Jerry Buss understood championships were the key to the Lakers’ success. Sadly, his daughter seems to have forgotten that as her unwillingness to pay big luxury taxes threatens to turn the Lakers into second tier competitors.
After two decades with the New York Knicks or Los Angeles Lakers being the NBA’s most valuable franchises, the Golden State Warriors parlayed four titles in last eight years to take over as the league’s most valuable franchise.
Per Forbes, the Golden State Warriors are worth $7.6 billion followed by New York Knicks at $6.6 billion, Los Angeles Lakers at $6.4 billion, and Chicago Bulls at $4.1 billion. Median NBA franchise value is $2.4 billion.
What fueled the Warriors’ rise to the league’s most valuable franchise was it’s commitment to build the best roster money could buy regardless of the astronomical luxury taxes that would accompany this kind of imperative.
Worth just $1.3 billion when they won their first title in 2015 followed by second and third titles in 2017 and 2018, the Warriors proved Dr. Buss formula still works as they quintupled their value over the last eight years.
While there’s hope the mega luxury taxes issue will be somehow resolved in the next CBA, the truth is the money raised from the luxury taxes has now become a valued source of revenue for the rest of the NBA teams.
Eliminating exorbitant luxury taxes could be difficult to do when so many NBA teams either are either willing to pay the luxury tax toll or totally willing to accept their share of the taxes as a bonus revenue sharing.
Unless Jeanie Buss and her family are willing to pay the exorbitant luxury tax toll that’s now required to compete for a championship in today’s NBA, the Los Angeles Lakers will suddenly become second tier competitors.
How Three Billionaire Team Owners Have Raised the Bar
What’s happened is three teams with billionaire owners — Warriors, Nets, and Clippers — have raised the bar of what it takes to legitimately compete for a championship in today’s NBA to include unlimited luxury taxes.
Last season, the Warriors paid a record $170 million in luxury taxes while the Nets paid $98 million, the Clippers $83 million, the Bucks $54 million, the Lakers $45 million, the Jazz $118 million, and the 76ers $14 million.
This year, Warriors will pay $170 million, Clippers $145 million, Nets $108 million, Bucks at $70 million, Celtics $65 million, Lakers $41 million, Suns $35 million, Mavs $34 million, Nuggets $17 million, and 76ers $2 million.
The problem is the Buss family does not have the resources to compete with mega billionaire owners like the Clippers’ Steve Balmer (Microsoft), the Nets’ Joe Tsai (Alibaba), or the Warriors Joe Lacob (Kleiner-Perkins).
While the six Buss children own 2/3 of the Los Angeles Lakers, they do not have outside sources of income like Balmer, Tsai, or Lacob and must live off the revenue stream they receive from the Lakers operating profits.
Luxury taxes are a major issue. That’s why the front office did not match salaries and keep valuable role player Alex Caruso last season. It’s why the Lakers will not take back more salaries in any trade than they send out.
It’s a position that’s already relegated the Lakers to second tier status as a competitor. They’re willing to spend $40-50 million in luxury taxes but won’t pony up the $100–170 million paid by the Dubs, Nets, and Clippers.
The Lakers must remember championships created their franchise value. If mega luxury taxes are now required to compete for championships, then the Lakers need to accept that as part of the cost of doing business.
How Lakers Became Second Tier Competitor
The above chart shows ten NBA teams are projected to pay $653 million in luxury taxes for the current season. That’s $65 million in taxes per team which will result in a bonus of $32.5 million for each of the other 20 teams.
Luxury taxes will likely be a major point of contention when it comes to the league and the players negotiating a new Collective Bargaining Agreement. There will be the usual hard push by the league for some form of hard cap.
In the end, it’s going to be hard to give up a system where 10 teams pay $65 million each in luxury taxes, which would then be split between the 20 non-tax paying teams, who would get $32.5 million each in profit sharing.
The ten tax paying teams can easily be broken down into four tiers. Tier 1 is the teams willing to spend over $100 million in luxury taxes and includes the Golden State Warriors, Los Angeles Clippers, and Brooklyn Nets.
Tier 2 is the teams willing to spend $40–100 million in luxury taxes and includes the Milwaukee Bucks, the Boston Celtics, and the Los Angeles Lakers. Tier 3 is for teams willing to spend $0–40 million in luxury taxes.
Right now, the Lakers are not willing to accept trades that raise their total annual salaries because that would also mean increased luxury taxes. L.A paid $45 million last season and is projected to pay $41 million this season. Unless the Lakers are willing to match the luxury taxes that the Warriors, Clippers, and Nets are willing to pay, there is no way they are going to be able to remain competitive being outspent by $60-$130 million per year.
