Why is the luxury tax a big deal?

[HWoodNixon]

Why are owners so reluctant to pay the nba luxury tax? These guys are billionaires, so I really don’t understand why paying a little more money to recruit top talent and give your team a chance to win a title isn’t valued more. Besides, it seems to me that if you invested more cash in recruiting top talent, you’d draw more fans and more revenue from being more competitive.

[TDMVPDPOY]

its a business, ur in it to make a profit with minimum spending...

most of its revenue the teams rely on is tv revenue, seats revenue the later... why overpay a roster when u cant even fill ur stadium?

[RC_Drunkford]

because the tax multiplies every year

[Dex]

Why are owners so reluctant to pay the nba luxury tax? These guys are billionaires, so I really don’t understand why paying a little more money to recruit top talent and give your team a chance to win a title isn’t valued more. Besides, it seems to me that if you invested more cash in recruiting top talent, you’d draw more fans and more revenue from being more competitive.

A "little more money" could be tens, even hundreds of millions of dollars.

Rich people don't stay rich by throwing away their money.

[sananspursfan21]

If you can win without paying it, why pay it? The owners kind of have a game of their own going on in the financial department.

[cjw]

1.) Owners aren’t charities. They’re rich but not THAT rich.

2.) The tax multiplies. Read how much the Thunder were on the hook for before dumping Melo. It was UGLY. We are talking a luxury tax that is 5-10% the value of a franchise each year, which is nuts.

3.) Luxury tax significantly impacts roster flexibility. Lower mid level exception and tougher trade rules among them.

[Maddog]

The luxury tax has IMHO not helped small market teams as well as expected. Most small market teams do not have owners who have the resources to absorb the luxury tax.
The Spurs ownership are not Billionaires- but let's say thye hypothetically where owned by a person worth 2 billion. As best can be ascertained, the Spurs break even or make a small profit each year. They don't have the lucrative local TV contracts that LA and other markets have. If they had a luxury tax of 50 million (similar to GS less than OKC and near what Houston is heade for) you are looking at 2-3 % of that persons net worth. Net worth is tricky little if any of this is cash on hand. Given the Spurs ownership is probably bottom third in wealth in a small market....

This is a ross oversimplification

[XDT76]

Being in luxury tax might cost the team to lose money, restrict team's ability to offer contract to Free Agent. Having problem moving bad contracts, thus limit team's trade option. The longer the team stays in luxury tax the more the team has to pay, in the long run the team will be worse off. The penalties also do not stop immediately when the team goes below luxury tax if the team is paying luxury tax for multiple years.

[dbestpro]

Simple: rich people stick to the principals that made them rich. They did not get there by spending money recklessly. They get there by building a better process. Part of that process is to stop wasteful spending.

[Chillen]

It's simple, it's a business. At the end of the day after all expenses paid your profit margin has to be larger than what your paying out or there is no point to a business that loses money. This can be said for any business, even if NBA owners are billionaires if you lose money on product it's a failure. Profit margin has to be larger than expenses paid to run the business with purpose and principals. Going over the luxury tax is like a business that starts paying the expenses out of pocket with no profit to be made and that usually leads to bankruptcy, debt and closing the doors. Running a business that is losing money isn't fun, it's pointless.