SAN FRANCISCO, CALIFORNIA – JUNE 02: NBA commissioner Adam Silver speaks to the media prior to Game … [+]
In some respects, business has never been better for the NBA. The league hauled in a record $10 billion in revenue and $8.9 billion in basketball-related income last year, according to NBA Commissioner Adam Silver, and franchise valuations are likewise skyrocketing.
However, nine-figure luxury-tax bills from the Golden State Warriors, Los Angeles Clippers and Brooklyn Nets reportedly have some skittish team ownership groups. As such, the league is pushing for an “upper spending limit”—in other words, a hard salary cap—in its ongoing negotiations with the National Basketball Players Association over the next collective bargaining agreement, according to multiple reports.
When those reports first arose in late October, Sports Illustrated‘s Howard Beck noted the hard-cap proposal was a time-honored tradition during CBA negotiations. The NBA typically floats the idea, the union staunchly rejects it, and the two sides move on to bargaining other thorny issues.
However, it appears as though the NBA might not be bluffing this time, which could throw the league’s decade-long labor peace into serious jeopardy.
The NBA and the players union have until Dec. 15 to either opt out of the current CBA or negotiate an extension for that opt-out date. If either side does so, the CBA will expire after the 2022-23 season. If not, the current CBA will run through the 2023-24 season.
Longtime NBA insider Marc Stein wrote on Substack that the league’s “increasingly determined pursuit” of the upper spending limit “remains the No. 1 stumbling block in recent negotiations.” He added that “this does not appear to be the usual trial-balloon push for a hard spending limit that the NBA has been known to float in past negotiations and then suddenly drop to gain concessions in other areas.”
That appears to be a non-starter for the NBPA. One source from the union’s side told Stein in October that “there will be a lockout before there’s a hard cap.”
Under the current CBA, the NBA has a soft cap. Things such as Bird rights and the mid-level exception allow teams to exceed the salary cap to either sign free agents or re-sign their own players. Once teams cross the luxury-tax threshold, they begin having to shell out additional money in tax penalties depending on how far they are over the line.
The NBA’s proposal would “replace the luxury tax with a hard limit that teams could not exceed to pay salaries.” according to ESPN’s Adrian Wojnarowski. “The league “believes that the current system fails to provide a level enough playing field to make more of the 30 teams competitive and contends that the spending disparity of top teams has made the imbalance ultimately unsustainable,” he added.
Under the current CBA, teams become hard-capped if they sign a free agent using the non-taxpayer mid-level exception or bi-annual exception or acquire a player in a sign-and-trade. Those teams cannot cross the luxury-tax apron at any point for the remainder of that league year. Those are the only three mechanisms in which a team gets hard-capped in the current system, though.
The reporting to date has not shared many specifics of the NBA’s hard-cap proposal. It’s unclear whether the spending limit would be set at the current apron, which is nearly $7 million above the luxury-tax line this season, or if it would be higher or lower.
Not all of the team governors are on board with this proposal, Stein noted. Some are “fearful that an actual payroll line that absolutely cannot be crossed, as opposed to the template in operation now that relies on the luxury tax and repeater tax to do the job of a hard cap, could make it even harder to retain their best players.”
Teams will always shell out as much money as allowed for superstars, even if the league does implement its upper spending limit. However, a hard cap could make it even more difficult for teams to build around two or three players on max contracts. Front offices would likely have to re-evaluate their team-building strategy in the unlikely event that the league does get its way.
The two sides will likely explore alternative solutions that effectively accomplish the same goals of a hard cap without actually implementing one. Raising the tax rate for teams above the luxury-tax threshold is the lowest-hanging fruit.
Under the current CBA, teams are taxed $1.50 per dollar they spend between $0 and $4,999,999 above the tax line, and the amount increases incrementally from there. It jumps to $1.75 per dollar for the next $5 million, then $2.50, $3.25 and $3.75 per dollar up to $15 million, $20 million and $25 million, respectively. From there, teams are charged $3.75 per dollar for the next $5 million, and an additional $.50 for each additional $5 million.
If teams are in the repeater tax—ie, they’ve been in luxury-tax territory in at least three of the previous four seasons—the tax rate is even more strict. It starts at $2.50 per dollar and rises the same amount as the normal tax from there. That’s how teams like the Warriors and Clippers now find themselves owing nine-figure tax bills.
If frugal teams find themselves concerned with the spending habits of their deep-pocketed counterparts, they could seek to further stiffen the tax penalties. Perhaps the current repeater rate (starting at $2.50 per dollar) could be the non-repeater rate in the new CBA, and the new repeater rate could start at $3.50 per dollar. The tax rate could also increase by $.75 per $5 million rather than the way it’s structured now.
By enacting those two changes, repeater-tax teams would owe a whopping $63.8 million in tax penalties alone if they were $15 million above the tax line. It would become prohibitively expensive to go much higher than that, even for the league’s wealthiest governors. While it wouldn’t technically be a hard cap, it would effectively accomplish the same goal.
The league’s push for a hard cap could still wind up being much ado about nothing. But if either side opts out of the CBA within the next week, labor peace might not be guaranteed beyond the 2022-23 season because of this proposal.
Unless otherwise noted, all stats via NBA.com, PBPStats, Cleaning the Glass or Basketball Reference. All salary information via Spotrac or RealGM. All odds via FanDuel Sportsbook.
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