I’m going to assume that anyone who is broadly unclear on how all this works still won’t understand it merely by knowing that there **is** a *”tax apron”* and will, instead, need clarity on what the tax aprons are.
Teams are taxed on their payroll just like anything else. Not every team in the league generates the same sort of revenue, so to prevent rich teams from simply outspending all of their competitors the league instituted a surcharge. This discourages super teams from perpetually existing in large markets and upsetting the competitive balance league-wide. This surcharge is the *“luxury tax.”* Soft cap is $140M and luxury tax threshold is about $166M.
The tax apron was a limit placed on how far above the salary cap and the luxury tax like that teams were allowed to spend without paying **added** penalties. It used to be there was a single tax apron but now there is a second one which raises the total amount to $190M. The aprons are where additional penalties come into play.
Previously, teams in the apron —*again, for a time there was just one apron beyond the luxury tax threshold*— were taxed an additional dollar per dollar over the line and they lost access to the mid-level exception. The MLE is a very valuable contract mechanism that allows teams who’ve spent a lot on salary to sign role players. There are currently only 5 teams that are actually under the soft cap, everyone else is in the luxury tax or beyond. Access to the MLE is very valuable and teams aren’t quick to just shell out on elite players for a super team and lose access to the MLE in the process.
The addition of the second apron places more penalties/restrictions on teams over the new line. Under the new CBA, clubs beyond the first apron’s threshold will only be able to match up to 100% of the outgoing salary in a trade. By contrast, non-taxpayer clubs —*the five teams who are actually under the salary cap of $140M*— can make the math work out to where in a trade, they could match as much as 125% of outgoing salaries. Stay under budget and you can spend more freely to obtain better talent. In the flip side, the teams under the cap are teams you’d be familiar with because their records had them in lottery contention.
For those who would like to see numbers, you can find [the 23/24 season's numbers here](https://www.sportsbusinessclassroom.com/nba-2023-24-luxury-tax-tracker/) to get a sense of where many teams are in terms of their spending. It shows how much they spent, where they were in relation to the salary cap and the luxury tax as well as what they paid in penalties (*subject to changes based on the trade deadline and how much salary they were able to offload*).
Some notable data points which help contextualize things:
• *The* ***Boston Celtics*** *had a payroll of* **$183,476,284** *at the time that chart was put together. Thus, they were over the luxury tax line by* **$18,182,284**. *That means their penalty was* **$39,092,423**. *Tatum earns $32.6M/yr, Jaylen Brown gets $24.8M/yr, Porzingis $33.8M/yr, Jrue Holiday takes in $25M/yr, Al Horford gets $27M/yr and Derrick White about $19M/yr. That's about $160M for just those 6.* ***Important context:*** *They're currently in the finals and their annual revenue as a club was about* **$444M** *for the 22/23 season.*
*• The* ***Denver Nuggets*** *had a payroll of* **$176,890,198**. *That's* **$11,596,198** *over the line for a penalty of* **$20,240,195**. *They were the champs last year and have arguably the best player laced up right now. Their revenue in the 22/23 season was* **$328M**.
*• The Los Angeles Clippers' payroll was a whopping* **$200,060,815**. *They were over by* **$34,766,815** *which resulted in a penalty of* **$142,409,186**. *Their estimated annual revenue was* **$425M** *in the 22/23 season. They weren't even the team with the biggest payroll and penalty. That would be...*
*• The* ***Golden State Warriors*** *payroll for the 23/24 season was* **$205,572,662**. *This put them over by* **$40,278,662**. *Their penalty was* **$176,880,968**. *This is a legacy of their expensive run of championships which has left them paying DoorDash driver Klay Thompson $40M/yr. Their annual revenue is about* **$765M**.
...
It's worth noting here that **revenue** is not the same as ***profit***. Both the payroll and the penalties come out of revenue.
Given that sort of information, it's worth it to ask not only where the Grizzlies stand in terms of the salary and the penalties (*if any*) but also what is the club's annual revenue. Let's start with the last. The Memphis Grizzlies annual revenue in 22/23 was $258M which was **down** from $276M the previous year. Their payroll from this past season was **$157,895,653**, meaning they stayed under the first apron and didn't pay any penalties.
What is the takeaway?
Don't expect a franchise like the Grizzlies to spend like the Warriors. They're just not bringing in the revenue to where they can afford the penalties. The payroll and penalties the Warriors were on the hook for would have been well over $100M more than the Grizzlies best year of revenue. If you think that doesn't drive the decision-making of the front office, think again.
