Luxury tax question

[ambchang]

What stops an NBA team from setting up a separate group that, in theory, solely does advertising work for the team, then move a portion of a player’s salary as an advertising costs?

For example, instead of signing a player for $30M over 6 years, the Spurs would sign a player for $10M over 6 years, and at the exact same time, have a separate group that would sign the same player to a $20M deal “advertising” the Spurs over 6 years. Given advertising revenues does not count against the cap, this would not affect the team’s luxury cap, and the Spurs can avoid $20M in luxury taxes over 6 years.

This is probably illegal and all, but what is the exact rule in the agreement that stops this from happening?

[TDMVPDPOY]

its legal...just ask lebron when he bolts to a big market team like the knicks where NIKE will pay him shit loads of money offsetting what the knicks can only afford to give him...it happens in every sport man....

nba cant do shit about it

[BG_Spurs_Fan]

Dealing under the table results in losing draft picks, it happened with Wolves and Joe Smith. I'm pretty sure if there's a way to cheat this way without being caught then every team would do it ( or is already doing it ).

I know football teams ( european football ) have a way of avoiding taxes on the ridiculous salaries they pay by registering a company on some fancy island and getting their players as employees of the said companies.

[ambchang]

But the thing is, this isn't dealt under the table. There were basically two deals that were presented to the player, only one deal is dependent on the other.

It's basically, if you sign with us, then one of our sister companies will give you an advertising deal for the next 6 years that would suppliment your actual deal with us.

[raspsa]

The league would surely find a way to put a stop to such a practice as it would jeopardize any efforts to rationalize players compensation and lead to unrestricted an bidding war for top players.. the last thing the owners would want.

[ss1986v2]

But the thing is, this isn't dealt under the table. There were basically two deals that were presented to the player, only one deal is dependent on the other.

It's basically, if you sign with us, then one of our sister companies will give you an advertising deal for the next 6 years that would suppliment your actual deal with us.

still illegal. from the cba:


It shall constitute a violation of Section 1(a) above for a Team (or Team Affiliate) to enter into an agreement or understanding with any sponsor or business partner or third-party under which such sponsor, business partner or third-party pays or agrees to pay compensation for basketball services (even if such compensation is ostensibly designated as being for non-basketball services) to a player under Contract to the Team. Such an agreement with a sponsor or business partner or third-party may be inferred where: (i) such compensation from the sponsor or business partner or third-party is substantially in excess of the fair market value of any services to be rendered by the player for such sponsor or business partner or third party; and (ii) the Compensation in the Player Contract between the player and the Team is substantially below the fair market value of such Contract. (c) It shall constitute a violation of Section 1(a) above for a Team (or Team Affiliate) to have a financial arrangement with or offer a financial inducement to any player (not including retired players) not signed to a current Player Contract, except as permitted by this Agreement.

[ambchang]

Thanks.

[mosdef17]

I don't know if someone has mentioned this, just had a quick glance. But for example if the owner of the Cavs owned Apple computers (just a fairy land not true example). Say if they wanted to hire LeBron as an "environmental ambassador" and put him on the pay roll at Apple I think they can. This would enable the Cavs to offer him more money overall. Again, it was only a silly example. It may be illegal and probably should be.

[BG_Spurs_Fan]

I don't know if someone has mentioned this, just had a quick glance. But for example if the owner of the Cavs owned Apple computers (just a fairy land not true example). Say if they wanted to hire LeBron as an "environmental ambassador" and put him on the pay roll at Apple I think they can. This would enable the Cavs to offer him more money overall. Again, it was only a silly example. It may be illegal and probably should be.

Well Rockets players get deals with Chinese companies,don't they, everyone knows it's basketball related and all that, but it's not considered a breach of the CBA.

[ChumpDumper]

Well Rockets players get deals with Chinese companies,don't they, everyone knows it's basketball related and all that, but it's not considered a breach of the CBA.Chinese companies don't own the Rockets.

[ploto]

The NBA contract would have to be noticeably below market value and the endorsement deal noticeably above market value for that rule to apply. Otherwise it is OK. Teams find small deals with team sponsors for players all the time. It just can not be that blatant. If Scola's shoe deal is comparable to other shoe deals, then it is fine.

