Harsher luxury tax penalties in NBA are working


In 2011, a new collective bargaining agreement was established in the NBA, marking a significant achievement for both the league and the 30 franchise owners.  Players saw a combined $300-million reduction in salary through a change in the revenue split that saw it drop from 57% to 50%.  However, the revamp of luxury taxes has had a much more substantial impact on how teams allocate salaries to key players.

Luxury taxes have almost always existed.  Prior to 2011, though, it was only a dollar-for-dollar tax.  This wasn’t a big deal for the wealthiest team owners, as paying the additional tax was worth it if it meant scoring more victories. 

When the tax program was changed in 2011, it became a progressive system.  If a player was paid up to $5 million above the threshold, the team had to pay 150% of the amount (previously, it was 100%).  Between $5-10 million, the tax rate was 175%, and from $10-15 million, the rate was 250%.  Above that, the rates get even worse.  Additionally, teams that paid the tax in three of the previous four seasons were assessed an additional tax that ranges from 250% to more than 475%. 

The result, seven years later, is that league revenue and player salaries have increased.  Teams are still paying the penalties, but are thinking twice before pushing past the caps.  This is good news for everyone – the teams are happy and the players are happy.  As such, the league produces better games and, ultimately, fans are happy, which is the end goal. 

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