NBA CBA’s New Luxury Tax Rules May Lead to More Competitive Balance

The new NBA CBA hasn’t been officially signed, but many of the details from the agreement are in place. Most of the changes should help teams field more competitive teams. For instance, teams must now spend 85% of the salary cap, rather than 75%. There is also an updated amnesty clause that allows teams to shed one bad contract per season without taking a salary cap or luxury tax hit. Lastly, there is a new stretch provision that allows teams to spread the money owed on bad contracts of players they’ve waived over several years.

The one area where the NBA’s new CBA can have an impact is on competitive balance because of its luxury tax rules. In the past, teams paid $1 for every dollar they went over the luxury tax. Now it will be much more expensive. Here is how the new luxury tax rules look, according to ESPN’s Larry Coon:

Teams pay $1 for every $1 their salary is above the luxury-tax threshold in 2011-12 and 2012-13. Starting in 2012-13, teams pay an incremental tax that increases with every $5 million above the tax threshold ($1.50, $1.75, $2.50, $3.25, etc.). Teams that are repeat offenders (paying tax at least four out of the past five seasons) have a tax that is higher still — $1 more at each increment ($2.50, $2.75, $3.50, $4.25, etc.).

Teams like the Mavericks and Lakers would be forced to pay a serious penalty for going over the tax. The Lakers probably make enough money to warrant their consistent spending, but this could change the way they do business. Other teams like the Magic, which has been well over the cap the last few years, might think twice before adding payroll if it’s bound to cost them double (or triple) what it used to. The Mavericks will probably be unaffected because winning is what matters to Mark Cuban, not money.

Teams may find ways around the new rules, but hopefully the new penalties will lead to less over-spending by teams, and more competitive balance.