Blog a Bull

Chicago Bulls Offseason Questions: The Luxury Tax, and the Bulls future with it

2012-05-17T12:10:02Z

Our latest in a series about the Bulls upcoming offseason is about the luxury tax. Mortal enemy of the Chicago Bulls, as well as an enemy of BaB readers sick of me harping on it for the past...oh man, I've been doing this too long.

But it's somewhat timely as Bulls GM Gar Forman was asked about it Wednesday morning on The Score, specifically referencing Bulls chairman Jerry Reinsdorf's stance that it'd be paid for a winner and how that mindset may have changed in light of Derrick Rose's lengthy absence next season.

What Jerry has said is "if we're in a position to compete, that we would consider going into the tax". Obviously we've been in a position to compete the last couple of years. Then when I talk about our long-term window, we feel we're going to be in a position to compete. I'm really confident that we will go into the tax if it makes basketball sense, as far as our long-term vision with this team. If it does, I think we'll go into the tax. I don't think we'll go into the tax for a short-term plug-in. But we're going to protect our assets, we're going to continue to build this thing for the next 5-7, 10 years built around Derrick and some of our young pieces.

Gar's correct that his boss has been lukewarm on the issue, and he follows suit here. But why (still) so scared?

The Luxury Tax is a team salary level set in the CBA based off of BRI, and assessed at the end of the regular season. Teams above it pay into a pool that goes to teams below it. It's been implemented as a deterrent for high-spending teams since the '99 lockout, with the tax payment being a dollar for every dollar spent over that level. In the time since the tax was instituted, The Bulls have never been above that level once.

But they're potentially close to doing so. As we went over when discussing the Bulls guaranteed salaries, the Bulls have over $63m in committed money for 7 players. The luxury tax level this season will be no less than $70.3m.

But while Gar tepidly insinuates they're in the position to pay the tax, specifically as a way to protect their assets (you'd think matching Omer Asik is one, and it's referenced specifically in the interview as very likely), it'll be even a harder decision than before. Actually, it was a pretty easy decision to do so before, leveraging their nearly unrivaled profits into taking advantage of a cost-cutting team, especially while their own stars were in their rookie contracts...but I digress...the tax is both tougher and more restrictive now. Even the Lakers and Mavericks are scared of it, so imagine how the mid-market* Chicago Bulls feel.

It's now worse for the tax-paying teams than in the previous CBA in three ways:

The penalty is higher
There's an extra penalty for staying in the tax multiple years
You lose ways to acquire players

All the money rules for item #1 are here. To start, you can see it's now a $1.5tax/$1over as opposed to the old 1/1, and it gets worse the higher you go.

If you think this is a drastic change, the Players and Owners agreed with you, so these penalties are phased in starting next season. And that's nice, but item #2 (repeater rate) has been tossed around as reason the Bulls may avoid the tax this season anyway.

For 2014-15 teams pay the repeater rate if they also were taxpayers in all of the previous three seasons. For 2015-16 and all subsequent seasons, teams pay the repeater rate if they were taxpayers in at least three of the four previous seasons.

So, it's out there, but it also seems to be an incredibly unlikely scenario. The Bulls kept their spectacular streak alive this season of not paying the tax. Even if they crept into it for 2012-13, they'd have to do so again for the following 2 seasons to begin to risk that repeater tax after 2015-16 campaign. Keep in mind that Luol Deng's contract is off the books after 13-14, and they can wipe Carlos Boozer off of their taxed amount in any offseason via the amnesty clause.

The specific restrictions referenced in item #3 will be gone over in more detail in a separate post about cap exceptions. In short: lose the Bi-Annual Exception, reduce the MLE, reduce salary added in trades (and no acquiring sign/trades starting 2013-14).

So, it's indeed true that in a cruelly coincidental twist of fate*, just when the Bulls were needing to potentially go into the luxury tax for the first time ever; the new CBA has not only increased the monetary penalties for being a tax-paying team, they've reduced that team's flexibility. And we know the Bulls really like that word.

*jokes

Previously:
2012-13 Guaranteed Salaries, Team Options, Restricted Free Agents
Omer Asik, restricted free agency, and the Gilbert Arenas provision

Chicago Bulls Offseason Questions: Omer Asik is worth the large price

2012-05-16T16:40:31Z

Omer Asik is a restricted free agent and yfBB laid out the options for the Bulls. It likely cost the Bulls $5 million to keep Asik for next season, but for a longer and more expensive deal than he may seem to be worth, presenting a dilemma: the Bulls can't really afford to keep him, but they moreso can't afford to lose him.

