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Posts Tagged ‘Luxury Tax’

NBA Lowers Its 2017-18 Salary Cap Projection From $107M to $102M

July 7th, 2016 No comments
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The NBA’s salary cap projection for the 2017-18 season has dropped from $107 million to $102 million, according to a league memo distributed by the league to its member teams.

The luxury tax projection has dropped in turn, from $127 million to $122 million.

The reason for the drop had nothing to do with the league’s revenue growth projections, which continue to increase, but rather with increasing player salaries.

To arrive at a projected salary cap figure, the league must first project revenues for that season. The league then takes 44.74 percent of that projected revenue amount, subtracts projected benefits, and divides by 30 (the number of teams in the league). The luxury tax uses a similar formula, but is based on 53.51 percent of projected revenues.

Adjustments are then made to the cap if players received either too little or too much in salaries and benefits for the just completed season relative to the finalized revenue figure. These adjustments can be quite large.

The players are contractually guaranteed to receive a 51 percent share of those revenues in the form of salaries and benefits.  Read more…

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NBA Salary Cap for 2016-17 Set at $94.143M, Tax at $113.287M

July 3rd, 2016 No comments
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On Wednesday July 7 at 12:01 a.m. ET, the NBA’s 2016-17 season begins. That’s when the league’s salary cap, luxury tax threshold, maximum salaries and other figures all adjust to their new values; when free agents can be can signed; and when players can be traded.

Most NBA business ceases for the first several days of July as the league conducts its annual audit to determine its revenues from the previous season. With that figure in hand, the league huddles with the players association to project revenues for the coming season, and uses it to calculate the new cap, tax and related figures.

Revenues for the 2015-16 season from the national TV rights deals with ESPN/ABC and TNT were pre-set when the deals were signed back in 2007, at $1.03 billion.

Revenues from all other sources blasted higher to $4.26 billion, up nearly 11 percent from the previous year (the highest annual growth rate for the league over a full season in more than a decade), smashing projections for the season issued last year at this time (off of which the salary cap was based) by a whopping $247 million!

Where did all that growth come from?

Gate receipts spiked, along with related concessions and merchandise sales, thanks in large part to the Golden State Warriors’ record-breaking 73 win season and long playoff run as well as the retirement tour of the Los Angeles Lakers’ Kobe Bryant.

Commissioner Adam Silver also landed several new sponsorship deals and extensions of existing arrangements at rates that far outpace their previous amounts.

Anheuser-Busch InBev extended its partnership with the NBA, which began in 1998, for another four years in December. Financial terms of the deal were not disclosed, but the new deal, which kicked in immediately, is considered to be among the league’s largest.

PepsiCo replaced Coca-Cola as the league’s official beverage partner after 29 years, in a five-year deal struck in April 2015 that kicked in this past season. Financial details were not disclosed, but PepsiCo is also considered one of the league’s largest sponsors.

Verizon replaced Sprint as the league’s sponsorship content provider in November, signing a contract worth around $400 million over three years. 

Tissot partnered with the NBA in October as the league’s first ever official timekeeper, signing a contract worth around $200 million over six years.

State Farm in January extended its multi-million dollar partnership with the NBA for six more years.

International revenues also boomed.

Internet giant Tencent started a deal with the NBA in July to provide live games and other programming in China. The pact, worth $500 million over five years, also has a revenue sharing component that could add an additional $200 million.

The story was the same on the local TV front, where both the Atlanta Hawks and New York Knicks started new contracts this past season.

Add it all up, and it came to an all-time NBA record revenue total of $5.29 billion!  Read more…

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NBA Increases 2016-17 Salary Cap Projection to $92M, Tax to $111M

April 16th, 2016 No comments
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The NBA has issued updated projections for the 2016-17 salary cap and luxury tax thresholds.

All 30 teams were informed this week via league memorandum that the 2016-17 salary cap is now projected to be $92 million, while the luxury tax threshold is projected at $111 million.

The numbers represent a substantial increase from the NBA’s initial projections for the 2016-17 season issued last July – which called for a salary cap of $89 million and tax threshold of $108 million – as well as a massive increase over the 2015-16 cap and tax of $70.0 million and $84.74 million, respectively.

The primary reason for the jump is the new national TV rights deals with ESPN/ABC and TNT, nine-year pacts worth a combined $24 billion which will pump in an incremental $1.1 billion of revenues next season.

National TV revenues, however, aren’t the league’s only source of revenue growth. Not by a long shot.

The updated cap figures suggest the league is now expecting revenue growth for the 2015-16 season from sources other than national TV rights to come in at more than 9 percent, when the figures are finalized in less than three months.

The huge increase in revenues, which comes on the heels of a huge increase last season as well (8.2 percent year-over-year growth), will come from a variety of sources.

Gate receipts, which grew by about $100 million in 2014-15, will spike again, along with related concessions and merchandise sales, thanks in large part to the Golden State Warriors’ record-breaking 73 win season and the retirement tour of the Los Angeles Lakers’ Kobe Bryant.

