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NBA Sets Salary Cap and Tax Level Numbers for 2013-14

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The NBA today announced that the salary cap for the 2013-14 season will be $58.679 million.

The tax level for the 2013-14 season has been set at $71.748 million. Any team whose team salary exceeds $71.748 million will, for the first time ever, pay an incremental tax rate based on how far it exceeds this level. The tax rate is $1.50-per-dollar for the first $5 million over, rising to $1.75-per-dollar between $5 million and $10 million over, rising to $2.50 between $10 million and $15 million over, rising to $3.25 between $15 million and $20 million over, and rising a further $0.50 for every $5 million increment after that.

The new cap and tax level go into effect at 12:01 a.m. ET on Wednesday, July 10, when the league’s moratorium period ends and teams can begin signing free agents and making trades.

The amounts are considerably lower than initial projections provided last year at this time, but fall roughly in line with the latest estimates provided in early June. The league had initially forecasted a cap and tax of $60 million and $73 million, respectively, before revising downward to $58.5 million and $71.6 million, respectively.

The cap and tax levels are set by calculations based on projected amounts for Basketball Related Income (BRI) and benefits for the upcoming season. The projected BRI is negotiated by the league and players’ association. Each year the sides meet to agree on an amount.

The salary cap calculation takes 44.74% (53.51% for the tax level) of the league’s projected BRI, subtracts projected benefits and then divides the total by the number of teams in the league. Adjustments are then made if total salaries and benefits paid to the players in the season prior were significantly higher or lower, as a percentage of league-wide revenues, than was agreed in the CBA.

The math that underlies the finalized figures suggests that the league is now projecting BRI of $4.471 billion for 2013-14, a 4% growth over its all-time high revenues from last season. Those came in at $4.293 billion, a whopping 12% growth over 2010-11, the last full NBA season, but roughly $15 million short of initial forecasts.

Despite the slight revenue miss, the NBA is clearly a strong and expanding entity. 

The math also suggests that the players earned too much of that expanding revenue stream. The lockout locked-in a baseline 50/50 split of league-wide revenues. Players are therefore entitled to a 50% share of those revenues (which can increase to as much as 51% or drop to as low as 49% based on whether revenues exceed or fall short of forecasts), which is paid to them in the form of salaries and benefits. The players earned 53.89%. While the league’s escrow system will adjust the players’ share back to their designated level (49.96%), the excess caused a $1.0 million downward adjustment to the 2013-14 cap and tax amounts.

Without the downward adjustments, we would be looking at a much more robust 2013-14 salary cap of $59.7 million and a tax level of $72.7 million, roughly identical to the initial forecasts provided last year at this time.

The excess salaries would seem to suggest that teams have yet to fully adjust to the lowered spending allotments (under the old CBA, the players earned 57% of BRI). But that’s not the whole story. Cumulative team salaries were lower this past season than in any full season since 2006-07.

The primary culprit for the overage has been the utilization of the amnesty provision. NBA teams paid out roughly $105 million in amnesty payments to players no longer on their rosters this past season (the $21 million payout to the long-since-departed Gilbert Arenas alone accounted for 1% of league-wide salaries). Amnesty payments will continue to be a problem next season, putting downward pressure on initial 2014-15 salary cap and tax level projections. As they decline in the years to come, so too will the excess salary problem.

The league issued initial projections for the 2014-15 season of $62.5 million for the salary cap and $76.1 million for the tax threshold. While, in both cases, the growth is projected at a rather robust 6% plus, excluding the salary-related adjustments for 2012-13, the growth is a more tempered and historically consistent 4.5%.

The finalized figures change nothing for the Heat, as they were nearly identical to the projections the team was previously utilizing. It likely still does not justify the Heat spending the incremental $13 million it would cost to utilize its Mid-Level exception, not does it alter the logic in a potential decision to amnesty Mike Miller. The Heat’s current payroll, when including the tax, now stands at $115 million.

The Heat currently has 13 players on the roster for next season. However, Chris Andersen is expected to officially sign a new contract tomorrow. The Heat may also choose to amnesty Miller to reap the huge tax savings and/or waive the unguaranteed contract of power forward Jarvis Varnado. That leaves as many as three roster spots open and available to be filled. Teams must start the regular season with no fewer than 13, and no more than 15, players on the roster.

While nothing has changed with Tuesday’s announcement, dreams of a Chris Andersen and Greg Oden duo at the center position are still very much alive. Second round draft picks James Ennis and Justin Hamilton and undrafted summer league participant Ian Clark each has a slim chance to snag a spot.

While it has felt at times that the Heat has thus far moved at a glacial pace to start the summer, things are working very much according to plan. The team has retained all of its own free agent contributors from last season. Just about every primary outside free agent target remains unsigned and potentially available. The Heat have even grabbed a potentially major contributor in the years to come from the bottom of the draft. If things continue along this path, a fully healthy version of your 2013-14 Miami Heat could prove unstoppable.

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