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It pays to tank and the Pacers can still do it

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For whatever reason after trading Paul George the Pacers have decided they don’t want to tank. But if they did it would be better for everyone.

NBA: Dallas Mavericks at Indiana Pacers Brian Spurlock-USA TODAY Sports

One of the dirtiest secrets in the NBA is that it pays to tank. It’s especially true in small markets. The new NBA Collective Bargaining Agreement (CBA) was written with generous revenue sharing that allows small market teams (like New Orleans and Indiana) to access equal TV revenues shares from the large market teams (like New York and Brooklyn).

NBA teams are more profitable now than prior to 2015 because of revenues generated by great TV deals. TV money has exploded with the expansion of sports networks like ESPN and with FS1’s thirst for content. The most recent deal was signed in 2014 for $2.6 billion. That's triple what it was before. Last year it was estimated the Pacers brought in an additional $55 million compared to the year before the TV deal was signed.

Most NBA teams have also been able to exploit their cities for subsidized stadium deals. Starting in 2014 the Pacers began receiving $160 million worth of stadium renovations from the Indianapolis Capital Improvement Board (CIB) which raised the value of the team. This deal was ironically made six months before the new NBA TV deal. Unless owner Herb Simon lived under a rock, he knew as he signed the CIB deal that he was also going to come across the new TV rights money.

The CBA also forced a more aggressive luxury tax provision. The NBA has a “soft cap” which means teams can go over the salary cap to pay homegrown talents (called Bird Rights).

Under this season's cap structure, any team with salaries over $119 million (which is the luxury tax threshold) must pay a tax per dollar over said threshold. The table below shows the percentage of each dollar over the “threshold” a team must pay.

Luxury Tax Table

Amount Over Tax Threshold Tax per Dollar Over Repeat Offender per Tax Dollar Over
Amount Over Tax Threshold Tax per Dollar Over Repeat Offender per Tax Dollar Over
$4,999,999 or less $1.50 $2.50
$5,000,000 to $9,999,999 $1.75 $2.75
$10,000,000 to $14,999,999 $2.50 $3.50
$15,000,000 to $19,999,999 $3.25 $4.25
Over $20,000,00 $3.75 plus $0.50 for every $5 million over $4.75 plus $0.50 for every $5 million over

Any team whose salaries are under $99 million, or the salary cap, split the luxury tax money, which is calculated at the end of the season. Right now, projections show there is to be about $160 million in luxury tax dollars. Half of the money goes to the league and the other half goes to teams below the salary cap. Currently 10 teams qualify.

If Indiana stays below the salary cap, which they’re currently doing, they can access an additional $8 million per year on top of revenue sharing and city subsidies. The Pacers haven’t paid the luxury tax in over a decade.

The luxury tax money is only going to go up as teams who are currently under the cap (think Denver, Philly, Phoenix, and Los Angeles) must pay their young talented players new max contracts or go after pricey superstars. Then there are teams like Cleveland and Golden State who will start paying a repeater luxury tax, causing the tax payment to increase even more.

If the Pacers could put together a championship quality team I think they would go over the tax, but they can’t. Indiana will most likely win 28-35 games, which might be enough to get the 8-seed in the dumpster fire that is the Eastern Conference, but all that gets the Pacers is the right to get swept by Cleveland yet again.

There isn’t a better time for the Pacers to begin tanking, even though this season they seem determined not to. Going forward financially speaking, the Pacers only have two big money contracts after next season: Victor Oladipo and Thaddeus Young. Young can easily be traded to a contender, maybe even for a first-round pick.

Indiana can keep Oladipo and cut Darren Collison, Bojan Bogdanovic, and Al Jefferson at the end of next season to bring their salaries down allowing them to give Myles Turner the max extension and stay under the the salary cap. If the Pacers have a slow start, I expect Collison and Bogdanovic will be traded.

That being said, Indiana probably won’t tank because the city of Indianapolis is giving the team a lot of money with the understanding they aren’t going to bottom out. Indiana just built a new luxury box at Bankers Life with help from the CIB and Indianapolis residents' tax dollars that could generate millions more for the Pacers. Simon isn’t a young owner, meaning he doesn’t have a desire to wait it out until his team gets good again.

If the Pacers tanked they would lose fan interest and attendance would drop. But in my opinion it would be better to watch bad basketball for two or three seasons and then be able to watch a championship contender.

Since Reggie Miller retired with the expectation of maybe one or two seasons the Pacers have been stuck in a cycle of mediocrity. That means just good enough to win 45-50 games but not good enough to beat LeBron James or any other team with a Top five NBA player. The Pacers have to think about a post-LeBron Eastern Conference, which right now they aren’t.