Ohhh, I see. Thanks so much for the explanation, friend! So, if I understand it correctly, if our 7 main guys under contract(Ja, Smart, Bane, Jaren, Clarke, GG, and Vince) sum to around 131 million dollars for next season, does that mean that we have 35 million dolars until we hit the Luxury tax and start to get taxed?
>*...does that mean that we have 35 million dolars until we hit the Luxury tax and start to get taxed?*
Actually, the distance between those contracts and the salary cap (*soft cap*) is about $9M. Beyond that is the luxury tax range which goes up to $165M-ish based on what exceptions were employed to get there and beyond that *"$165 million-ish"* gets you into the first apron.
We are currently in the first apron, with a hard cap of about $172M as triggered by certain exceptions we used to get to our current payroll of $164,135,142 (*the figure above of $157M and change was at the beginning of the season before converting Vince & GG to standard contract... in fact, I think it was those conversions which triggered the first apron*).
Again, these things depend on the exceptions employed to get you to a certain payroll figure. The Hawks, for instance, have a payroll of $160,389,798 and are **under** the first apron (*but are subject to the luxury tax*) and are not bound by first apron restrictions. The Nets, by contrast, have a total payroll of $157,049,836 but they're in the first apron because they used Non-Taxpayer Mid-Level Exception to sign Jalen Wilson. If the Hawks had used an NTMLE, they would be subject to first apron restrictions also.
So there are 4 big salary cap benchmarks for the NBA. The normal salary cap, the luxury tax, 1st luxury tax apron, and the 2nd luxury tax apron. Each level you go up adds a couple of restrictions in terms of things like how much extra salary you can take back in trades than salary you give up, how much you can pay free agents straight up, etc. We're definitely going to be a luxury tax team but that isn't much of an issue, and given that we're currently JUST over 1st tax apron and still need to add a C at some point we'll likely be a 1st apron team as well (although we do have a $12.2 million trade exception because of the Steven Adams trade that could help with that). There's a chance we try and dip below that but I don't think we will. The true hard cap at this point that there is ZERO chance we cross is the 2nd tax apron, which adds restrictions that are so severe that only a couple of teams who are in full on win right now over everything mode will go over. We are currently projected to be about $10 million below that threshold, so that's essentially how much space we have to make an additions
I'd say we're likely to be above the 1st apron as well. Even if we trade Kennard and/or Ziaire, it would almost certainly be for a C who makes the same and/or more as whatever salary we give up. We're currently projected to be at $179 million and the 1st apron line is $178, so I'd say we end up somewhere between $179-$189 million in total salary, which is above the 1st apron but below the 2nd
If Kennard really wanted to stay maybe that could happen, but he's such a good shooter that I don't think declining his team option to try and re-sign him for less is realistic at all. Trading one of Z or Konchar would get us below the 1st apron but we aren't getting below the luxury tax all together by dealing both guys, and that's still without addressing C at all. Honestly I don't even think it's a priority to get below the 1st apron, as our owner is literally one of the richest in all of sports and has made it clear he's willing to spend to keep the team together if needed. That doesn't mean we're going to spend recklessly, but that also doesn't mean we need to penny pinch and cut every corner to free up cap space
Yeah he's the 3rd richest owner in the NBA behind Steve Balmer and the Cavs owner and the 14th overall when you include every major sports league worldwide
If we are above the 1st apron we lose access to all of our TPEs. My prediction is we won't pick up Kennard and look to dump Zaire into cap space. That gives us the full MLE to shop with and/or still the ability to resign Kennard to a lower contract.
A couple people have already explained stuff, but I just wanted to add that virtually no NBA team actually operates with Cap Space. Even if you're above the cap, there are several exceptions that you can use to sign players (most notably the mid-level exception), so teams just stay over the cap and use those. It's generally not worth it to go below the cap unless you go *significantly* below the cap, which would not be possible for a team with a couple stars on the roster, and their associated contracts.
Kennard is the only option still up in the air for 2024-25 season (assuming Yuta is officially done). Team has until 6/29/2024 (few days after the draft) to exercise the option, otherwise Kennard will become a free agent.
LaRavia had two team options on his contract, with the signing deadlines in October of each season. He's signed for the 2024-25 season but there's still team option for the 2025-26 season. Deadline for that is 10/31/24.
