By Greg DeVries
The NBA season starts tonight, and fans in two cities can hardly control their excitement. I’m talking, of course, about Los Angeles and Miami.
If you look back just a year to when the league suffered a lockout, it seemed like the league was going to be shaken up. When the new NBA Collective Bargaining Agreement was ratified on Dec. 8, 2011, it put in place a framework that would prevent “super teams” from forming.
Months later the Los Angeles Lakers acquired Dwight Howard and Steve Nash and formed a super team. Despite the salary cap being $58 million this year, the Lakers currently have a payroll more than $100 million.
So what gives?
The new luxury tax scale will not be felt for some time. Luxury tax rules are kind of like, well, tax codes. They are very complicated, but a bare-bones explanation will suffice for now. The salary cap is set before the season. A team that spends 53.51 percent of its projected basketball-related income is subject to the luxury tax. This year, teams that spend more than an estimated $70.307 million will have to fork over the cash at a one-to-one rate.
This means that if a team spends $10 million over the cap, it will have to pay the league $10 million.
This incremental rate is going to increase by a pretty wide margin each year. The CBA also identifies criteria to label certain teams as “repeaters.” Teams that exceed the salary cap year after year will be hit with a higher luxury tax rate.
The money from the luxury tax goes to a number of places. Up to half of the luxury tax money can be distributed to teams that do not pay any luxury tax. The other part is used for “league purposes.”
The cost of having a super team is going to rise. Teams saw this and noticed that the time to spend is now. Owners and general managers in Los Angeles, Miami and Brooklyn broke the bank because they realized that spending a wheelbarrow full of money now is about as likely to win you a championship as spending 10 wheelbarrows full of money in the next few years.
Let’s take Miami’s scenario. Miami is spending just more than $82.6 million dollars this season on player salaries. Assuming the luxury tax threshold is where the league projects, Miami will have to pay about $12.3 million in tax on top of the payroll.
When you consider the fact that owners role in dough after their checks for TV deals, merchandise, tickets and concessions, it really isn’t a whole lot of money. In total, Miami is going to spend $94.9 million on payroll this season.
Now let’s increase the luxury tax rate to the levels they will be two seasons from now. If the Heat remain salary cap offenders (which they are on track to be), then the same $94.9 million they spent in 2012 turns into a price that far exceeds $100 million with a luxury tax rate of $3.50 for every dollar they are over the tax threshold. The amount that a team is paying for start is skyrocketing. That’s why a lot of teams cashed in during the previous offseason.
These rates are good for the NBA, however. Sure, we may have to endure a few seasons of the Lakers playing the Heat in the finals, but after that, the owners of these super teams will have to unload their talent or suffer taxation that makes the United States government look like a charity. A higher cap means more parity because no team will be willing to consistently pay exorbitant amounts of money to the league. There will always be have and have-nots, but the disparity will shrink. More people will watch if they know that their team will actually be competitive because it has a star player.
Tax away, NBA. I’ll be on my couch watching the Houston Rockets attempt to pick up other teams’ stars.