Charlotte Hornets

How bad contracts, luxury-tax fears may cost Hornets All-NBA Kemba Walker

If it comes down to losing Kemba Walker or paying luxury tax, the Charlotte Hornets will lose Walker.

The Hornets will not pay the NBA’s tax at the end of next season, and that makes it very dicey Walker, the Hornets’ all-time leading scorer, will re-sign. The Boston Celtics, Dallas Mavericks and Los Angeles Lakers will have the salary cap space to assemble four-year, $140 million offers for Walker when free agency begins Sunday evening.

The Hornets have the option under NBA rules to pay Walker far more than any other team: up to $221 million over five seasons. But an informed source says the Hornets’ offer won’t come close to $221 million. Owner Michael Jordan will not sign off on a contract that would push the Hornets into tax jeopardy.

Which begs the question: How are the Hornets in such a payroll calamity that it could cost them an All-NBA point guard, who general manager Mitch Kupchak called “a once-in-a-generation kind of player”?

That mess centers on a meeting in Dallas three years ago.

Batum expediency

The Hornets had a team of executives, both basketball and business-side, in Dallas to meet with then-free agent Nic Batum and his agent the minute free agency started at midnight July 1, 2016. They were determined to strike a deal with Batum, who Charlotte acquired in a 2015 trade with Portland, before any other team could meet with him, and they did so, agreeing on a five-year, $120 million contract, the largest in franchise history.

“Nic is a huge piece. He is our No. 1 priority,” then-general manager Rich Cho had said after the Hornets won a surprising 48 regular-season games in 2015-16 and pushed the Miami Heat to seven games before losing a first-round playoff series.

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A lot of bad contracts were signed around the NBA that summer. A new national television deal with ABC/ESPN and Turner Sports raised NBA revenues sharply, causing a spike in the salary cap of about $22 million per team. Teams struggled to price free agents in the resulting market. Three years later, Batum looks far overpaid. He’s still owed $25.5 million next season and $27 million the following season.

But Batum isn’t the only reason the Hornets are in a fix. Hours after the Batum deal, the Hornets came to terms with power forward Marvin Williams on a four-year, $54 million contract. Two other players — Michael Kidd-Gilchrist and Cody Zeller — have contracts with the Hornets that pay them $14.5 million and $13 million, respectively, next season.

Also, two trades last July effectively resulted in exchanging Dwight Howard for Bismack Biyombo at center. While Howard’s contract expired after last season, the Hornets owe Biyombo $17 million for next season.

Salaries for Batum, Biyombo, Zeller, Williams and Kidd-Gilchrist add up to $84 million next season, and it’s conceivable that Zeller would be the only one of the five starting for the Hornets in 2019-20.

Inherited problems

When Mitch Kupchak replaced Cho as Hornets general manager in the spring of 2018, he acknowledged the payroll problem he inherited from Cho’s regime. Howard, a former All-Star, wasn’t going to play much for new coach James Borrego, so the Hornets thought they needed to move him, rather than live with how he’d react to being a reserve for the first time in his career.

Rather than waive Howard, or attempt to negotiate a buyout on part of his $18 million salary, Kupchak traded Howard to the Brooklyn Nets, for often-injured center Timofey Mozgov. Then, Kupchak quickly traded Mozgov to the Orlando Magic, getting back Biyombo.

The immediate value of those trades was reducing the Hornets payroll enough to sign free-agent Tony Parker without reaching the luxury-tax threshold. But it meant the Hornets would pay Biyombo for 2019-20, which is part of the reason they’d be flirting with the tax by re-signing Walker, likely to make more than $30 million next season wherever he signs.

The NBA’s tax threshold for next season is projected at $132 million. While Walker has said he’s open to taking less than the full $221 million to remain in Charlotte, the team is likely to offer tens of millions less over tax concern.

Walker said this month his first priority is returning to the Hornets, but he also said he’d meet with other teams and wouldn’t be reluctant to leave if that’s the best option. With the Lakers, Celtics and Mavericks all better positioned to win than the Hornets, the only significant advantage the Hornets have is the ability to pay Walker far more.

Except the tax threat trumps that in Charlotte.

Tax line

Kupchak said twice following the draft June 20 that the Hornets do not intend to pay tax next season. A source familiar with the team’s thinking said that is essentially non-negotiable.

Jordan has said in the past it’s foolish for an NBA team not in contention to pay tax, and that’s a widely-held view. Avoiding tax is of more consequence for the Hornets because as a small-market team they don’t generate the revenue of franchises such as the Golden State Warriors or Lakers. Becoming a tax team would affect the revenue-sharing the Hornets receive from the league, which can be the difference between making or losing money.

But how does that imperative square with what Kupchak said in April about re-signing Walker?

“We’ll do everything that we can,” Kupchak said, “to bring him back here.”

Everything that doesn’t cost tax.

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