The Cavs won’t be able to avoid the luxury tax this season
Winning is expensive in the NBA, or at least, attempting to do so with a veteran roster is. The Cleveland Cavaliers will be a second-apron team this upcoming season. That comes with its own penalties for team building. But the biggest may be the luxury tax bill Cleveland’s ownership group will have to pay if they want to run it back next year.
As it stands, Cleveland’s luxury tax bill for next season is projected to be just under $98 million, according to Spotrac. That’s with just 11 of the 15 players under contract. That number is only going to increase as they fill out the rest of the roster.
That number is larger than expected. Evan Mobley’s Defensive Player of the Year resulted in his salary going from 25% of the salary cap to 30%. This is approximately an increase of $7.7 million for the 2025-26 season and is estimated to be a combined $45 million increase over the next five years of the deal.
The Cavs also need to decide whether they’re going to re-sign Ty Jerome (Cleveland can offer him up to $14.3 million in the first year of a multi-year deal) and Sam Merrill. They also may be looking to either trade Isaac Okoro or Dean Wade for better-fitting role players, or could be looking to dump their salaries entirely.
No matter how the Cavs handle this summer, they will be a second-apron team unless they were to do something more drastic than move Okoro and Wade.
Let’s take a look at some of the different scenarios the Cavs could take this offseason.
Cutting as much cost around the edges
Even if the Cavs were desperate to shed money this summer, you can’t easily get out of the second apron. Here’s an example of that.
Let’s say the Cavs did the following moves this off-season:
- Didn’t re-sign Jerome
- Didn’t re-sign Merrill
- Traded Okoro ($11 million) into cap space
- Traded Wade ($6.6 million into cap space
This route leaves Cleveland with nine players under contract next season. They would need to sign six players to fill those spots, but would only be allowed to use minimum contracts to do so because of the second-apron.
And, to make things cheaper, let’s say they signed picks 49 and 58 to NBA contracts so that they could save a little more money.
The Cavs would still be over the second-apron by nearly $3 million and would have a tax bill of $53.1 million.
So if the Cavs wanted to get under the apron, and enjoy the roster-construction benefits of an under-the-apron team, they would need to move one of their bigger contracts like Max Strus or Jarrett Allen for very little money in return.
In short, there really isn’t a way for the Cavs to get under the second apron and become a better team now or in the near future. They also wouldn’t be able to avoid a sizeable tax bill.
As an aside, Bob Schmidt from the Fear the ‘Fro Podcast has a good breakdown of the second apron with Bobby Marks. Schmidt was incredibly helpful in putting together this article. Be sure to check out his work.
Just let the free agents walk
The Cavs currently are over the second apron by nearly $13 million with 11 of the 15 roster spots full. Let’s say the Cavs decided they were okay with that, but didn’t want to go over too much more.
In this hypothetical they:
- Let Jerome walk
- Let Merrill walk
- Kept Okoro and Wade’s salary slots
- Filled out the final spots with minimum players (including signing two second-round picks)
If they did that, the Cavs would be over the second apron by just under $17.5 million. The tax bill would continue to grow exponentially as it would jump from the $98 million it is now to $124.5 million just by filling the roster with minimum contract players.
Going this route would make the Cavs a worse team, but they’d still have some depth. Additionally, they’d be better positioned to get out of the second apron in the future if they wanted to.
Still, the tax bill is going to be incredibly large for a team that likely won’t be as good as this past season’s group was.
Run it back entirely
The Cavs can’t avoid being a second apron team. What would happen if they just continued to spend money?
Let’s say the Cavs did the following:
- Re-sign Jerome for a multi-year deal worth $14.3 million in the 2025-26 season
- Re-sign Merrill for a deal worth $5.6 million in the first year
- Preserve Wade and Okoro’s salary slot
- Fill out the final two spots with minimum contract players
In this situation, the Cavs would be $32.8 million over the second apron threshold. And their luxury tax bill would grow to a whopping $228 million. For context, that’s almost the same as the $235 million they’re spending on payroll.
It’s also worth noting that this bill goes up exponentially if you’re a repeat offender. Cleveland isn’t, but that would be something to consider next season and beyond.
This would be the preferred route from an asset management and on-court perspective. It wouldn’t be financially. The luxury tax bill is quite large, but maybe not for someone like Dan Gilbert, who has a net worth of $23.7 billion.
Additionally, luxury tax payments go to the owners of teams that aren’t in the tax that season. The Cavs haven’t been in the luxury tax since the 2017-18 season and have been receiving tax payouts ever since. Last season, that payment was nearly $12 million. They’ll be getting another payment soon because they weren’t in the tax for the 2024-25 season.
Even though the bill will be unreasonably large next season, it isn’t like Gilbert and the ownership group haven’t benefited from the luxury tax system in the preceding seven years.
Splitting the difference
The most practical route could be trying to maximize this current core while not hiking up the tax bill more than absolutely necessary. Even though Cleveland could use Wade and Okoro (or their salary slots for a future trade), they may decide that their presence doesn’t justify the price tag.
This is what that would look like:
- Re-sign Jerome for a multi-year deal worth $14.3 million in the 2025-26 season
- Re-sign Merrill for a deal with $5.6 million in the first year
- Trade Okoro into cap space
- Trade Wade into cap space
- Fill out the final four spots with minimum contract players (including signing two second-round picks)
This route would save the Cavs $88 million in luxury tax payments compared with the previous scenario where they run it back entirely. If they went this route, the total tax bill would be $139.4 million.
Keeping together a championship-caliber team is expensive. That, more than the restrictions of the second apron, is why you see teams try to cut salaries where they can, even if it makes the on-court product worse.
The Cavs are an incredibly good regular-season team, but haven’t shown that they can carry that success over to the postseason. We’ll see if the front office and ownership decide to invest this heavily in a group that hasn’t yet shown they can win consistently in the playoffs.
No matter what route they choose, this will be an expensive team.
As an addendum, the luxury tax bill compounds each time you exceed roughly $5.7 million over the luxury threshold. More information on how this accumulates can be found on page 183 of the NBA’s Collective Bargaining Agreement.