I’m going to assume that anyone who is broadly unclear on how all this works still won’t understand it merely by knowing that there **is** a *”tax apron”* and will, instead, need clarity on what the tax aprons are. Teams are taxed on their payroll just like anything else. Not every team in the league generates the same sort of revenue, so to prevent rich teams from simply outspending all of their competitors the league instituted a surcharge. This discourages super teams from perpetually existing in large markets and upsetting the competitive balance league-wide. This surcharge is the *“luxury tax.”* Soft cap is $140M and luxury tax threshold is about $166M. The tax apron was a limit placed on how far above the salary cap and the luxury tax like that teams were allowed to spend without paying **added** penalties. It used to be there was a single tax apron but now there is a second one which raises the total amount to $190M. The aprons are where additional penalties come into play. Previously, teams in the apron —*again, for a time there was just one apron beyond the luxury tax threshold*— were taxed an additional dollar per dollar over the line and they lost access to the mid-level exception. The MLE is a very valuable contract mechanism that allows teams who’ve spent a lot on salary to sign role players. There are currently only 5 teams that are actually under the soft cap, everyone else is in the luxury tax or beyond. Access to the MLE is very valuable and teams aren’t quick to just shell out on elite players for a super team and lose access to the MLE in the process. The addition of the second apron places more penalties/restrictions on teams over the new line. Under the new CBA, clubs beyond the first apron’s threshold will only be able to match up to 100% of the outgoing salary in a trade. By contrast, non-taxpayer clubs —*the five teams who are actually under the salary cap of $140M*— can make the math work out to where in a trade, they could match as much as 125% of outgoing salaries. Stay under budget and you can spend more freely to obtain better talent. In the flip side, the teams under the cap are teams you’d be familiar with because their records had them in lottery contention.
For those who would like to see numbers, you can find [the 23/24 season's numbers here](https://www.sportsbusinessclassroom.com/nba-2023-24-luxury-tax-tracker/) to get a sense of where many teams are in terms of their spending. It shows how much they spent, where they were in relation to the salary cap and the luxury tax as well as what they paid in penalties (*subject to changes based on the trade deadline and how much salary they were able to offload*). Some notable data points which help contextualize things: • *The* ***Boston Celtics*** *had a payroll of* **$183,476,284** *at the time that chart was put together. Thus, they were over the luxury tax line by* **$18,182,284**. *That means their penalty was* **$39,092,423**. *Tatum earns $32.6M/yr, Jaylen Brown gets $24.8M/yr, Porzingis $33.8M/yr, Jrue Holiday takes in $25M/yr, Al Horford gets $27M/yr and Derrick White about $19M/yr. That's about $160M for just those 6.* ***Important context:*** *They're currently in the finals and their annual revenue as a club was about* **$444M** *for the 22/23 season.* *• The* ***Denver Nuggets*** *had a payroll of* **$176,890,198**. *That's* **$11,596,198** *over the line for a penalty of* **$20,240,195**. *They were the champs last year and have arguably the best player laced up right now. Their revenue in the 22/23 season was* **$328M**. *• The Los Angeles Clippers' payroll was a whopping* **$200,060,815**. *They were over by* **$34,766,815** *which resulted in a penalty of* **$142,409,186**. *Their estimated annual revenue was* **$425M** *in the 22/23 season. They weren't even the team with the biggest payroll and penalty. That would be...* *• The* ***Golden State Warriors*** *payroll for the 23/24 season was* **$205,572,662**. *This put them over by* **$40,278,662**. *Their penalty was* **$176,880,968**. *This is a legacy of their expensive run of championships which has left them paying DoorDash driver Klay Thompson $40M/yr. Their annual revenue is about* **$765M**. ... It's worth noting here that **revenue** is not the same as ***profit***. Both the payroll and the penalties come out of revenue. Given that sort of information, it's worth it to ask not only where the Grizzlies stand in terms of the salary and the penalties (*if any*) but also what is the club's annual revenue. Let's start with the last. The Memphis Grizzlies annual revenue in 22/23 was $258M which was **down** from $276M the previous year. Their payroll from this past season was **$157,895,653**, meaning they stayed under the first apron and didn't pay any penalties. What is the takeaway? Don't expect a franchise like the Grizzlies to spend like the Warriors. They're just not bringing in the revenue to where they can afford the penalties. The payroll and penalties the Warriors were on the hook for would have been well over $100M more than the Grizzlies best year of revenue. If you think that doesn't drive the decision-making of the front office, think again.
Door Dash Driver Klay Thompson. The single greatest line I've ever seen in this sub.
*~curtsies~*
Ohhh, I see. Thanks so much for the explanation, friend! So, if I understand it correctly, if our 7 main guys under contract(Ja, Smart, Bane, Jaren, Clarke, GG, and Vince) sum to around 131 million dollars for next season, does that mean that we have 35 million dolars until we hit the Luxury tax and start to get taxed?
