Tag: Rockets Luxury Tax

Rockets owner Tilman Fertitta says an NBA title justifies tax spending

“You win a championship, it’s probably worth $30-$50 million dollars the following year,” Fertitta told the Houston Chronicle.

In three seasons as owner the Houston Rockets, Tilman Fertitta has yet to pay the NBA’s luxury tax. Barring a radical reconstruction of the roster, however, that’s likely going to change in the 2020-21 season.

The Rockets are on the hook for approximately $120 million in team salary next season just from their starting five (Russell Westbrook, James Harden, Eric Gordon, Robert Covington, and P.J. Tucker).

This year’s luxury-tax threshold was $139 million — and it may potentially fall to a much lower number next year, owing to the league’s revenue losses from the COVID-19 pandemic and the lack of fans at games.

Even if it stayed the same, the Rockets would almost certainly be above that threshold by the time they fill out their roster. GM Daryl Morey has said repeatedly that Fertitta has not issued a directive to duck the tax.

Now, Fertitta is explaining why. In a new interview with Jerome Solomon of the Houston Chronicle, Fertitta says revenues from an NBA championship would make it all worthwhile. Among his comments:

We want to be champions. You win a championship, it’s probably worth $30-$50 million dollars the following year to you from sponsorships and people wanting to buy tickets and everything else. So you want to spend the money to win a championship. …

We don’t make basketball decisions of two or three million dollars based on the luxury tax. Our whole budget this year was to be in the luxury tax.

Houston dropped comfortably below the 2019-20 luxury tax line with its February trade for Robert Covington, though the primary motivation for that trade certainly appears to be about basketball — as evidenced by the team’s clear excitement about its switch to a smaller lineup.

Clearly, the pandemic has hurt revenues for Fertitta’s hospitality empire, headlined by the Landry’s Inc. restaurant group and the Golden Nugget casino chain. But the 63-year-old Houston billionaire firmly denies that there’s any connection between those businesses and the Rockets, who he contends operate “in a silo” of their own.

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“That’s bad journalism,” Fertitta told Solomon. “That’s bad information to the public. OK? I’m gonna do whatever it takes to put the best team out there for the Rockets. And what happens over here has nothing to with what goes on at the Houston Rockets. It has nothing to do with it.”

Fertitta did admit to Solomon that the financial consequences of the pandemic had cost him about $1 billion in the first half of 2020.

“But that’s why it’s good to have a few billion,” said Fertitta, who is estimated by Forbes to currently have a net worth of $4.1 billion.

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Daryl Morey says Tilman Fertitta ‘incorrectly gets beat up’

Though some fans have criticized the Rockets for again avoiding the NBA’s luxury tax, GM Daryl Morey says ownership is misunderstood.

Although the Rockets reduced team salary in the deadline trade sending out Clint Capela and others for Robert Covington, Houston GM Daryl Morey insists there was not a mandate from ownership to cut salary.

In fact, Morey suggests that owner Tilman Fertitta was encouraging him to add to the team’s payroll. That would jive with a report earlier this week from CNBC, which said that Fertitta had greenlighted Morey to improve the roster with “no financial restrictions.”

In a new interview after Thursday’s trade deadline with Mark Medina of USA TODAY Sports, Morey was asked how much significance luxury tax savings had in his dealmaking, since the Covington deal sent Houston from slightly above the tax line to nearly $6 million below it.

“None,” Morey replied. “I was happy because it gave us a window to add someone. But no one was moving any players in that window, unfortunately, that we thought could help us.”

The “window to add someone” came after the four-way trade involving Covington and Capela was agreed to but not finalized. At the time, reports said the Rockets were working to expand the trade, with the ability to take on a salary as large as ~$5.8 million and stay beneath the tax, or up to ~$12 million if they were willing to pay the tax.

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The Rockets ultimately did not expand the trade at all, with Morey saying their desired options didn’t materialize. Understandably, some wondered if Fertitta had asked Morey to limit payroll, since the Rockets had also narrowly avoided the tax in each of his first two seasons as owner.

