How waiving Eric Gordon saves the Clippers $110 million in tax payments

The Los Angeles Clippers waived guard Eric Gordon on Wednesday, a strange move in the context of what they gave up to get him. Less than five months ago, they traded guards Luke Kennard and John Wall for Gordon, and in the process surrendered the swap rights that allowed the Houston Rockets to move up from No. 30 to No. 20 in last week’s draft and select forward Cam Whitmore.

Why did they do this? To save money. Shortly after the move was made, ESPN’s Bobby Marks noted that it reduced the Clippers’ projected tax bill from $169 million to $59 million. 

How is that possible? The Clippers, perennial big spenders, targets of the new collective bargaining agreement’s harsh roster-building restrictions, are in the repeater tax. With Gordon’s contract on the books, they would have had a total payroll of approximately $204 million, which is $39 million over the tax threshold of $165 million. 

For every $5 million of salary above the tax level, the tax rate increases. For repeater teams, the tax rates are significantly higher. 

Warning: It’s about to get extremely math-y. The first $5 million above the tax level would have cost the Clippers $12.5 million ($2.50 per dollar), the second $5 million would have cost them $13.75 million ($2.75 per dollar), the third would have cost them $17.5 million ($3.50 per dollar), the fourth would have cost them $21.25 million ($4.25 per dollar), the fifth would have cost them $23.75 million (4.75 per dollar), the sixth would have cost them $26.25 million ($5.25 per dollar) and the seventh would have cost them $28.75 million ($5.75 per dollar). Their final $4 million over the tax level would have cost them $25 million ($6.25 per dollar). Add all that up, and it’s $168.75 million.

Wipe Gordon’s salary off the books, though, and the Clippers are only $18 million over the tax threshold. That means removing much of the previous paragraph. As it stands, the first $15 million over the tax will cost them $43.75 million ($12.5 million + $13.75 million + $17.5 million), and the final $3 million over the tax would cost them $12.75 million. That adds up to $56.5 million.

(Yes, there is a slight discrepancy between this figure and the $59 million one that Marks tweeted. The real number will be calculated using the Clippers’ exact salaries — Gordon, for example, was not slated to make exactly $21 million, but rather $20,917,902, per Spotrac.)

Between the reduced tax bill and Gordon’s salary, this one transaction could save the Clippers more than $130 million next season. How deep they’ll be in tax territory, though, will depend on what else they plan to do this summer. They obviously have no cap room to speak of, but they could theoretically re-sign backup center Mason Plumlee using his Bird rights and re-sign guard Russell Westbrook using non-Bird rights. There could be trades coming, too, and the contracts of Brandon Boston Jr. and Jason Preston have not yet been guaranteed. 

Shedding Gordon’s salary might just be about making it more palatable to add salary elsewhere. It could also set the Clippers up to get under the “second apron,” which is set at $17.5 million above the tax level. It is weird to see a win-now team cut a recently acquired vet who was playing big minutes at the end of the season, but this is precisely what the new CBA was designed to do.