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NBA CBA (Luxury tax (Analysis (Means of redistributing money between teams…
NBA CBA
Luxury tax
2011
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Thresholds:
2011-12 $70.307 million
2012-13 $70.307 million
2013-14 $71.748 million
2014-15 $76.829 million
2015-16 $84.740 million
2016-17 $113.287 million
Projections-
2017-18 $127million
2018-19 $126million
2019-20 $129million
2020-21 $136million
(USA Today- 04/16)
Up to 50% of the tax money may be given to non-taxpaying teams. Note that there is no requirement that any of the tax money be distributed to teams in this manner.
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Starting in 2012-13, 50% of the tax revenue will be used as a funding source for the revenue sharing program, and the remaining 50% will be distributed to non-taxpaying teams in equal shares.
Payouts are fixed under the rev sharing scheme, each receive a fixed amount in this regard even if they are tax payers
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Intro
The luxury tax is a mechanism that helps control team spending but also designed to allow unrestrained wages for players
It is paid by teams with a team salary exceeding a predetermined tax level. These teams pay a penalty for each dollar their team salary exceeds the tax level
The luxury tax is progressive, with the rate increasing for every $5 million the team is above the tax line. Repeater penalty when the team is a taxpayer in three out of four years.
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Uses escrow and team payment- serves as both a form of insurance against rising playing salaries, and as a penalty
Up to 50% of tax money may be given to non-tax paying teams, the other fifty retained for 'league purposes'- in practice this means it is used as revenue sharing.
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Analysis
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Ensures profits for to a degree, as we have seen in other areas increased competition between owners, push to wards superstars
Fails to reign in larger teams, disproportionally taxes middle teams- this is a key issue with the luxury tax. This is a direct attack on competitive balance, one of the main stated aims.
Main vehicle for revenue sharing, limited as big market sides still have the ability to take more given the limits to payments (max 305% of revenues above $5m)
Teams just at the threshold face a considerably higher implicit marginal tax compared to teams already above the threshold since crossing the threshold implicitly taxes them extra by making them ineligible for tax payouts reference Kapalan
Threat Effect Makes being able to predict where the threshold will be tricky. Therefore as player decisions are made before or during the season, there is an element of a threat involved in the tax.
A consequence of this is the cushion teams must build into estimates, they may forgo $1-3m on a player in a desire to avoid paying the tax.
Marginal Tax Effect Where teams at just below the threshold will in the end suffer more and pay a high marginal cost than those significantly above or below the threshold.
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Is punitive for some exceptions, like Mid-Level and 1-Million exception.
Recommendations
Greater gradation of taxation much like MLB, higher for repeaters, more higher
Flexible tax payouts, less if you are a bigger tax payer, including capping revsharing contributions
Establish a fixed penalty threshold prior to the season- there are plenty of projections however being wrong causes material issues
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2017
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Example: In 2017-18, a Team with Team Salary that exceeds the Tax Level by $11 million would pay a tax of $18.75 million (i.e., $5 million times $1.50, plus $5 million times $1.75, plus $1 million times $2.50).
The apron is the window of leeway given over the tax threshold before other harsher player signing restraints come in
Roster size
2011
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Typically this is at 12-13, minimum of 11 for a period of 2 weeks
Any players above this must be on the inactive list, maximum of 4 inactive and 12 active allowed, only in hardship
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Teams are required to have at least 13 players (12 active, 1 non), the league guarantees an average of 14
Alternative lists
Suspended list
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Must spend at least 3 games on the active list [if suspended for 4-5 games], must spend 5 on active if suspended for 6 or more-can then move to suspended list to free up space
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Voluntary retired list
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Cannot return to active list within 1 year unless unanimous permission is granted from the governors
Purpose is to retain some rights, like inhibiting players from playing for other teams
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Analysis
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Has the biggest impact of limiting trades, requires teams to manage available slots on their roster before trades are carried out
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Hence ensures there is a limited supply of buyers in the market, and effectively puts another limit on players ability to seek alternative teams
2017 changes
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If at the start of the 17-18 season, the average roster size is <14.5 the minimum roster size will be upped to 15
Recommendations
The roster size is a blunt but effective tool in limiting free spending on players, if the league were to expand this would need to go up
Despite the number of exceptions, it has a tactical impact on the game and there may be room to allow for more flexibility on this account
With increased revenues, BRI, salary caps- unless the roster size is increased there will be an effect of potentially over paying marginal players. It follows that if there is a rise in predicted revenues, the roster limit should increase
Limited drain of talent overseas and back down into the D-League, expanding can reduce this and preserve the quality of the league
Intro
Closed leagues
No competing leagues, is a potential threat but likely that the league will react and absorb them, as was the case
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Way this interacts with the broader world, inelastic supply of talent
Franchise expansion, no promotion or relegation
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Much regulation
Covers a vast amount not exclusive to drafts, roster sizes, luxury tax, collective selling of broadcast rights,
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Salary caps around since 1946, first CBA not officially in place until 1970, though there had been a player lobby since 1957
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History of league
BBL was a new league, more commercially minded, lasted 3 years
Formed in 1949, merger of BBA + NBL
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Min + Max Salary
Minimum
Description
There is a minimum the team must pay its players as a whole set at 90% of the salary cap- anything below this is paid to the league and redistributed to players
Individual minimums for players as well, determined by a fixed rate relative to years of service (YOS)
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Analysis
Min salary exception
As long as there is space on their roster they can sign minimum salaried players, for one to two seasons
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Clearly veterans receive up to x3 as much as a rookie- the league therefore reimburses teams to a point
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With the recent rises in revenues recently, the salary cap has risen as well. This has mandated the min salary to be spent, as a result this has inflated the lower end of the player market
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Recommendations
Perhaps have a variable salary floor, to allow for it to be squeezed with increased revenues and extended with lower ones
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Maxmimum
Descrpition
Exists on a team level through the salary cap, and luxury tax
On a player level it is exhibited as a defined percentage of the overall salary cap* (the cap is calculated slightly differently however)
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Other exceptions include being part of the "5h Year 30% Max" where players can agin eligibility for going over the max as a result of performance- does not guarantee the higher wages are given of course
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Recommendations
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The various amendments and conditions to the max salary like luxury tax are adequate caveats to the rule
Analysis
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Imposing a max attempts to halt inflation of wages, both at a rookie and veteran level
Curbing rookie pay holts increasing payment for unproven talent, it also prevents the whole market from being shifted upwards by high rookie payments Kaplan
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