But when asked about that scenario by USA TODAY Sports, Morey strongly pushed back on the notion:

No. Actually, I’m being totally up front. I was getting strong encouragement to go the other way. …

Ownership incorrectly gets beat up. We operate like every other team in the NBA. When you’re a contender, you’re right around the luxury tax line. That’s how we’ve always operated. That’s how we’ve operated since I’ve been here since 2006. We still have a huge payroll in the league. I know people like to focus on it. But that’s a weird thing. Focus on the team on the floor.

If people don’t like that we don’t have a big man or don’t like how we play, that’s fine. But judge us for how we are. Judge us on our wins and losses. We’ve had one of the best records in the league for 10-14 years and have been a perennial playoff contender. We got an exciting roster with top players. I would talk about that. I don’t understand why people are focused on the other stuff.

On Friday night, ESPN’s Adrian Wojnarowski seemed to corroborate Morey’s version of events by noting that the Rockets attempted to trade for Brooklyn center DeAndre Jordan during the trade expansion window. Jordan will make nearly $10 million this season, which would have easily pushed Houston into the tax, but the Nets declined the deal.

Now 31 years old, the 6-foot-11 Jordan is averaging 7.9 points (67.7% shooting) and 9.6 rebounds in 20.9 minutes per game this season.

Only four NBA teams are projected to spend into the luxury tax this season, and only two of those teams (Miami, Oklahoma City) are on pace to make the 2020 playoffs. So the Rockets certainly aren’t alone, as it pertains to perceived title contenders who narrowly avoided the tax

There could be a potential advantage in the weeks ahead to being below the tax line by a sizable amount. After the deadline deals, Houston now has two open roster spots to potentially sign veterans who are bought out of their contracts. Unlike most teams, they also have a pro-rated portion of their 2019-20 Mid-Level Exception (MLE) available for use.

Being nearly $6 million clear of the tax could make it easier for Morey to sign multiple buyout players and/or to use the leftover MLE money to give the Rockets a leg up in the bidding process, if need be.

The buyout market will likely take a few more days to fully take shape around the league, with teams, players, and agents negotiating over exact financial terms. The deadline for a player to be bought out and still be eligible for the playoffs with a new team is March 1.

The NBA’s All-Star break begins next week, which could be the sweet spot in the schedule for negotiations to take place and to more easily integrate any new player(s) in practice — since there won’t be any games.

If there are truly no financial constraints, as Morey and Fertitta have said, there would seem to be very good odds of the Rockets adding at least one more capable player in the near future.

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Tilman Fertitta reportedly signs off on Rockets’ deadline spending

Rockets owner Tilman Fertitta reportedly isn’t putting any financial restrictions on GM Daryl Morey entering the 2019-20 trade deadline.

Houston GM Daryl Morey will not be limited financially in his attempts to upgrade the Rockets by Thursday’s NBA trade deadline, according to a new report from CNBC’s Jabari Young.

Citing a source, Young writes that Rockets owner Tilman Fertitta has given Morey “full rights” to improve the team at the deadline with no financial restrictions. “Fertitta [is] not happy with team’s current standing and wants to win now,” Young wrote on Twitter.

The previous day, Young quoted league sources as saying that Fertitta wanted to shed payroll in hopes of avoiding the NBA’s luxury tax.

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The Rockets are reportedly shopping center Clint Capela on the trade market while hoping to bring in a wing player and replacement center. They’re also said to be monitoring the potential buyout market, with high-profile targets such as Cleveland big man Tristan Thompson.

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But some of those moves could push Houston into luxury tax territory, leaving many fans wondering just how viable they actually are. In Fertitta’s first two seasons owning the Rockets in 2017-18 and 2018-19, Houston avoided paying the tax.

However, it seems Fertitta could have a different mindset heading into the 2019-20 deadline, with the Rockets (31-18) mired in the No. 5 spot in the Western Conference and perhaps needing further roster upgrades to reach their expected status as an NBA title contender.

The trade deadline arrives at 2 p.m. Central time on Thursday.

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Rockets luxury tax update after waiving Gary Clark

Although the Rockets are slightly above the luxury tax, there are factors that should make them operate as if they are much more above it.

The Houston Rockets waived forward Gary Clark on Tuesday ahead of the NBA’s salary guarantee deadline. He only appeared in 18 games this season and was in and out of the rotation.