There’s no question that the explosive rise in luxury taxes has changed the competitive landscape in the NBA. As a result, the Lakers’ unwillingness to pay exorbitant luxury taxes has made them second tier competitors.
How Being Second Tier Competitor Will Affect Lakers
After the long dark struggles due to Covid, the NBA is now on the verge of entering another golden age where team revenues, salary caps, franchise values, and superstar salaries soar to never before imagined highs.
Acquiring and developing young players who have Bird rights is a critical part of intelligent roster construction. The NBA has a ‘soft’ cap, which means teams can go over the cap to re-sign players with Bird rights.
The Golden State Warriors, Los Angeles Clippers, and Brooklyn Nets have spent major sums of money using Bird rights to exceed the salary cap and paying luxury taxes to lock up valuable players to long-term contracts.
The Lakers are already worried that they may not be able to afford to re-sign sophomore sensation Austin Reaves, who’s clearly the third best player on this roster and will probably earn a bigger payday than Alex Caruso.
Make no mistake, re-signing Austin Reaves or trading for and re-signing a player like Myles Turner will not only increase the Lakers’ annual salaries but also increase the luxury taxes due because of the higher salaries.
The Lakers also want to avoid the repeater tax, which doubles the luxury taxes for any team that has been a taxpayer three out of any four years. Lakers will have paid taxes for three straight years after this season.
That means there could be great pressure on the Lakers’ front office from the Buss family to avoid paying taxes this season and next so that the team would not be a repeat offender and have future luxury taxes doubled.
Jerry Buss always understood that you had to spend money to make money. The Lakers need to understand that exorbitant luxury taxes are just the latest toll teams need to pay today to compete for an NBA championship.
Cheapness. Been saying it for awhile now and honestly it was Gerald who first brought up the fact that the Buss fam just doesn’t want to compete at the billionaire level. The luxury tax has thwarted the Lakers ambitions from an ownership perspective. Great post Tom.
Thanks, Jamie.
The reality is the franchise’s failure to pay big luxury taxes puts a ceiling on how good the Lakers can be compared to the Warriors, Clippers, and Nets. Doesn’t mean we can’t win another championship but that the odds of us doing so are no longer among the top tier. Days of Celtics and Lakers racking up 4 or 5 rings every decade are long gone. This is not Dr. Buss’ NBA.
We’re now second tier because of Jeanie and her minions who don’t understand that you have to spend money to make money. In 8 years, the Warriors won 4 rings and raised their franchise value from $1.3B to $6.7B. Lakers need to match those three teams and get back to being a Tier 1 competitor.
They’ll trot out the line “Dr. Buss didn’t pay taxes” line but that was a wholly different era.
Which is exactly the point!
A wholly different era.
If I’m to believe these 2 most recent TV series then Dr Buss was a master at pretending that he had a boatload money. Truth seems to be that we have never been on the same level financially as the truly wealthy owners. That’s how it is when you only have the 1 revenue stream. The family won’t sell the team no matter what because their entire identity & legacy (& bank account) is tied to being the owners of the Lakers. So they will never venture too far into the tax
The surest way for the Lakers to become a second tier competitor is for them to refuse to pay the same level of luxury taxes as the Warriors, Clippers, and Nets are willing to pay. It’s a cheap cop out to say they cannot compete with billionaires. The truth is they have to compete with them or fall behind.
The Busses need to understand that winning championships is what establishes the primary value of their franchise. They still need to win and the way to do that is go all-in to compete. Like the Warriors, they need to bet on winning, which is what Dr. Buss did to buy the Lakers and keep them winning.
The game has changed. This is not Dr. Buss’ NBA any more. Lakers have the cash flow and revenue to pay those luxury taxes and they will get it back as their franchise value soars again. Busses really only have one choice: sell the team or invest in it. The only other option, which Jeanie seems to have chosen, is to commit the franchise to a slow death as a second tier competitor.
Just remember.. Donald Sterling always made money on the Clippers. The flaw in your logic Is believing that winning titles is the primary goal of this ownership. It’s not necessarily the case and the proof is in their recent behavior. It speaks volumes.
Also..the valuation of the franchise only becomes real money once you sell the team; which ain’t gonna happen.
I understand what you’re saying but the Busses are taking the wrong approach. How much the franchise value appreciates will depend on how well the league does and the Lakers do.
Even if LAL struggles, the franchise value will go up but not as much as other teams. If the team wins, it will go up more than other teams. The Warriors showed the Lakers how to win and increase franchise value. It’s not by allowing players like Caruso to leave due to luxury taxes.
Invest in the team by paying luxury taxes and understand that winning will bring financial rewards in terms of franchise value. That’s how you win in today’s NBA. Sooner the Busses learn this, the better. It’s not rocket science.