When looking around the NBA over the last decade, one can get flabbergasted at the tens of millions that bums get because they're seven-footers. It can be a complete mindrape to even see that guys like Darko Milicic and Eddy Curry even land spots on NBA rosters, let alone the fact that just about every NBA center between their rookie contract and hanging onto the ends of benches made over $5 million in 2011-12.

Asik may not not replaceable

Tim Duncan (unrestricted), Spencer Hawes, and Roy Hibbert (restricted) aren't going anywhere [some would disagree on Hawes, but maybe these playoffs change things -yfbb]. If Brook Lopez (R) isn't a Net next season, it'll be a sign-and-trade. What you're left with is a group of a specific type of player that all NBA teams need where the best un-signed option is: Javale McGee (R). Because of this, McGee will make a lot -- and I mean dozens of millions of dollars over the next three or four years wherever he goes.

The available centers for the Bulls to replace Asik are, according to ESPN.com (R=restricted free agent): Jason Collins, Greg Stiemsma (R), Ryan Hollins, Semih Erden, Brian Cardinal, Ian Mahinmi, Yi Jianlian, ~~JaVale McGee (R)~~, Ben Wallace, Marcus Camby, ~~Roy Hibbert (R)~~, Kyrylo Fesenko, Jordan Hill, Marreese Speights, Hamed Haddadi, Eddy Curry, Juwan Howard, Ronny Turiaf, Kwame Brown, ~~Brook Lopez (R)~~, Chris Kaman, Nazr Mohammed, Earl Clark, Lavoy Allen (R), ~~Spencer Hawes~~, Robin Lopez (R), Joel Przybilla, Hasheem Thabeet, Jason Thompson, Boris Diaw, ~~Tim Duncan~~, Jamaal Magloire, Aaron Gray, and maybe a handful of others I've missed because they're just that much worse.

Given that the Bulls' health history among their bigs require a competent center on the bench playing at least 1,200 minutes in an 82-game season, let's eliminate those who didn't play 500 in this shortened 66-game season. Here's what these guys produced in the 2011-12 season:

				Totals			Advanced							Shooting		Per 36 Minutes
Player	Ht	Age	Tm	G	GS	MP	PER	TS%	ORB%	DRB%	TRB%	BLK%	WS/48	FG%	FT%	PTS	TRB	BLK
Greg Stiemsma	6-11	26	BOS	55	3	766	13.6	.579	7.7	19.0	13.6	8.5	.170	.545	.707	7.6	8.3	4.0
Ian Mahinmi	6-11	25	DAL	61	12	1139	13.5	.585	10.7	17.7	14.2	2.2	.144	.546	.639	11.2	9.1	1.0
Omer Asik	7-0	25	CHI	66	2	971	13.4	.509	14.9	25.1	20.1	5.0	.129	.506	.456	7.6	13.0	2.5
Jason Thompson	6-11	25	SAC	64	47	1657	16.4	.558	10.5	19.3	14.7	1.9	.114	.535	.602	12.7	9.6	1.0
Marreese Speights	6-10	24	MEM	60	54	1345	14.1	.491	11.3	21.4	16.2	1.8	.096	.453	.771	14.1	10.0	0.8
Nazr Mohammed	6-10	34	OKC	63	1	692	11.0	.477	10.4	17.1	14.0	3.9	.090	.467	.565	8.9	8.8	1.9
Earl Clark	6-10	24	ORL	45	1	559	8.1	.405	7.1	18.6	12.8	4.5	.027	.367	.724	7.9	8.0	2.1
Chris Kaman	7-0	29	NOH	47	33	1372	15.3	.478	7.9	23.5	15.8	4.7	.024	.446	.785	16.2	9.6	2.0

Provided by Basketball-Reference.com: View Original Table

Generated 5/15/2012.

Asik would then be among the relative elite of an available bunch likely coveted by: the Warriors, Rockets, Mavericks, Cavaliers, Heat, Bucks, and maybe the Trail Blazers (depending on how their disability exemptions work out) and Nuggets (depending on whether or not they can keep McGee).

