The Bulls And The Luxury Tax

January 23 at 5:11pm CDT By Chuck Myron

The Bulls paid the luxury tax for the first time in franchise history last season, a year they clung to ill-fated hopes that Derrick Rose would return from a torn ACL. They were set up to do so again as 2013/14 began, with a healthy Rose and legitimate title aspirations. The odds of a championship became almost nil in late November when Rose tore his meniscus, which likely ends his season prematurely for the third year in a row. Without the specter of the Larry O’Brien trophy to serve as justification for the extra spending, the Bulls traded Luol Deng and slipped beneath the luxury tax line. But not by much.

Chicago waived Andrew Bynum soon after the swap became official, and within hours of the deadline to do so before his $12.25MM salary would have become fully guaranteed. With Bynum’s cap hit reduced to $6MM, the Bulls had a team salary of $71,199,202, perilously close to the $71.748MM tax threshold. That’s less than $550K worth of room, barely enough to cover a pro-rated minimum-salary contract.

The release of Bynum left Chicago with 12 players, and teams can only stand at a dozen for two weeks at a time. So, the Bulls were going to have to spend more money and draw ever closer to the tax line. They took a pair of incremental steps in that direction with consecutive 10-day contracts for Cartier Martin, adding $104,034 to their books.

Tuesday’s swap of Marquis Teague for Tornike Shengelia helped draw Chicago back from the brink. Teague’s $1,074,720 salary is greater than Shengelia’s one-year veteran’s minimum of $788,872. Rookies and players with a single season of experience who are making the minimum and weren’t signed as draft picks, like Shengelia, count toward the tax as though they were making the two-year veteran’s minimum of $884,293. Since Shengelia signed his contract with Brooklyn as a second-round draft pick in 2012, his salary still counts as $788,872 toward the tax. That means the Teague/Shengelia swap left the Bulls with a team salary of $71,017,388, which is $730,612 beneath the tax line.

With Kirk Hinrich out for at least a week because of a strained right hamstring, the departure with Teague left the Bulls with midseason signee D.J. Augustin as their only healthy point guard. Chicago added depth with Wednesday’s signing of Mike James to a 10-day contract, bumping the team payroll by another $52,017 and reducing the breathing room underneath the tax line to $678,595, close to where the Bulls had been after releasing Bynum.

That figure isn’t set in stone. Players whose contracts include incentive bonuses that they’re unlikely to trigger can add to team salary if they pull a surprise and earn the bonuses. Joakim Noah and Taj Gibson have such clauses in their deals, so it’s possible they could outperform expectations and bump the Bulls into tax territory. Exactly what Noah and Gibson have to do to earn their bonuses hasn’t been reported. The Bulls are aware of what those incentive clauses stipulate, of course, and that knowledge could play a role in the decisions the team makes between now and the final day of the regular season, when team salary is locked in for tax calculations.

The Bulls hope to sign Martin for the rest of the season, and doing so wouldn’t allow enough room under the tax line for them to do so with James, at least not without some gap in his employment with the team. That means the Bulls and the 38-year-old journeyman will almost certainly be parting ways.

The team’s ability to stay out of the tax this year is reportedly playing a role in the team’s uncertainty regarding Carlos Boozer. The Bulls long seemed destined to amnesty Boozer this summer, but if they’re not taxpayers this season, they could pay the tax in 2014/15 without triggering repeat offender penalties. Even without that incentive for cutting costs this year, owner Jerry Reinsdorf isn’t known as a profligate spender, and so it appears the Bulls will do all that they can to avoid the tax this year.

Larry Coon’s Salary Cap FAQ and ShamSports.com were used in the creation of this post.

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