Pelicans' Tax Trouble: Will They Cross the Line?

New Orleans Pelicans face pivotal financial decision this season

by Nouman Rasool
Pelicans' Tax Trouble: Will They Cross the Line?

In a significant roster move, the New Orleans Pelicans recently promoted E.J. Liddell from a two-way contract to a full-time roster spot by signing him to a three-year, $6.1 million deal. However, this transaction pushed the Pelicans' payroll to $168.2 million, landing them roughly $3 million above the NBA's luxury tax threshold.

Suppose no further adjustments are made before the start of the upcoming season. In that case, the Pelicans will enter unprecedented territory as one of the few teams to cross the luxury tax line. Only the Charlotte Hornets and the Pelicans have never paid the luxury tax.

To avoid the tax, the Pelicans have until the final day of the regular season to reduce their payroll below the luxury tax line. Failure to do so will result in a penalty of $4.4 million and being excluded from the pool of money distributed to non-taxpaying teams.

In the previous offseason, each non-taxpaying team received $17.3 million.

Timing of Luxury Tax Dilemma

Regarding the team's stance on paying the luxury tax, executive vice president David Griffin expressed confidence that owner Gayle Benson would be willing to foot the bill under the right circumstances.

However, the question remains: when is the right time, and is it now? Typically, teams pay the luxury tax when their owners possess substantial financial resources or believe they have a realistic chance at contending for a championship.

Among the five teams that paid the luxury tax in the past two seasons, four were big-market franchises located in glamorous coastal cities. The fifth team, the Milwaukee Bucks, was a small-market franchise aiming to maximize their two-time MVP Giannis Antetokounmpo's prime years.

The Pelicans find themselves in a unique situation. Although they showed glimpses of promise last season, such as Zion Williamson leading them on a seven-game winning streak, sustained success has eluded them over the past four years.

They finished ninth in the Western Conference last season after Williamson's injury and missed the playoffs for the third time in four seasons. Insiders within the Pelicans organization have acknowledged owner Gayle Benson's willingness to pay the luxury tax for a contending team.

However, skepticism arises when considering that a team that narrowly missed the playoffs, particularly in a small market like New Orleans, typically refrains from paying the luxury tax. Historically, the Pelicans' spending on payroll has been in the middle of the pack among NBA teams during Benson's ownership.

While the team has invested in players like Anthony Davis and Williamson, they have not aggressively pursued top-tier talent to assemble a championship-caliber roster. To ascend in the Western Conference standings, the Pelicans are heavily reliant on a healthy and in-shape Zion Williamson.

The organization believes that if Williamson performs optimally, ownership might consider going "all in," as Griffin previously suggested. In an effort to avoid the luxury tax, the Pelicans could explore trading Kira Lewis Jr., the 13th pick in the 2020 draft.

Lewis has struggled to secure a spot in the rotation, and trading him for a player earning $2.8 million or less would allow the Pelicans to maneuver under the tax line. Alternatively, if the Pelicans choose to retain their current roster, they still have until the trade deadline in early 2024 to make necessary adjustments and avoid the luxury tax.

Multiple sources close to the team speculate that ownership might be more willing to pay the tax if the Pelicans emerge as a top contender in the Western Conference by the trade deadline. While oddsmakers currently view this outcome as unlikely, the Pelicans' promising performance earlier in the season demonstrates the potential for a strong turnaround.

As the Pelicans approach the upcoming season, their decision on whether to pay the luxury tax carries significant implications for the team's future trajectory and their pursuit of sustained success.