Where the price for Asik goes up

That's what we call a bidding war that will rise above the Bulls' qualifying offer of $2.4 million. They will then have to use their Early Bird Exemption to pay Asik in what may be a highly-backended deal, as yfBB noted:

But it then gets a bit more complicated. If a team is under the cap (like, say, the Cavs, who've expressed interest in Asik), they can make an offer that can still be matched by the Bulls, but it'll be less comfortable to do so. This can be done by offering a contract that's still based on their available cap room, and backloading the money to years 3-4. Larry Coon's example is a team $9m under the cap offering a 4-year, $36m deal with yearly figures of $5/5.2/12.6/13.1m

Again, the Bulls can match that or any offer. But while there's been 'informed speculation' that the Bulls intend to do so, and it'll only cost them $5m in 2012-13, the decision may get tougher than what's currently being let on.

With Derrick Rose, Carlos Boozer, and Joakim Noah all guaranteed around $47 million in 2014-15 when Luol Deng and Taj Gibson will be free agents, the Bulls will have a lot of difficulties navigating around the rising luxury tax -- that will be penalizing them even greater for becoming 'repeat offenders', if other deals put them over that tax cap beforehand.

There then becomes a highly priced trickle-down effect to re-signing Asik to a price at which Amnesty-ing Boozer almost makes the Bulls worse off with no wiggle room to sign free agents and one less resource to trade. And all because of the seven-footer scarcity phenomenon that just can't be fixed.

So, those bums who couldn't play 500 minutes this season are getting roster spots somewhere. And if they don't re-sign Asik, one of those could be the Bulls' next backup center.

Simply put: guys like Asik will get "overpaid" in the eyes of many for a few years and every other viable option for the Bulls will, too. And if the Bulls don't do it, they pay a greater price laying hopes in the health and consistent competence of Noah and Boozer.

So, you want the problem of expensive seven-footers to be fixed, huh?

The problem is a simple economics axiom on supply and demand -- or more specifically: abundance vs. scarcity. When a much needed resource is scarce in supply, but those in need don't fluctuate up or down, the value of the resource increases. If the price doesn't reflect the value, it becomes easier for the resource to be hoarded; then, those in need remain without the resource at all.

There's a prohibition legend that goes as such (and I'm paraphrasing):

Alcohol becomes completely illegal in America;
The raids on alcohol producers along with those who shut themselves down in accordance with the law greatly increases the scarcity of the supply;
But the love for alcohol among consumers doesn't change;
A black market then appears for alcohol and what's highly coveted by the market is whiskey;
Canadian producers -- most notably Canadian Club -- agrees to sell whiskey to illegal distributors in America;
As demand rises, the illegal distributors become more desperate to the whim of Canadian Club's prices, lowering bargaining power;
Certain distributors -- who happen to be the richest -- then threaten physical force on Canadian Club 'salespeople' if the price keeps rising;
Now that the price is forcefully fixed to what people are accustomed or what feels right, those richest distributors buy all of the whiskey and become a whiskey cartel (or an oligopoly), wrecking the bargaining power of the lower level direct distributors (underground saloons, shop owners, etc.)

The exact same thing happens in the NBA and if the league simply capped salaries on players based on their all-around skill, it would be in organizations' interest to pay the low price and sit very good seven-footers on their bench for the entire year, just so no one else can have them. The wealth of seven-footers couldn't be spread throughout the league and there would actually be even worse seven-footers than the worst we seen now.

And again, that means: if the Bulls don't re-sign Asik, something like this may happen again -- literally.

Tom Thibodeau contract negotiation: Bulls intend to pick up option for 2012-13, talk extension

2012-05-16T13:30:24Z

Some side-news from the knee surgery press conference Tuesday, where Bulls GM Gar Forman also addressed the media:

General manager Gar Forman said the team will pick up coach Tom Thibodeau's option for next season and will starting working on an extension this summer.

"Obviously, we value Tom greatly," Forman said. "We value what he brings to the organization and what he brings to the team and think he's one of the finest coaches in the league and we're hopeful he'll be our coach long-term.

One thing I'm curious of: does this option year precludes any kind of raise Thibs would receive through an extension? If they work out a contract extension, would that start this coming season and the option year is 'ripped up'? Or would it start only after next season?

I think the difference matters because this upcoming third year of the original contract likely is still going to be underpaying the nearly two-time coach of the year. So I could still see some hard-lined negotiation (as it always is with the Bulls) to come when it gets to the part of actually factoring in a raise (and when) for Thibs. There has already been plays through the media by Thibs's camp.

