Coronavirus Pandemic Could Make Philadelphia 76ers’ Luxury-Tax Bill Soar

The coronavirus pandemic may wind up costing the NBA hundreds of millions of dollars over the coming months, which could cause the 2020-21 salary cap to plummet.

That’s bad news for the Philadelphia 76ers, who were already projected to be well over the NBA’s luxury-tax threshold next season.

In late January, the league released an updated projection of a $115 million salary cap and a $139 million luxury-tax line for the 2020-21 season, per ESPN’s Adrian Wojnarowski. That was a downtick from the original $116 million and $141 million projections, respectively, largely because of the loss of China-driven revenue stemming from the preseason controversy involving Houston Rockets general manager Daryl Morey.

It remains unclear how much revenue the NBA will lose from its ongoing shutdown of the 2019-20 season, as it doesn’t yet know when—or if—play will resume. If the league cannot resume the 2019-20 regular season or does so without fans, it could lose more than $500 million, according to John Hollinger and Danny Leroux of The Athletic. One “high-ranking team official” told Ben Golliver of the Washington Post that the NBA could lose more than $1.2 billion (!) if it ends up having to cancel the 2020 playoffs.

According to ESPN’s Adrian Wojnarowski, the NBA plans to provide “financial projections on three primary scenarios: shutting down the season, restarting with no fans in arenas and playing playoff games with fans.” Regardless of which path it ultimately chooses, any loss of revenue “will be reflected in next season’s salary cap and the players’ share of basketball-related income,” Wojnarowski added.

The league bases its salary cap upon the projected amount of BRI for the upcoming season, and it typically uses BRI from the previous season as a baseline. Since the ongoing shutdown figures to significantly affect 2019-20 BRI, the NBA and the National Basketball Players Association could instead agree to throw out that baseline and set the cap using an actual projection of 2020-21 BRI. But if they don’t, a 2020-21 salary-cap decline of “$10 million to $15 million is not outside the realm of possibility,” according to Bleacher Report’s Ken Berger.

Such a drop would have huge financial ramifications for the Sixers.

The Sixers already have nearly $114.9 million in guaranteed salaries on their books next season, and they figure to pick up cheap team options for Furkan Korkmaz ($1.8 million) and Norvel Pelle ($1.5 million). That alone would put them at nearly $118.2 million, or $3.2 million over the projected $115 million salary cap and only $20.8 million below the projected $139 million luxury-tax threshold.

That $118.2 million figure doesn’t even take into account All-Star point guard Ben Simmons, who signed a five-year max extension this past July. The value of that extension is based on a percentage of the salary cap, so the Sixers may end up getting a significant discount on Simmons if the cap plummets in 2020-21.

Under a $115 million cap, Simmons would earn $28.75 million in 2020-21, and the full value of his five-year extension would be $166.75 million. If the cap remains at $109.14 million (as it is in 2019-20), he’d earn roughly $27.3 million next year and $158.3 million over the life of the extension. If the cap drops to an even $100 million, he’d earn $25 million next year and $145 million over the life of the extension.

The value of Simmons’ extension could also rise if he gets named to an All-NBA team this season. He would earn 28 percent of the salary cap if he’s on the All-NBA third team, 29 percent if he’s on the All-NBA second team and 30 percent if he’s on the All-NBA first team, per Spotrac. While his back injury coming out of the All-Star break may have jeopardized his All-NBA candidacy, that adds another degree of uncertainty with regard to how much he’ll earn next season and beyond.

With Simmons earning $28.75 million next season under a $115 million cap, the Sixers would have $146.9 million in salary commitments. Add one incomplete roster charge of $946,543—which would be the bare minimum they could pay any player next season—and they’d be nearly $8.9 million over the $139 million luxury-tax threshold, which would cost them roughly $14.3 million in tax.

Assuming they pick up the options for Korkmaz (a lock) and Pelle (more likely than not), that’s the absolute least they’d owe in tax, barring trades. However, their payroll is certain to swell even more.

If they receive the Oklahoma City Thunder’s top-20-protected first-round pick—which would happen if the regular season does not resume—that would add roughly $2.5 million to their books unless they sell or trade the pick or use it on a draft-and-stash player. Spending any portion of their taxpayer mid-level exception would cause their tax bill to rise even further. And they figure to round out their roster with a handful of players on veteran-minimum contracts, too.

Even in the bare-minimum scenario—picking up options for Korkmaz and Pelle, rostering only 12 players and signing a rookie to a $946,543 minimum contract—the Sixers’ tax bill could still spiral out of hand quickly depending on how far the cap falls. The savings they get on Simmons’ extension won’t come close to making up for their ballooning tax payment.

If the cap does decline to this extent, it could influence the Sixers’ team-building strategy moving forward. Since the tax rate rises substantially as teams go further over the threshold, an increasingly bloated luxury-tax bill might cause the Sixers to rethink bringing back their entire starting five next season. It could affect their willingness to spend the taxpayer mid-level exception or keep OKC’s first-round pick, too.

The Sixers won’t be the only team in that boat if the 2020-21 cap does plummet. The Golden State Warriors, Brooklyn Nets and Boston Celtics are all staring down the possibility of facing hefty luxury-tax bills, too. As such, the NBA and NBPA both have incentive to agree on a 2020-21 cap figure that averts a significant one-year decline. Otherwise, teams may be far less willing (or able) to spend money on free agents this offseason.

Settling upon a 2020-21 cap figure is one of many thorny issues the NBA and NBPA must collectively bargain over the next few months as the coronavirus pandemic continues to unfold. The Sixers and other projected taxpayers can only hope the two sides reach an agreement that doesn’t involve a drastic one-year drop, or their tax bills will balloon accordingly.

Unless otherwise noted, all stats via NBA.com or Basketball Reference. All salary information via Early Bird Rights.