How will the Utah Jazz approach the luxury tax in 2022-23? Juancho Hernangomez’s future may tell the tale

Ryan Smith has been willing to pay into the tax. How much is he willing to spend next season?

(Francisco Kjolseth | The Salt Lake Tribune) Utah Jazz forward Juancho Hernangomez (41) goes through his pre-game routine before Game 4 of an NBA basketball first-round playoff series, Saturday, April 23, 2022, in Salt Lake City against the Dallas Mavericks.

Juancho Hernangomez may not be the basketball superstar he plays in Adam Sandler’s Netflix feature “Hustle” — but the NBA veteran may be important in telling the story of next season’s Utah Jazz.

Specifically, Hernangomez’s future could be key in answering an important question as free agency opens this week: How much is team owner Ryan Smith willing to spend on the luxury tax again this year?

The Jazz have been in the tax since Smith took ownership of the franchise. In 2019, then-general manager Dennis Lindsey traded for point guard Mike Conley and pushed the team’s chips in the middle to open a title window. The thinking was that a three All-Star core of Conley, Donovan Mitchell, and Rudy Gobert would be able to compete with the very best in the NBA, and had a decent shot at a coveted NBA championship.

But beyond figurative poker moves, the Jazz also spent big numbers of real dollars in order to chase the ultimate goal. For the first time in franchise history, the Jazz exceeded the NBA’s luxury tax. In fact, they did it in both 2020-21 and 2021-22 under Smith’s ownership.

How much has that cost the team’s new owner?

According to Spotrac, the Jazz exceeded the NBA’s luxury tax line by $3.6 million in the 2020-21 season, for a tax bill of $5.5 million. In the more disappointing 2021-22 campaign, they exceeded the NBA’s luxury tax line by $11 million, resulting in the team writing an additional $18.8 million check.

The NBA then keeps half of the league’s luxury tax payments, and evenly distributes the other half to non-luxury tax teams. So not only did the Jazz pay $18.8 million to the luxury tax system, but they’re missing out on the luxury tax share the 23 other teams got each of the past two seasons. (The figure is not actually finalized until next February, but for 2021-22, back-of-the-envelope math puts that at about $7 million.) Add it up, and the Jazz’s luxury tax status cost them about $25 million.

It could have been worse. Both of the trades they made during the 2021-22 season saved them significant amounts of luxury tax payments. The first, when they traded Miye Oni to Oklahoma City, saved them about $2.4 million. The second, when they traded Joe Ingles’ contract for Nickeil Alexander-Walker and Hernangomez, saved them another $11 million in luxury tax.

Less than a year ago, they traded Derrick Favors to the Oklahoma City Thunder, along with a first-round pick, to save on luxury tax payments. If Favors had remained on the team all season, that would have cost the Jazz an additional $29 million, not including the $9.7 million salary.

So it’s very notable that the Jazz currently stand in luxury tax territory for the 2022-23 season.

Right now, their salary bill sits about $6.5 million above the NBA’s estimated luxury tax line of $149 million. That’s with 11 players on the team, not the 14 they’d need to hit the minimum roster size.

They have one obvious way of cutting salary: waiving Hernangomez before his contract for the 2022-23 season becomes guaranteed. He’s slated to be paid $6.6 million at the base, with another $674K in likely incentives next season — both of which the Jazz could wipe from their books. Given they’ll need to sign four more players at some point this offseason, it wouldn’t be enough to duck the luxury tax completely, but it’d help.

That being said, Hernangomez was a useful player for the Jazz, playing 18 minutes a game after the trade. What they do with Hernangomez’s contract could be a bellwether for how they plan on approaching the 2022-23 season.

The same is true with how aggressive the team is in using their big free-agency tool: the taxpayer mid-level exception. That’s worth about $6.3 million for next season. Using it to improve the roster would mean about $11 million more in luxury tax payments if the Jazz waived Hernangomez, and about $16 million more if they kept him. Signing a new player that could help this roster would get pretty expensive for Smith and the rest of the Jazz’s ownership group.

If the Jazz either keep Hernangomez or use their mid-level exception, they’re also unlikely to be able to use some or all of the NBA’s bi-annual exception, worth about $4 million this year.

And we’re also likely to see the luxury tax have an impact on the Jazz’s trades this offseason. As has been repeatedly reported, the Jazz are trying to be very aggressive in the trade market this offseason, calling other teams and trying to make deals involving many of their players, including Gobert. It wouldn’t be a total surprise if the Jazz choose to get less salary back than they’re sending out in those deals, in order to duck the luxury tax entirely.

The final luxury tax bill is calculated at the end of the season, so Danny Ainge, Justin Zanik and company would have until the 2023 trade deadline to dump salary if they wanted to get under the luxury tax line. Note, too, that even if they were over the tax, they wouldn’t pay the NBA’s “repeater tax penalties”: the NBA’s collective bargaining agreement says that teams must be taxpayers in at least “three of the four previous seasons (not including the most recent season)” in order to qualify for those even harsher payments.

You’re absolutely forgiven if your eyes glazed over for those above paragraphs filled with all of those numbers: the NBA’s rules on the matter are famously byzantine.

But it’s fair to say that the Jazz are likely going to be less inclined to pay significant amounts of luxury tax moving forward than they have been the last two seasons, when ownership and management believed they had a real shot at the NBA title. This year, thanks to the Jazz’s disappointing performances, there’s less optimism about the Jazz being a true contender.

So here’s the upshot: if history is any guide, the Jazz will be making moves this offseason with the luxury tax in mind.