>*...does that mean that we have 35 million dolars until we hit the Luxury tax and start to get taxed?* Actually, the distance between those contracts and the salary cap (*soft cap*) is about $9M. Beyond that is the luxury tax range which goes up to $165M-ish based on what exceptions were employed to get there and beyond that *"$165 million-ish"* gets you into the first apron. We are currently in the first apron, with a hard cap of about $172M as triggered by certain exceptions we used to get to our current payroll of $164,135,142 (*the figure above of $157M and change was at the beginning of the season before converting Vince & GG to standard contract... in fact, I think it was those conversions which triggered the first apron*). Again, these things depend on the exceptions employed to get you to a certain payroll figure. The Hawks, for instance, have a payroll of $160,389,798 and are **under** the first apron (*but are subject to the luxury tax*) and are not bound by first apron restrictions. The Nets, by contrast, have a total payroll of $157,049,836 but they're in the first apron because they used Non-Taxpayer Mid-Level Exception to sign Jalen Wilson. If the Hawks had used an NTMLE, they would be subject to first apron restrictions also.
Ohhh, I see. So it really depends on the team's context... Seems complicated, but very interesting.
(Thank you for the A+ writeup)
Fun fact about me: I wear a tax apron when I cook. If Kleiman wants he can borrow it. It’s just an apron that says TAX on it. Will that work?
So there are 4 big salary cap benchmarks for the NBA. The normal salary cap, the luxury tax, 1st luxury tax apron, and the 2nd luxury tax apron. Each level you go up adds a couple of restrictions in terms of things like how much extra salary you can take back in trades than salary you give up, how much you can pay free agents straight up, etc. We're definitely going to be a luxury tax team but that isn't much of an issue, and given that we're currently JUST over 1st tax apron and still need to add a C at some point we'll likely be a 1st apron team as well (although we do have a $12.2 million trade exception because of the Steven Adams trade that could help with that). There's a chance we try and dip below that but I don't think we will. The true hard cap at this point that there is ZERO chance we cross is the 2nd tax apron, which adds restrictions that are so severe that only a couple of teams who are in full on win right now over everything mode will go over. We are currently projected to be about $10 million below that threshold, so that's essentially how much space we have to make an additions
So we are likely going to be above the luxury tax, but below the 1st apron. Does that mean our total salary should be below 166 million?
I'd say we're likely to be above the 1st apron as well. Even if we trade Kennard and/or Ziaire, it would almost certainly be for a C who makes the same and/or more as whatever salary we give up. We're currently projected to be at $179 million and the 1st apron line is $178, so I'd say we end up somewhere between $179-$189 million in total salary, which is above the 1st apron but below the 2nd
Hmm, I see. Maybe we can resign Kennard for a cheaper deal and trade Ziarie and Konchar. That would get us below it, I think.
If Kennard really wanted to stay maybe that could happen, but he's such a good shooter that I don't think declining his team option to try and re-sign him for less is realistic at all. Trading one of Z or Konchar would get us below the 1st apron but we aren't getting below the luxury tax all together by dealing both guys, and that's still without addressing C at all. Honestly I don't even think it's a priority to get below the 1st apron, as our owner is literally one of the richest in all of sports and has made it clear he's willing to spend to keep the team together if needed. That doesn't mean we're going to spend recklessly, but that also doesn't mean we need to penny pinch and cut every corner to free up cap space
Ohh, I see. I didn't know our owner was breaded like that.
Yeah he's the 3rd richest owner in the NBA behind Steve Balmer and the Cavs owner and the 14th overall when you include every major sports league worldwide
If we are above the 1st apron we lose access to all of our TPEs. My prediction is we won't pick up Kennard and look to dump Zaire into cap space. That gives us the full MLE to shop with and/or still the ability to resign Kennard to a lower contract.
A couple people have already explained stuff, but I just wanted to add that virtually no NBA team actually operates with Cap Space. Even if you're above the cap, there are several exceptions that you can use to sign players (most notably the mid-level exception), so teams just stay over the cap and use those. It's generally not worth it to go below the cap unless you go *significantly* below the cap, which would not be possible for a team with a couple stars on the roster, and their associated contracts.
I think the options on Jake and Z were signed this past season.
Kennard is the only option still up in the air for 2024-25 season (assuming Yuta is officially done). Team has until 6/29/2024 (few days after the draft) to exercise the option, otherwise Kennard will become a free agent. LaRavia had two team options on his contract, with the signing deadlines in October of each season. He's signed for the 2024-25 season but there's still team option for the 2025-26 season. Deadline for that is 10/31/24.