In related news, Dallas extended their coach Rick Carlisle with a 4-year contract. I had originally thought (and sorry for spreading misinformation in the comments) that Carlisle was in a similar situation to Thibs, but indeed Carlisle would've been completely without a contract on 7/1, whereas the Bulls had this option year for Thibodeau.

Derrick Rose ACL surgery: Bulls team doctor speaks on 8-12 month prognosis

2012-05-15T21:58:29Z

The Bulls held a press conference at Rush University Medical Center on Tuesday afternoon, to give an update on Derrick Rose's ACL surgery. Team physician Brian Cole gave the latest prognosis:

Cole estimated that Rose would need eight to 12 months for a full recovery, and saw no reason why his performance should be diminished.

There's more, of course, but this is mostly standard, yet vague, stuff...pretty much how a 4-month deviation in recovery time can be explained. And thus how KC Johnson can call that an 'optimistic assessment', yet PBT sees this as somehow different and worse than an earlier report.

It's neither, it's nothing. Which is fine. There isn't going to be much in terms of reliable news with this, especially considering how the Bulls treated their paying public with the various and much less serious injuries to Rose all season. So I wouldn't expect anything concrete, and certainly won't care what Reggie Rose thinks about it.

A couple bits that were actually interesting though:

Rose's MCL was not torn. So that's better news than...well, better than if it had been torn.
Cole on the cause: "This could be anything from a completely random event to maybe conditioning. We'll never know with certainty." OH, REALLY?!?

Dr. Brian Cole estimates 8-12 months for DRose recovery.

2012-05-15T20:13:08Z

Dr. Brian Cole estimates 8-12 months for DRose recovery.

KC Johnson

[Press conference is still going -yfbb]

Chicago Bulls Offseason Questions: Omer Asik, restricted free agency, and the Gilbert Arenas provision

2012-05-15T15:04:33Z

Omer Asik was selected in the 2nd round of the 2008 draft (Pritchslapped!) and then signed in the summer of 2010 with their cap room to a 2-year deal.

Those 2 years are over, the Bulls are currently over the cap for the foreseeable future, and Asik is a Restricted Free Agent. Seems soon, doesn't it? The CBA agrees, and thus why there's different rules for him than there are for 1st rounders coming off of their usual 3-4 year contracts.

The Bulls can:

Sign Asik to the $2.4 qualifying offer million if Asik agrees to it; if not,
The Bulls have the privilege to match any offer sheet from any team to which Asik would agree under the Early Bird Exception. (note: they do not have to use their Mid-Level Exception (MLE) to match offers, though that figure is used to determine the salary, as you'll see below)
The Bulls can also waive their Early Bird rights to sign Asik to the two-year veteran minimum ($854k in 2011-12), but that point is moot, as Asik will field better offers.

Other teams over the cap can use their cap exceptions (the biggest being the MLE) to make an offer to Asik. Teams under the cap (of which there are many this offseason) can offer more based on their cap room. The Bulls have 'early' Bird rights on Omer, as he's only been on the team for 2 seasons. So, unlike the 'full' Bird rights which allow a team like them (i.e., over the cap) to retain their own players at any amount, the Bulls have restrictions as to what amount of a contract they can pay Asik. Luckily, those limitations also apply to what other teams can offer him.

An old 'loophole' was closed; before which, a team under the cap could offer a contract the players original team couldn't match. The 'fix' was named the Gilbert Arenas provision, since Arenas was a successful 2nd round pick by the Warriors who after two seasons was an RFA and signed a huge offer sheet with the Wizards (who were under the cap) that the Warriors (being over the cap) couldn't match with Early Bird rights.

It's more fully explained here. The key takeaway is that there's no way the Bulls are unable to match an offer sheet to Omer this offseason. Another is that the first season of any offer sheet is limited to the full MLE ($5m).

But it then gets a bit more complicated. If a team is under the cap (like, say, the Cavs, who've expressed interest in Asik), they can make an offer that can still be matched by the Bulls, but it'll be less comfortable to do so. This can be done by offering a contract that's still based on their available cap room, and backloading the money to years 3-4. Larry Coon's example is a team $9m under the cap offering a 4-year, $36m deal with yearly figures of $5/5.2/12.6/13.1m

Again, the Bulls can match that or any offer. But while there's been 'informed speculation' that the Bulls intend to do so, and it'll only cost them $5m in 2012-13, the decision may get tougher than what's currently being let on.

