Salary Cap Rules and Why the Lakers Are Screwed
Currently, the Lakers have over $75 million tied up in guaranteed contracts, one of the highest payrolls in the league. Their offseason moves are handicapped in two ways, the salary cap and the luxury tax. The exact amounts are yet to be determined, but based on the same rate of growth as the past few years, probably by $2-3 million.
1. Salary Cap.
The Lakers are way over the salary cap – last year it was just under $56 million. This year, probably $58m. The salary cap is set by the league to prevent big market, high payroll teams from acquiring additional stars. For example, Gilbert Arenas opted out of his contract, and is an unrestricted free agent, meaning he could sign with any team. He’s looking for a max contract starting at $14 million a year. So can the Lakers sign the hometown star? No, since the Lakers are over the salary cap.
That doesn’t mean the Lakers can’t sign any other players at all. The league provides for a few exceptions:
- Mid-level Exception: $5.6m (can be exercised every year)
- Biannual Exception: $2.3m (once every two years)
- Minimum: 440K to $1.3m, depending on years of experience (no limit)
2. Luxury Tax
The Luxury tax is a dollar for dollar tax imposed by the league, penalizing teams that cross the luxury threshold. Last year, it was set at just under $68m. Note that there is about $20m wiggle room for a team to exceed the salary cap (meant to prevent major acquisitions) before they hit the luxury tax (meant to penalize teams that are overspending). Let’s say the Lakers end up spending $80m this coming season, and the luxury tax is set at $70m. The Lakers must pay $10m to the league as a penalty.
Let’s look at an example. James Posey, who played a big role in the Celtics championship, is an unrestricted free agent, meaning he can sign with any team. He is generally considered to be a Mid-level amount player, around $5-$6m. But let’s say Boston wants him back, L.A. wants to steal him, and a third team, say San Antonio wants him to replace aging Bruce Bowen. But Posey isn’t going to cost the same to the teams. Since Boston and L.A. are over the luxury tax, it’s going to cost them $10, $12m a year to sign Posey. That’s more than what Manu Ginobili, Chris Kaman, and other better players make.
On top of that, the luxury tax hurts the team even when it tries to sign its own players. For example, Sasha Vujacic and Ronny Turiaf are free agents. Whatever offer they get from other teams, the Lakers must pay double to keep them. Thus, teams try their damnedest to get under the luxury tax.
While most teams are above the salary cap, the luxury cap is a chokehold, it severely cripples a team’s ability to improve itself.
The team must re-examine its roster. Odom for $15m? The team will probably let his contract expire next summer. Radmanovic for $6m? Jerry Buss is probably kicking himself for not terminating Radmanovic’s contract a couple years ago, when the Space Cadet injured himself trying to snowboard in Park City.