NBA Labor Deal: The New Luxury Tax Could Limit Big Spenders

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NBA Labor Deal: The New Luxury Tax Could Limit Big Spenders
Patrick McDermott/Getty Images

After so many twists and turns during labor talks, the 2011-2012 NBA season has been saved (albeit shortened from 82 to 66 games). Changes are coming to the association, but not necessarily ones as drastic as some had anticipated or were hoping for.

As expected, the revenue structure of the league is now shifting more in favor of the owners. Players will receive 51.2 percent of basketball related income with the owners getting a 48.8 percent share.

The salary cap structure of the NBA remains essentially unchanged. Teams will still operate under soft cap, rather than a hard cap that would have given all 30 franchises the same spending limit on players.

While teams still won't be completely limited for what they can spend on player salaries, the new luxury rules could have the biggest impact on limiting big spenders aside from a hard cap.

The biggest change to the salary cap structure is probably the mid-level exception. It will be around $5 million for teams that are only over the salary cap and will decrease to $3 million if that team exceeds the luxury tax as well.

Under the previous CBA, there was a dollar for dollar penalty for team salaries that exceeded the luxury tax threshold of $70.3 million. The luxury tax threshold will be about the same amount for this upcoming season and the dollar for dollar penalty will remain for the next two seasons. 

However, starting with the 2013-2014 season—after owners have two years to prepare for it—the luxury tax threshold will increase in some circumstances beyond a dollar for dollar penalty. 

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Owners will receive a $1.50 penalty for every dollar spent when their team payroll exceeds the luxury tax by at least $5 million. That penalty increases for every $5 million that team spends and can reach up to $3.25 for every dollar spent. Also, franchises will be receive additional fines for exceeding the luxury tax threshold more than three times in five seasons.  

A hard cap would have done more to bring competitive balance to the NBA by putting all 30 teams on a level playing field by having an equal spending limit. 

For years teams such as the Los Angeles Lakers and Dallas Mavericks have operated well above the salary cap and the luxury tax threshold for that matter. Under a hard cap, there's no way Jerry Buss would have been able to keep Kobe Bryant, Pau Gasol, Andrew Bynum and others without exceeding the cap limit.

The deep pockets of Mark Cuban and the lack of a hard cap have allowed the Mavericks to remain competitive for over a decade. Dirk Nowitzki has always been surrounded by high-priced and talented players since the days of Michael Finley and Steve Nash.

With the new restrictions coming, even a big spender like Mark Cuban may have to think twice before spending substantially above the luxury tax threshold. The penalty may not change the free agent approach that some owners have with the mid-level exception, but it could in regards to re-signing their own players to large deals.

Two of the Dallas Mavericks key contributors from their title winning team, J.J. Barea and Tyson Chandler, are currently free agents. Under the old rules re-signing both of them would be a no-brainer, but will Mark Cuban justify paying luxury tax penalties three times their current amount?

Will the new rules make Jerry Buss think twice before picking up both team options for Andrew Bynum and Lamar Odom after the season?

The new luxury tax rules may not have created a level spending field in the NBA, but it could limit how much money some owners are willing to spend to maintain the talent on their teams.

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