What is the NBA luxury tax? Which team pays the most in luxury tax?
A look into the NBA Luxury Tax in the 2022-23 season, and the Warriors’ luxury tax bill after Jordan Poole and Andrew Wiggins contracts
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
While 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. The tax, familiarly named the “luxury tax”, serves as an extra charge for teams that spend more on their payroll, and redistributes the surplus to the teams that pay less, in an effort to equally distribute between players and owners.
Rather than prohibit excessive spending, the system 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.
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.
The salary cap for the 2022–23 season is $123.655 million.
Which NBA team pays the most luxury tax?
Last year, the NBA had its highest luxury tax distribution in the league’s history. Seven teams finished over the luxury tax for a combined $481 million in luxury tax payments. The Golden State Warriors, Brooklyn Nets, Los Angeles Clippers, Milwaukee Bucks, Los Angeles Lakers, Utah Jazz, and Philadelphia 76ers made the distribution almost three times larger than the previous record season (2002-03).
The rest of the 23 teams who finished below the luxury tax received $10.46 million each from the distribution.
Warriors 2022-23 Luxury Tax Payment: $170 million
The Warriors, specifically, are no strangers to the luxury tax system.
After racking up an NBA-record $170.3 million tax bill last season on their way to their fourth championship in the last eight years, the Warriors are now at a league-high $170.2 million tax bill.
Additionally, after Jordan Poole agreed to a four-year, $140 million extension early on Saturday, and Andrew Wiggins signed his own four-year, $109 million contract, the Warriors are looking at a $483 million bill in 2023-24 between the salary and luxury tax, per ESPN’s Bobby Marks.
Related: Warriors extending Wiggins stay for four years in $109m deal
That’s an enormous luxury tax bill for next season. The Warriors are not alone, however.
Clippers 2022-23 Luxury Tax Payment: $144.7 million
The Clippers currently have the league’s most expensive payroll at approximately $192 million, as well as the second-highest luxury-tax bill ($144.7 million). As soon as they become subject to the repeater tax next season, they could reach an unprecedented $200 million luxury-tax bill.
Spotrac has gathered all the numbers on NBA Team Luxury Tax here.
More than one-third of the league’s teams haven’t spent more than $20 million in luxury-tax payments in the last two decades. The Warriors and Cleveland Cavaliers both rank among the top five leaguewide over that stretch. The Clippers, meanwhile, will join them in the top five after this season.
The Nets come next with a $108 million Luxury Tax Bill, which is significantly less than expected before the start of the season. Several cost-cutting moves that include the James Harden trade, helped reduce their luxury tax obligation.