FanPost

Fab(ulous) Finances

Fab-melo-rookie-shoot_medium

via redsarmy.com

The Celtics traded Fab Melo in what on the surface appears to be a largely financial transaction, so it makes sense to look at the finances involved. Here's a multi-year look at the implications:

2013-2014

Luxury Tax Owed: By my calculations, the Celtics were on pace to owe $1,765,713 in luxury tax prior to trading Fab.

Luxury Tax Received: Teams that don’t pay the luxury tax split 50% of the tax bill for other teams. Currently there are 6 teams projected to be above the luxury tax, who will pay a combined $161,131,697.50 in luxury tax dollars. This works out to a payment of $3,481,908.36 to the Celtics and every other non-taxpaying team. This number will change as teams change payroll, but is unlikely to be very different from where it currently stands.

Fab’s salary this year: Fab is due $1,311,240. Now Memphis is paying that. However, the Celtics sent Memphis cash, and I will take the conservative assumption that they are paying all of Fab’s salary, and the net savings here is $0.

2013-2014 Total Savings -- $5,247,621.36

2014-2015

Fab’s salary next year: Next year the Celtics had an option to keep Fab for $1,367,640. However, they would have had to exercise that option by the end of this October. Accordingly, if they were to keep Fab this year to see if one more year helps turn him into something useful, they’d have probably wanted to exercise that option, because what’s the point of keeping him around to develop this year if you’re letting him become a free agent (albeit a restricted one)?

Repeater Tax Owed – The Celtics now avoid being taxed at the repeater tax rate for next year. You may have heard mention of this tax before, and it’s pretty steep. It adds a dollar owed in taxes for every dollar above the tax line you are, on top of the other tax normally owed. So if the Celtics next year were to pay salary up to the apron ($4 million above the luxury tax line), they would owe $6 million under the regular tax rate, but $10 million under the repeater tax rate. If they were to go $10 million over the tax line, they would owe $16,250,000 normally, but $26,250,000 under the repeater tax. It’s something to be avoided, if reasonably possible.

2014-2015 Total Savings -- $0 -5 million (I’m assuming they aren’t going terribly above the tax next year, but probably will go above it).

2015-2016

Repeater Tax Owed – If the Celtics are not in the luxury tax in 2014-2015, but are the following year, they avoid the repeater tax that year instead. (If they are above the luxury tax both years, they still pay the repeater in 2015-2016.)

All told, that’s savings of at least $5 million for dumping Fab, despite paying Memphis to take him, and probably closer to $10 million. While I’m disappointed that the Celtics gave up on him so quickly, he probably wasn’t worth paying $10 million over the next 2 years for, and we now have a little more salary room to add players next year, so the decision makes sense to me.

DOES THIS MEAN THERE IS ANOTHER MOVE COMING?

I don’t see it that way. The only reason trading Fab makes sense in terms of facilitating other trades is if a) we’re acquiring a very small amount of extra salary that will still keep us under the luxury tax (we’re talking a few hundred thousand, at most), or b) we’re acquiring enough salary to take us within $1,311,240 of the hard cap – in other words, an amount that we couldn’t have taken on if we kept Fab. If we reduce salary further, then trading Fab would essentially have been unnecessary to get us under the luxury tax line. In fact, one could argue this means another salary-dumping trade is less likely, as if another trade were in the works, there would have been no reason for this trade at all. (Although perhaps this puts us in a slightly stronger negotiating position with other teams, since trading some other expiring contract no longer gives us the benefit of getting under the tax, so we would need some other form of compensation). Also, bringing back Shav puts us back over the luxury tax, so don’t get your hopes up if you’re a Shav fan.

At the end of the day, I’m a bit disappointed in some of the series of events that led up to this trade (mostly Melo being picked and not delivering, and taking on Jordan Crawford’s contract for this year), but given the current situation the Celtics are in, it was probably the right decision. It is a business, and Danny shouldn’t cost his bosses $5-10 million to avoid admitting he made an earlier mistake. Hopefully the savings now allows him to spend more in a future year when the dollars are more likely to lead to a championship.

Be respectful and keep it clean. Thanks.

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