Looking at payroll strictly through the lens of who’s paying how much, then sure. But it ain’t like the Lakers aren’t paying well into the tax. If there were players worth paying to really propel them into contention, they would have. I think everyone brings up Caruso, but I mostly remember the poor shooting, bonehead plays, and blown layups. Letting him go is hardly the tragedy everyone makes it out to be. How’s his current team doing? The Russ deal was just the mother of self-inflicted wounds.
What I do think Dr Buss would’ve fought harder against was a CBA limiting the Lakers market advantages. Jeannie lacked the backbone to make that happen. Hell, they couldn’t even get an amnesty clause into the last agreement.
They made some awful personnel decisions, too many to name really. Formed an unholy alliance with an agency concerned with plenty other things than winning themselves. Will likely fail to make the playoffs again. Even with all that, they really don’t have to worry about some other clubs leapfrogging their valuation any time soon.
The Knicks haven’t won squat in 50 years, have arguably the worst ownership, and simply by the virtue of their large market, have the most valuable franchise in the league. So unless LA somehow contracts, the valuation will be just fine.
I’m not worried about other teams leapfrogging our valuation. I’m worried about the Warriors, Clippers, and Nets outspending us in salaries and luxury taxes every season, making us a second tier competitor who will struggle to keep up when it comes to wining championships.
Dude the Lakers will always be worth a couple billion more than most teams for one easy to spot reason: they’re in LA. Same reason LeBron will put up with this crap management. The other is the history the Buss family in particular has been a part of. They’ll be in the mix one way or the other. Now, for the right price would they cede control of the team? That’s a worthier debate. Or would they at least empower a GM to really build the team and allow for some amount of tax to be paid. As we’ve seen with specifically the Warriors this season just throwing money at something guarantees nothing. They just need to make better choices.
Warriors caught lightning in a bottle, got Steph at a discount early, drafted brilliantly right before a massive cap spike, and were able to sign a top-2 in the league player. Clipps and Nets have spent their way to what exactly? And even still, they’re only outspending the Lakers because they had guys worth re-signing. Who haven’t the Lakers re-signed besides sad sack Caruso?
This is one of the reasons why I feel like that Bubble title was one of the worst things that could have happened in Rob’s first season and for the franchise in general. Everyone started buying all their positive press and ignoring critique, however valid or astute. I have a hard time seeing the Buss Family not being a part of the Lakers in the future. One thing to watch is when/if the NBA begins to allow big foreign money in like FIFA and soccer in general have. That’ll even the playing field money wise and necessitate a new CBA, likely resulting in a hard cap.
I’ll still take it but it did give Rob credibility with Jeanie that could prove to be costly.
Hard cap making it easier to get rid of underperforming contracts? Let’s do it!
Also makes it harder to build a contending team.
Nope, not for the Lakers. Any time you have a handful of FA’s looking to form a superteam, all LA has to do is cut their dead weight to make room. That’s why the podunks never allow that to happen.
Another thing about these valuations..nobody’s taking into account that the Dubs, Knicks, Bulls, and (very soon) Cipps own their arenas. The Lakers will never have that additional revenue stream as long as the Buss family owns the team..simply can’t afford it. So they also miss out on the naming rights fees (which Dr Buss was one of the 1st to implement back in the day)
We added 11 mil when traded for Russ. The only other avenue for adding salary was if would have signed Alex for the 8 mil he wanted. The salary cap prevented us from even keeping Monk. We only had 6 mil to offer. If we use our space this summer the only guys we can go over with are Austin with birds rights and Gabriel and Nunn with early bird rights. We really can’t spend more because of the cap. Besides it is not what we have spent that got us into this mess. It was bad trades and poor asset management that did it.
The Lakers unwillingness to take back salary in trades has limited their possible return. Teams can take back 125% of what they send out. It’s an extra rotation player in a trade. Lakers don’t want to raise payroll or taxes, which is handicapping them vs. the Warriors, Clippers, and Nets.
Lakers also continue to try and create cap space for free agents, which is part of their motivation not to trade the picks. They want to have three picks this summer so they can hopefully put together a trade for a third superstar.
The other problem the Lakers are going to have this summer is going to be matching contracts. Lakers may be forced to look for S&T deals. Otherwise, if they let Russ’ and everybody else’s contracts expire, they will have no tradeable contracts but LeBron and AD.
You’re right about the arena being another differentiator in competitiveness in today’s NBA, Mongo. The Lakers still have plenty of natural advantages that help them but poor management has left multiple rings on the court imo. They still need to invest in winning, which means luxury taxes today, because winning will only accelerate their value while losing will only limit it.