Clark’s 2019-20 salary was only 50% guaranteed. Had he not been waived today his $1.4 million salary would’ve become fully guaranteed. Guard Ben McLemore and center Isaiah Hartenstein both are now fully guaranteed for the rest of the season.

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Clark leaves the Rockets with a $708,426 dead cap hit, bringing them from $1.2 million over the luxury tax down to about $331,000.

Houston Rockets current cap sheet after waiving Gary Clark and fully guarantee Ben McLemore and Isaiah Hartenstein.
Houston Rockets current cap sheet after waiving Gary Clark and fully guarantee Ben McLemore and Isaiah Hartenstein.

The Rockets need to reduce much more payroll than the figure they are over the luxury tax by if they are to stay under it by the end of the season. Although the Rockets are slightly above the  tax, there are factors that should make them operate as if they are much more above it.

For starters, center Clint Capela has $2 million in incentives that he can earn. He can earn $500,000 if he plays 2,000 minutes and finishes with a 30% defensive rebounding rate, and $1 million if the Rockets reach the 2020 Western Conference Finals.

Capela currently has a 31.6% defensive rebounding rate as of January 7 and has played 973 minutes in 29 of the team’s 35 games, according to Basketball-Reference. If he earns both incentives, that would increase his cap hit by $1.5 million. This means the Rockets, as currently constructed, can consider themselves $1.8 million over the luxury tax.

One thing that feels certain is that veteran center Nene will be traded. He is eligible to be traded on January 15, and clearing his $2.6 million base salary would bring the Rockets from $1.8 million over the tax to $734,000 below it. This leaves them with tight flexibility for the rest of the season to fill their last one or two roster spots, which they could do through either 10-day contracts or pro-rated minimum deals while avoiding the luxury tax with Capela potentially earning $1.5 million in incentives.

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A second trade would give them a lot more flexibility below the tax line. They can trade one of Gerald Green (who has trade veto power), Thabo Sefolosha, or Tyson Chandler, all of whom have a $1.6 million cap hit. If they were able to trade one of them, Houston would further increase their luxury tax cushion to about $2.4 million.

Initial indications are that GM Daryl Morey wants to use Clark’s open roster spot to bring in an impact player, perhaps sooner rather than later. If such a move happens in January, that could require a second trade.

There are several ways the Rockets can go about evading the tax while filling out the roster. They generally all lead back to the same road, but the route they take will become clear once the trade deadline passes.

Rockets luxury tax update after waiving Ryan Anderson

The Rockets are now carrying fourteen players on the roster. If they finish the season with the exact same roster, they would be $178,984 above the luxury tax for a tax payment of $268,476.

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The Houston Rockets waived forward Ryan Anderson on Monday. He only appeared in two games and did not play after Nov. 3.

Anderson was only guaranteed $500,000 after making the team’s opening night roster. The Rockets could have kept Anderson for four more days before his salary would’ve exceeded his guarantee, but they decided to part ways with him now.

The Rockets are now carrying 14 players on the roster. If they finish the season with the exact same roster, they would be $178,984 above the luxury tax for a tax payment of $268,476.

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The Rockets can get below the tax by trading some of their minimum-salaried players by the deadline and then signing new players on pro-rated deals. This was a practice they engaged in last season in order to completely avoid the luxury tax.

Nene, who was signed in order to be used as trade fodder, is widely expected to be traded once trade-eligible on January 15, 2020.

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One factor that can complicate the Rockets pursuit of avoiding the luxury tax is if Clint Capela earns some or all of his incentives. He has three incentives that can boost his salary by up to $2 million. Right now, he is on a rebounding tear and is on pace to have at least a 30 percent defensive rebounding percentage (currently at 33 percent per Basketball-Reference), which would give him an extra $500,000. He also must play at least 2,000 minutes to meet the criteria.

Two-way player Chris Clemons, who is in the rotation after playing in eight of the team’s last nine games, is a candidate for the 15th roster spot. The Rockets could run out his two-way clock and then convert him onto the regular roster with a prorated minimum salary.

The Rockets could trade both Nene and Gerald Green and have about $4 million in space below the tax. That should be plenty to work with for converting Clemons onto the regular-season roster, filling minimum roster requirements with 10-day contracts, and ultimately signing free agents to rest-of-season contracts while leaving some room for Capela’s potential incentives.

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