Heat explains its luxury tax philosophy in most detailed terms to date. What to know
With the NBA’s seventh-highest payroll this season, the Heat is on track to pay a $26.9 million tax bill unless it trims salary before the end of the season.
And that’s not where the organization ideally would like to operate.
Eric Woolworth, the Heat’s president of business operations, recently offered the most extensive comments that the organization has ever given regarding the team’s philosophy about paying the tax.
Miami’s $188.5 million payroll is way above the $170.8 million tax line this season. Because the Heat is also above the $178.1 million first apron, it’s not permitted to take back more salary than it trades out this season.
“Anybody who works in the NBA who tells you they want to be a taxpayer is lying to you,” Woolworth said on Chris O’Gorman’s “Questions for Cancer Research” podcast.
“Nobody wants to pay a luxury tax. Increasingly, it’s super punitive. There are a couple of different operating philosophies around the league. Certain teams never pay the tax; they just won’t. I respect that. It’s harder to win if you have that mentality, but I understand either because of market size or philosophy.
“There are certain teams who don’t seem to mind paying it and are consistently above the tax level and some of those teams have won a lot.
“And there are teams like us who are sort of opportunistic. And when you see a team is in position [needing] one more piece to win a championship, you go for it.
“It’s a strategic strike kind of mentality and that’s the way we’ve approached it, and pretty successfully, with three championships and seven Finals appearances. If that’s what it takes to win at any given time, we will go for it. If we can get out [of the tax] and still compete for championships, that’s even better.”
Per Spotrac.com, the Heat has paid more than $50 million in luxury taxes over the years, which is in the top 10 in the league.
Woolworth said paying a tax “is super punitive. As a business guy, I hate it. It’s impossible to run as a profitable organization if you pay the tax.”
And Woolworth noted that “all the non-taxpayers split the money that the taxpayers are paying. If you are a taxpayer, you are not only paying it but you’re not a receiver” of the pool of tax money.
According to Spotrac.com, the Heat did not pay a tax in 2020, 2021 and 2022, but paid a $15.2 million tax in 2023 and none last season.
The Heat assuredly will pay a tax this season but is trying to avoid paying a repeater tax, which is triggered if a team goes over the luxury tax threshold in three out of the previous four years, or four times in five years.
“The repeater tax makes it that much more punitive,” Woolworth said. “It just restarts or it’s totally untenable.”
Here’s what to keep in mind in light of that last comment from Woolworth. If Jimmy Butler exercises his $52.8 million option for next season, the Heat would have $191 million in payroll commitments next season for 11 players. Even if Butler opts out, but re-signs with Miami, the payroll commitment likely would be comparable to $191 million.
Considering the projected luxury tax line is $187.9 million next season, operating with a payroll of that size would make the Heat a tax team three out of four years, which would trigger the repeater tax in 2026-27, should the Heat remain a tax team that season, too.
That reality makes it dubious if the Heat would accept paying this much salary again next season, especially if this team doesn’t make the Finals. That’s something Miami must consider in determining whether to keep Butler, Duncan Robinson (due $19.9 million next season) and Terry Rozier, who’s due $26.4 million in 2025-26.
Woolworth praised Heat ownership’s willingness to pay the tax in order to contend.
“This is a major tribute to our ownership, Micky and Nick Arison,” he said. “We could have a great plan on July 1 and it’s all out the window at Christmas. You have to be agile and adaptable and be able to change on the fly. We’ve done that as well as anybody.
“We’ve built a good business and are respected around the league being an innovative, customer first organization that takes care of its fans.”
A person in touch with the organization said the Heat remains open to improving the roster before the Feb. 6 trade deadline. But November trades in the NBA are highly unusual; many of the players who signed with teams over the summer became trade eligible Dec. 15.
The Heat remains less than $2 million below the $188.9 million second apron and is disinclined to cross that threshold for multiple reasons. Among the second apron consequences:
▪ Teams are not be permitted to take back more money in a trade than it sends out, aggregate salaries in a trade or send out cash in a trade. The Heat also wouldn’t be able to use a preexisting trade exception.
▪ If a team is above the second apron at the end of the regular season, their first-round draft pick seven years in the future is frozen. This means it can’t be traded until the team stays below the second apron for at least three of the next four years.
▪ If a team is above the second apron in at least two of the four years after their pick is frozen, it drops to the 30th overall pick.
“A lot of times new owners come into the league and because they’ve been so successful in their primary business, they all think they can do it better,” Woolworth said. “They learn the hard lesson that it doesn’t really work that way. There is no magic bullet for profit, especially if you want to win.”
The Heat (6-7) is in the midst of an unusual five-day break in the schedule and next plays at home on Sunday against Dallas (6 p.m., FanDuel Sports Network Sun).
This story was originally published November 20, 2024 at 12:25 PM.
