
Now it’s a question of whether Gilbert wants to be the first owner to pay the repeater tax. Everyone else facing that line blinked and ducked under, including Nets billionaire Mikhail Prokhorov. Los Angeles Clippers owner Steve Ballmer could get there this season. Whether or not they’re a taxpaying team again depends on the moves they make between now and February’s trade deadline.
Each team views the luxury tax and repeater status differently. While some owners loathe paying a tax at all, nearly all teams try to avoid reaching the repeater status that was introduced with the 2011 collective bargaining agreement.
“One of the things I said when I first read the new [CBA] was that this agreement forces you to make choices,” Miami Heat General Manager Andy Elisburg told the team’s website in February. “You couldn’t have everything. One of the things that the repeater tax element brought in was that with your payroll — you were at times going to be a taxpayer, but at times you had to cleanse yourself and get under [the tax line]. You don’t want to be in a situation where you’re competing against people and having to spend at a significantly higher level just to compete equally for the same players.”
The Heat, of course, angered LeBron James when they released Mike Miller under the amnesty clause a few years ago in an effort to get under the tax and avoid repeater status. At the end of that season, James walked away in free agency.
This time, James is under contract for the next two years. But the part Elisburg mentioned, about paying significantly higher prices to compete for the same players, is precisely where the Cavs find themselves. To his credit, Gilbert has yet to blink. Few NBA owners have ever spent like this. The Cavs — remarkably — have not had to go without at any position because of payroll constraints.
Everyone, however, has their limit. Gilbert’s appears to be around $160 million. That’s about what he paid last season in payroll and taxes and what the Cavs are projected to pay again this season.
With a tax threshold next season of $122 million and repeater penalties looming, the Cavs overall payroll may have to decrease next year to keep it in the same $160 million neighborhood — provided Gilbert is willing to assume the losses that come at that price. And let’s be clear: Not even a championship season is enough to turn a profit when an owner spends in this stratosphere. This type of payroll and tax bill brings hefty, hefty losses.
If Gilbert elects to get under the tax, just like so many owners before him, it could mean sacrificing someone like Shumpert ($10.3 million) or Frye ($7.4 million) after this season. Or with a new CBA nearing agreement, the Cavs could be saved if the owners and players association agree to reset the clock on the repeater status. That, however, remains a long shot at this point.
All of this is a worry for another day. The Cavaliers are champions and about to get the jewelry to prove it. But it’s worth noting that the check is coming, and each year the bill gets higher and higher.
Enjoy it while it lasts. Eventually, every pen runs out of ink.
Jason Lloyd can be reached at jlloyd@thebeaconjournal.com. Read the Cavs blog at www.ohio.com/cavs. Follow him on Twitter www.twitter.com/JasonLloydABJ.