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OKC Thunder: How the Thunder could afford James Harden and a little luxury

COMMENTARY — Negotiations with James Harden will be the story of the Thunder preseason. Oklahoma City could write a happy ending that could even be a bit luxurious.
by Jenni Carlson Published: September 26, 2012

James Harden would already be signed to a long-term deal with the Thunder if not for the luxury tax.

Or so the thinking goes.

The assumption is that the Thunder isn't going to be willing to pay top dollar for Harden, then have to pay millions in luxury tax to the NBA. If the team antes up anything close to what Harden would be worth on the open market, it is going to push the Thunder way above the league's luxury tax threshold.

No way the Thunder would pay $10 million or $20 million or more in luxury taxes.

Or would it?

I decided to ask Sam Presti. The Thunder general manager held his annual preseason press conference Wednesday morning, and Harden was the leading topic of conversation.

No surprise there.

With Kevin Durant, Russell Westbrook and Serge Ibaka already committed to long-term deals, Harden is the last of the young stars without a new contract. Sign the versatile guard, and the Thunder's already bright future is even more brilliant.

So, is it out of the question that the Thunder might bite the bullet and pay a big chunk in luxury tax, even if for a few years?

“There are certain realities that we face, and there are some inherent challenges that we face,” Presti said. “I don't feel comfortable, quite honestly, talking about limitations and things that we ultimately will have to decide on. But I think we're making a commitment to try to continue to put a competitive team on the floor.

“But we also have to do the right thing for the organization in the short and the long term.”

The quick translation of what Presti said — the Thunder isn't going sign Harden to a max deal if it means having to pay a bunch in luxury taxes.

The reason?

The decision could put the Thunder in a financial hole so deep that crawling out of it might take years.

A new luxury tax scale kicks in next season. At this point, any team that goes over the luxury tax threshold pays a dollar for every dollar. Go over the threshold by $5 million, for example, and you owe $5 million in luxury taxes. But the new scale is much more punitive.

Here's the new luxury tax rates:

The first $5 million over, it's $1.50 for every dollar.

The next $5 million, it's $1.75.

The next $5 million, it's $2.50.

That means that a team that exceeds the limit by, say, $15 million would owe $28.75 million in luxury taxes.

That's a range the Thunder would approach if it signed Harden to a max deal. And remember, that tax would be paid in addition to the combined payroll of all the players. That would put the Thunder on the hook annually for well more than $100 million.

And that's just the beginning. The luxury-tax liability is almost sure to increase because the yearly salaries for the likes of Durant and Westbrook increase each year of their contracts. That means more in guaranteed salaries and more in luxury taxes.

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by Jenni Carlson
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