There are also small ways a team can pay a player outside his salary to help offset when they can not offer as much money- like paying them for doing personal appearances I think the standard used to be $2500 for a player appearance on behalf of a sponsor, so it's not alot in NBA terms, but they can line more up for the guy who wants more money.

[BG_Spurs_Fan]

Chinese companies don't own the Rockets.

"It shall constitute a violation of Section 1(a) above for a Team (or Team Affiliate) to enter into an agreement or understanding with any sponsor or business partner or third-party under which such sponsor, business partner or third-party pays or agrees to pay compensation for basketball services (even if such compensation is ostensibly designated as being for non-basketball services) to a player under Contract to the Team."

It says even 3rd party companies, they don't have to own the Rockets. I'm not saying they're cheating, what I mean is that there's a fine line there when it comes to things like that and I'm sure there are people in the NBA who take care of them.

[ploto]

Scola received from the Rockets a contract that was considered to be at his value. So, there is not a problem if the team or its sponsors help line up endorsement deals for him. Basketball services is payment for playing basketball in NBA. Advertisement is not basketball services if the money is truly meant for the endorsement deal and not a veiled attempt to pay part of his NBA salary outside the NBA salary structure.

[Seventyniner]

So if a company who happens to be supporting a particular team wants to, they could tell a free agent "sign a contract at market value with this team, and we'll give you a huge endorsement deal"? This would allow a team over the cap to basically outbid other teams, even with only the MLE. All the team would have to do is pay the company the "endorsement" salary, and make sure that the contract is at or near market value.

[ploto]

All the team would have to do is pay the company the "endorsement" salary...

That is where I think it would be wrong. The team would not be allowed to pay the company to pay the player. The company would have to pay the player for the endorsement deal itself because he would be advertising for them. The Spurs can not pay Time Warner to hire and to pay Manu for his ads. Time Warner has to pay him.

[ChumpDumper]

How could a team get away with paying a sponsor that amount? That's pretty much the polar reverse of that relationship.

[YoMamaIsCallin]

Here's the thing. Why should the third party pay the player more than they would have otherwise? What business value are they receiving from that payment? If it turns out that the team is giving them money or something of value under the table, then it's a clear violation. If not, then market competition would stop them from offering the money.

It's like your neighbor coming to you and saying, "How about paying the guy who mows my lawn $100 a month, in return for which he'll go around town saying what a good guy you are?" What would incent you to do this? Maybe it's worth $10/month to you, but certainly not $100.

[DPG21920]

You are not allowed to circumvent the cap in any situation.

[Darkwaters]

Chinese companies don't own the Rockets.

No, but China pretty much does own the United States these days. Does that work?

[fyatuk]

This is probably illegal and all, but what is the exact rule in the agreement that stops this from happening?

If the team and the sponsoring company are working together, or the same entity, and the team's contract is obviously below market value, then it falls under the circumvention clauses of the CBA (the same clauses the busted the Timberwolves).

If a company wants to say "We'll hire you to endorse us if you sign here," that's not illegal. It's only when it gets to the point where it's obvious the team and company are working together to gurantee a higher salary than the team could afford individually.

[jb4g]

Isnt this what the Twolves are trying to do with Rubio? I thought I read that the team had lined up enough endorsements already to cover his buyout since they can only pay 500k of it. I guess they can always say that the companies approached them first therefore they did nothing wrong.

Also, chinese investors own a stake in the Cavs, therefore assuring Bron Bron additional endorsement money in hopes that he stays in Cleveland. That would also seem to be circumventing some of the rules

[Da Spurs]

Maybe the TWolves get in big trouble again. Another penalty like last time and they will be the SMU of the NBA.

[DPG21920]

No, what the T-Wolves are doing has nothing to do with circumventing the cap. It has to do with finding him endorsements to help pay/facilitate a buyout from his club that costs a lot of money. The Wolves can only pay 500K for a buyout, the rest has to come out of Rubio's pocket.

The Wolves will still pay his salary, which is different than the money for the buyout.