What is the NBA luxury tax? Which team pays in the most in luxury tax?
Large market teams have seemingly bottomless pots of money to spend on the best players in the NBA. We look at how the league addresses this inequality
When it comes to managing salaries in sports, the US is almost unique in the world in implementing a salary cap. Abroad, this concept raises more than a few eyebrows, while to American fans, it is so integral to the game as to be wholly unremarkable.
The soft cap and the luxury tax
Where the NFL, for example, uses a hard cap, where no team can exceed the threshold set by the league, the NBA uses a soft cap. This allows the threshold in a variety of exceptional cases to be exceeded. Re-signing current players, a provision known as the Larry Bird rule, are exempt from the cap. As a result, most teams are more or less permanently over the salary cap.
The second arm of the NBA’s salary cap strategy comes into effect when teams are over a second limit. Rather than prohibit excessive spending, the NBA uses a luxury tax system that sets a separate threshold above the salary cap and applies a graduated payment system for every dollar above it. Currently this stands at between $1.50 and $4.75 per dollar above the threshold. The money collected is distributed to all teams who remain below the tax threshold.
In such a system, a smaller side will profit off of the excessive spending of the larger teams by more than the gap between their two budgets.
Who pays the most luxury tax?
Currently, there are seven teams who are in the red on the NBA luxury tax books. The Golden State Warriors top the table with a $170,331,206 luxury tax due after going over $39 million over the threshold. The Brooklyn Nets follow close behind them with a $97,686,001 tax on a $32 million overspend.
The Los Angeles Clippers have spent $29.4 million more than their allowance and will pay $82,462,372 for the privilege, while the Milwaukee Bucks will owe $58,359,908 on a $23.5 million excess. The Los Angeles Lakers, the Utah Jazz, and the Philadelphia 76ers round out the offending clubs with overspends of
$19.6 million, $11 million, and $9.5 million respectively. Their luxury tax will be $43,726,413 for the Lakers, $18,831,018 for the Jazz and $15,418,974 for the 76ers.
The total collected will be divided up amongst the other 23 teams in the league as a form of financial field levelling.