Asik's free agent prospects looked a lot better before the season, as he stagnated or even regressed a bit. However, he's still a young (26 next season), defensive-minded 7-footer. It may seem unreasonable, but it's not inconceivable, that he gets a large, backloaded offer-sheet. Big men get paid. DeAndre Jordan (who was a 3 year player, thus didn't have these Early Bird restrictions) signed a 4/$43m deal just this past offseason. Maybe the similar offers will go first to more highly-touted players like JaVale McGee and Roy Hibbert, but Asik could be seen as a good consolation prize.

Previously:
2012-13 Guaranteed Salaries, Team Options, Restricted Free Agents

Chicago Bulls Offseason Questions: 2012-13 Guaranteed Salaries, Team Options, Restricted Free Agents

2012-05-14T21:39:29Z

[This will be the first in a series -yfbb]

The Bulls' offseason will be a little complicated, as they'll have to navigate being over the salary cap. Before entering the free agent period in July, the organization will have to decide how to use exemptions, decide which options to pick up, which to free off the books at what price, and whether or not it's advantageous to enter luxury tax territory.

It's most important before looking at these changes -- realistic, idealistic, hare-brained, potential, etc. -- to examine, the status quo of the books.

All contract and salary details are according to ShamSports.com as of January 5, 2012. I added Mike James to the list to make it current. The totals include team options and qualifying offers. This spreadsheet is publicly viewable here.

Fully guaranteed for 2012-13 - over $63m: Derrick Rose, Carlos Boozer, Luol Deng, Joakim Noah, Richard Hamilton, Taj Gibson, Jimmy Butler

Boozer, Deng, Noah, and Gibson are eligible for Amnesty.

Team Options for 2012-13: Kyle Korver, Ronnie Brewer, C.J. Watson

The Bulls have until July 10, 2012 to exercise these options or waive these players. Korver is guaranteed $500,000 for 2013. [These are technically not 'team options', they're partially guaranteed contract years. By my knowledge the only difference is when they can be waived, and 'team option' is easier to say. Also, they can be traded and waived by their new team before that date. -yfbb]
Hamilton is guaranteed $1 million for 2014.

Restricted Free Agents: Omer Asik

We'll be going over this in a separate post, but for speculation of a 2012-13 cap calculation, assume that the Bulls will be asked to match a contract with a first year of $5m for the upcoming season. -yfbb

2012-13 salary cap: at a minimum of the $58.044 cap of 2011-12

44.74% of " projected Basketball Related Income" (BRI) -- then "subtracts projected benefits, and divides by the number of teams in the league". Since 2008, the cap hasn't fluctuated more than $1 million each season. All five guaranteed Bulls starters alone put the Bulls over the cap.

2012-13 luxury tax level: $70.307 million in 2011-12

$53.51% of projected BRI. The tax level isn't expected to change much for 2012-13.

Chicago Bulls offseason: Bulls possibly 'treading water', and their choice to do so

2012-05-14T14:56:15Z

The Bulls have a lot of salary-cap related questions when it comes to re-tooling while also letting their roster recuperate. It's going to be very interesting to see how they treat next season, as well as their future salary obligations.

So be mindful, yet wary, of what those close to the team suggest could be happening. They no-doubt have ideas of what to expect based on what they're hearing form the team, but some of it could be presented in a less-than-accurate light.

As an example of the latter, the Sun-Times is way off base with this:

The Bulls hold options on Kyle Korver, Ronnie Brewer and C.J. Watson, but they aren't all likely to return because the Bulls need to clear some cap space to re-sign Gibson, who will be eligible for free agency after next season...the Bulls will be bumping their head on the salary-cap ceiling. No matter how much they might want to keep Watson and Korver, something will have to give.

As readers here know: it's the tax, not the cap, and you can plow your head right through that 'ceiling', as long as you're willing to pay.

I'm not saying that's the best option, but it shouldn't be ignored as one. At the least: frame it as something the Org. is unwilling to do instead of unable to do.

KC Johnson is more accurate, but it's a similarly tepid message:

[the luxury tax] is projected to rise only nominally while becoming more punitive in the future...the Bulls basically are hamstrung for making significant upgrades to the roster for next season. Call it a treading water season until Rose and Deng get fully healthy, and the team makes a playoff push.

This is just 'informed speculation', but it is informed. We also have history as our guide to suggest that we shouldn't expect any salary additions...and if anything should expect subtractions. But always remember it's a choice of theirs, not an obligation.