The Financial Truth: The Cost of Keeping Paul Pierce

Jim Rogash

As has been widely reported, Paul Pierce’s contract with the Boston Celtics is not fully guaranteed for next season. If the Celtics do not release him by June 30th, he will be owed $15,333,334. However, if he is released, the Celtics are on the hook for $5,000,000. While there are definitely basketball reasons for and against keeping or releasing him, which I intend to write separately about next week, the question in this article is the following: how much does keeping Paul Pierce for $15,333,334 actually cost the Celtics?

The answer might seem obvious -- $10,333,334 – the difference between keeping him and releasing him. However, due to the newest phase of the luxury tax beginning for the 2013-2014 season, compounded by the fact that the luxury tax level figures to be at or very near this year’s level of $70.3 million , as opposed to the small but significant increase that many expected earlier this year, the actual answer may be closer to $31 million – about three times the difference in the guaranteed and non-guaranteed portions of his contract. How did I arrive at such a number? Read on!

To begin with, I created a baseline of what the Celtics would look like next year if they bring back The Truth. In this world, they are running back most of the team. Wilcox is a free agent, so I presumed him to be gone. White seems likely to go as well. I’ll assume that Randolph and Williams remain, although Randolph will be released and re-signed for a 1-year minimum deal, which pays him the same amount but allows the NBA to subsidize a few hundred thousand dollars of his contract. To replace White and Wilcox, the Celtics will sign the best free agent they can to the taxpayers mid-level exception, which is $3.183 million, and sign their first-round pick to 120% of his slot value (which is what they, and most other teams, have done every year), which would be $1,703,040 in year 1. Using these updates and the contract data from Shamsports, the Celtics would have to pay $79, 655,035 in salaries next year.

As an alternative, I assume that the exact same situation occurs as above, including the $3.183 million given to a free agent, except that Paul Pierce is released and a player is signed at the 1-year vet minimum contract to replace him, which costs the Celtics $884,293. In this case, the Celtics are on the hook for $70,205,994 in salaries, including the $5 million owed to Pierce, for the 2013-2014 season.

At any rate, keeping Pierce would require the Celtics to pay the NBA $15,121,311 in luxury tax bills -- $7.5 million for the first $5 million over, and $7,621,311 for the next ~$4.3 million over. When we add that luxury tax sum to the $9,449,041 in salary savings the Celtics would have if they released Pierce, the total cost of keeping Pierce balloons to $24,570,352.

But wait, there’s more! The league can redistribute up to 50% of the amount collected in luxury taxes to the teams who did not pay the tax. Accordingly, if the Celtics do not owe the tax, they can actually collect on some of the tax that teams like Miami, New York, Brooklyn, and the Lakers might wind up paying. To estimate that, I again used the salary data from Shamsports, and tried to hypothesize what teams might reasonable do this offseason, without making any major trades. I assumed that Dwight Howard remained with the Lakers, that Chris Paul stayed with the Clippers, that J.R. Smith stayed with the Knicks (insert salary hypothesis), that big market and/or championship competitive teams signed the highest mid-level exceptions they were allowed, that favorable options (to the team or player, depending who holds the option) were exercised, that free agents who were not no-brainers were allowed to leave through free agency, that all draft picks were signed to 120% of slot, and that still-empty roster spots were filled with players making the 2-year vet minimum of $884.293. After doing this analysis for all thirty teams, seven teams were over the presumed tax threshold of $70.3 million, and three others were very close and still had some key personnel decisions to make: Clippers (Billups, Odom), Denver (Brewer, Mozgov’s qualifying offer, mid-level), and Oklahoma City (Martin, did not use mid-level). Below are the ten teams who may owe the luxury tax, as well as their prospective tax bills:

Team Payroll Luxury Tax
Brooklyn Nets $91,802,285 $50,633,569
Chicago Bulls $76,871,367 $10,249,892
Denver Nuggets $69,940,268 $0
Golden State Warriors $70,764,634 $696,951
LA Clippers $69,857,509 $0
LA Lakers $106,653,122 $115,853,891
Miami Heat $89,743,050 $43,189,913
NY Knicks $84,370,428 $26,426,070
OKC Thunder $68,218,438 $0
Toronto Raptors $73,964,819 $5,497,229
Total $252,547,514

(As an aside, look at the Lakers’ luxury tax bill! When you hear people hypothesizing that the Lakers might amnesty Gasol or even Kobe, that’s why. If everything was the same as above, except that the Lakers amnestied Gasol, they would instead owe $35,468,634, a savings of $80,385,256. If they were to amnesty Kobe, they would instead owe $9,073,804 and save $106,780,085. That’s a lot of money to pay to the NBA for a guy who tore his Achilles and might not play all year.)

At any rate, if all 10 of those teams go over the cap, and the overall tax owed is the amount above (we’ll assume that the Clippers, Nuggets, and Thunder go over, but not by enough to have a large tax bill), half of that tax could be shared by the remaining 20 teams who did not pay the tax, for an amount of 6,313,687 each. All told, that brings the Celtics savings to the following:

Salary Savings $9,449,041
Luxury Tax Savings $15,121,311
Luxury Tax Revenue $6,313,687
Total $30,884,039

That’s a lot of money for one player. And that number above could even be an underestimate, as avoiding the luxury tax this year means that the Celtics would not have to pay the repeater tax rate, which kicks in for the 2014-2015 season, should they choose to go over the luxury tax next year. That rate is even higher than the one that teams are paying this year. When you add it all up, it’s going to be a very expensive decision for the Celtics to not release Paul Pierce. While I hope the Captain stays in Boston, and wish that money didn’t matter, the Truth is that the Celtics face a very difficult choice over the next two weeks.

Coming next week: Further evaluation on whether Pierce should be kept or released, with consideration on other impacts that would have on the roster, financial costs to the team, and the long-term evolution of the Celtics to the next era.

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