More offseason reading from good ol Ross Siler.
https://www.sltrib.com/sltrib/jazz/50024290-87/million-jazz-miller-tax.html.csp?page=1
https://www.sltrib.com/sltrib/jazz/50024290-87/million-jazz-miller-tax.html.csp?page=1
Jazz chief executive Greg Miller was attending league meetings in Las Vegas on July 12 when general manager Kevin O’Connor, team president Randy Rigby and chief financial officer Bob Hyde called to outline the proposed Al Jefferson trade with Minnesota.
Once they had discussed the favorable basketball implications of adding a low-post force in Jefferson, who averaged 20.1 points and 10.4 rebounds the past three seasons with the Timberwolves, Hyde went over the financial particulars with Miller.
Specifically, Hyde presented a worst-case scenario, according to Miller, of what would happen if the Jazz missed the playoffs given the payroll commitments they would have after acquiring Jefferson and positioning themselves as a luxury-tax paying team.
“Based on the economics, I felt like the risk was acceptable and decided to pull the trigger,” Miller said in an interview last week, adding, “It was a big decision, but I felt like … I had enough good information to make a good decision, and only time will tell.”
As much basketball sense as it made to acquire Jefferson following Carlos Boozer’s departure, the trade also committed the Jazz to paying the NBA’s luxury tax on excessive payroll spending for the second consecutive season.
Despite playing in the league’s sixth-smallest market — ahead of only Milwaukee, San Antonio, Oklahoma City, Memphis, Tenn., and New Orleans — the Jazz once again have entered the realm of Mark Cuban and the NBA’s biggest spending teams.
After acquiring Jefferson and signing Raja Bell to a three-year, $9.72 million deal in free agency, the Jazz have $73.7 million committed to nine players for the upcoming season. The NBA’s luxury-tax threshold has been set at $70.307 million.
“I’m not sure that it’s something the fans should get used to,” Miller said. “I wouldn’t be willing to go into the luxury tax if I didn’t think we could be very competitive.”
To Miller, the Jazz justified the commitment by having a good chance of making a significant playoff run. There’s also the reality that the four teams that reached the conference finals last season — the L.A. Lakers, Phoenix, Boston and Orlando — all were taxpayers.
“And I believe with the amount of money that teams are spending on their players, that you’ve got to spend at or near tax levels in order to be a playoff contender,” Miller said.
The luxury tax exists as a deterrent to unrestrained spending by teams, which must pay a dollar-for-dollar penalty for the amount they exceed the threshold. In addition, teams that come in under the tax receive a share of the league-wide tax payments.
Not only did the Jazz have to pay a $3.105 million luxury-tax bill last season, they also lost out on collecting a $3.7 million share of the disbursements from the NBA.
“It’s a pretty hard hit, but it’s not enough to knock us over,” Miller said, later acknowledging another reality of being a taxpaying team. The Lakers might have won a championship, but Dallas and Cleveland didn’t despite two of the league’s biggest payrolls.
“There’s no guarantee that spending the money will help you win games, either,” Miller said. “Your odds are certainly enhanced, but there are no guarantees.”
Father’s guidance.
The Jazz’s decision to push their payroll into tax territory — in consecutive seasons, no less — runs counter to the public pronouncements of late owner Larry Miller. As recently as August 2008, Miller voiced his opposition to ever doing so.
“I do not intend us to be a luxury-taxpayer,” said Miller, who died from diabetes-related complications in February 2009, “but only because we have to have an economically stable franchise regardless of anything else.”
Although those comments were taken by many as an absolute edict, Greg Miller said the only conversation he had with his father about the luxury tax came three or four years ago when they “touched on it lightly.”
What were Larry Miller’s guiding words? “We want to avoid paying it, but if it’s a reasonable risk, it’s up to me,” Greg Miller said, adding that he’s wrestled with whether his father would have made the same decisions the past two years.
“Who knows what he would do, if he was here, whether he would do this or not?” Miller said. “He was a very competitive person. He was not one to ever sit on the sidelines and let the excitement on the field pass him by.”
O’Connor added: “We had meetings with Larry about it before he got sick and we told him that we were heading down this road if we were going to remain competitive. And he said if it’s a good business decision, then we would look at it.”
The Jazz’s hands were somewhat tied with the tax last season, as Boozer, Mehmet Okur and Kyle Korver all opted to play out their contracts rather than test a depressed free-agent market.
O’Connor was able to ease the tax burden with trades that sent Eric Maynor and injured forward Matt Harpring to Oklahoma City as well as Ronnie Brewer to Memphis. Both the Thunder and Grizzlies had the cap space to absorb their salaries.
This summer, though, the Jazz willingly went into the tax to add Jefferson and Bell. “I think it paid dividends last year,” O’Connor said of the Jazz’s 53-win season, “and we were able to trim it down pretty good last year, and who knows this year?”
Miller said the Jazz couldn’t sustain long-term operating losses, but also noted the strong support the team has received. Season-ticket sales are up 53 percent compared with last year, he said, and sponsorship sales have been “strong” as well.
The Jazz, who most recently were valued at $343 million by Forbes magazine, additionally signed a new television deal with FSN Utah in October that will take them through the 2020-21 season.
“In a way, I feel a little bit of an obligation to roll the dice because they’re doing their part,” Miller said. “The fans are doing their part and the sponsors are doing theirs. Now as a family and as CEO we’ve got to do our part to make it as exciting a product as we can.”
Business sense
At the same time, Miller stressed that he cannot put the Jazz’s well-being ahead of the rest of the family’s businesses. He referred to his father’s words in a newsletter to his employees after taking over full ownership of the Jazz in 1986.
Larry Miller pledged that the Jazz would remain in Utah as long as the market supported the team but also sought to reassure his workers.
“We can handle buying the team, but we can’t and won’t handle major operating losses,” Miller said then. “I have a responsibility to my … employees and their families to keep our entire organization sound. If keeping the Jazz in Utah becomes a threat to our organization, that’s when the Jazz will go.”
With those words in mind, Greg Miller spoke of balancing the desire for the Jazz to be as competitive as possible while not putting undue strain on the businesses that employ thousands in the rest of the company.
Whether it’s the family’s car dealerships, movie theaters or TV and radio stations, Greg Miller said, “We’ve been very fortunate to have weathered the downturn somewhere between well and very well,” crediting his employees for that success.
All of which helps ease concerns about the Jazz. Miller said all the entities in the company’s sports and entertainment division — from the Jazz to Fanzz stores to the Miller Motorsports Park — are meeting or exceeding last year’s levels of profitability.
“Part of the feeling is that if we can improve our operations in the current economic circumstances, that’s noteworthy,” Miller said. “It’s not to say that we’re bulletproof, but it means that we’re well-structured.”
The company also boasts a strong debt-to-equity ratio, with Miller saying, “We’re in a position to be able to take a little bit of a risk.” For the Jazz, the risk comes with paying the luxury tax and not living up to such a payroll on the court.
Whether the Jazz will become perennial taxpayers is anything but settled. The NBA’s collective bargaining agreement will expire after this season and owners are expected to push for a hard salary cap instead of a luxury-tax system.
The next agreement also could bring the end of fully guaranteed contracts for players. Miller said it was impossible to speculate about the future but was adamant about one thing.
“As a franchise, the Utah Jazz will always be positioning themselves to get better, period,” he said. “There will never come a day on my watch when we’re sitting on our hands and just taking what the league gives us.
“If we win a championship, then the next year, we’ll be looking for a way to sustain that level of competitiveness. If we don’t win the championship, we’ll always be looking at how we can get better given the financial or other restrictions that we’re dealing with.”