Commissioner Adam Silver has also landed several new sponsorship deals and extensions of existing arrangements at rates that far outpace their previous amounts.  Read more…

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Miami Heat Drop Below the Luxury Tax With Two Trades

February 18th, 2016 3 comments
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The Miami Heat completed a pair of trades prior to the 3 p.m. NBA trade deadline, achieving their season-long goal of dropping below the NBA’s $84.74 million luxury tax threshold.

As a result, Heat fans will almost surely not hear the words “repeater tax” again until at least the 2020-21 season.

The Heat were $11.3 million over the luxury tax threshold only July 10th. The path to tax avoidance was long and twisted, and included five trades.

On July 27th, the Heat executed two trades, sending Shabazz Napier and $1.1 million in cash to the Orlando Magic in exchange for a 2016 top-55 protected second-round draft pick, and Zoran Dragic, $1.6 million in cash and its 2020 second-round draft pick to the Boston Celtics in exchange for a 2019 top-55 protected second-round draft pick.

On November 10th, the Heat traded Mario Chalmers and James Ennis to the Memphis Grizzlies in exchange for Beno Udrih and Jarnell Stokes.

On February 16th, the Heat traded Chris Andersen and two second-round picks (the first is Miami’s 2017 pick if it lands in the top 40 or its 2018 pick if not, and the second is Boston’s 2019 top-55 protected pick acquired in the Dragic trade) in exchange for Brian Roberts.

The Andersen trade was critical, as it set the stage for today’s accomplishment. Pat Riley and the Heat organization knew that trading the injured Andersen’s $5.0 million salary in exchange for nothing in return would be rather difficult. So, at the cost of essentially one second-round draft pick, Miami mitigated the burden for a potential trade partner by swapping his salary for the more palatable $2.9 million salary of the capable veteran backup point guard Roberts, in the process saving $6.2 million even if things didn’t play out as planned. That left the Heat just $3.5 million over the tax threshold.

The rest was rather easily predictable, if not necessary inevitable.

Earlier today, the Heat traded Jarnell Stokes along with $721,300 in cash to the New Orleans Pelicans in exchange for a 2018 top-55 protected second-round draft pick. The cash payout is enough to cover the $273,401 remaining balance on Stokes’ $845,059 salary for the season, and net the Pelicans a $447,899 profit.

Later in the day, the Heat traded the newly acquired Roberts and their 2021 second-round draft pick to the Portland Trail Blazers in exchange for $75,000 in cash. Because the Blazers had a team salary below the salary floor(1), in addition to receiving a second-round pick from Miami, Portland also saved $1.9 million by taking on the $924,657 remaining to be paid on Roberts’ $2.9 million salary.

In accomplishing their goal, the Heat utilized their full $3.4 million allotment of cash for the 2015-16 season, but traded away just one rotation player (Chalmers, and they received back a rotation player in Udrih in return) and three of their second-round draft picks. Miami has now dealt away every first and second round pick available for trade through the 2021 draft.

The result? The Heat are now $218,000 below the luxury tax threshold.  Read more…

Miami Heat Trades Chris Andersen, Adds Brian Roberts In Tax-Savings Deal

February 16th, 2016 No comments
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The Miami Heat has traded big man Chris Andersen and two future second-round draft picks and received back point guard Brian Roberts, as part of a three-team trade that includes the Memphis Grizzlies and Charlotte Hornets.

Shooting guard Courtney Lee will go from the Grizzlies to the Hornets, with small forward P.J. Hairston heading from Charlotte to Memphis, Andersen from Miami to Memphis, and Roberts from the Hornets to the Heat.

The Grizzlies will also receive four second-round draft picks in the trade, with two coming from the Hornets (Charlotte’s 2018, and one it got from Brooklyn in 2019) and two from the Heat.

The first of the two second-round picks the Heat will surrender will be in either 2017 or 2018. If the Heat’s 2017 pick lands in the top 40 (i.e., one of the first 10 picks of the second round), it will be conveyed to the Grizzlies and the Heat’s 2018 pick will be sent to the Atlanta Hawks as part of the James Ennis trade. If the 2017 pick does not land in the top 40, it will be conveyed to the Hawks, and the Grizzlies will receive the Heat’s 2018 pick.

The second of the two second-round picks the Heat will surrender will be the 2019 pick acquired from the Boston Celtics as part of the Zoran Dragic trade. That pick, however, is of limited value. It is top-55 protected, meaning the Heat will only get it, and thus will only be obligated to convey it, if the Celtics finish the 2018-19 regular season with one of the five best records in the NBA.

The financially-motivated trade will save the Heat $6.2 million — $719,226 in payroll savings and $5.5 million in forgone luxury tax payments.

The deal leaves the Heat $3.5 million above the NBA’s $84.74 million tax threshold. At that level, Miami is facing a projected tax bill of $8.7 million.  Read more…

Heat Trade Mario Chalmers to the Memphis Grizzlies

November 10th, 2015 No comments
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The Miami Heat announced Tuesday night that it has traded veteran guard Mario Chalmers to the Memphis Grizzlies.

The Heat, in a four-player swap, sent Chalmers and forward James Ennis to the Grizzlies in exchange for guard Beno Udrih and forward Jarnell Stokes.

The financially-motivated trade will save the Heat a projected $7.8 million.

The Heat had a team salary of $92.4 million coming in the trade, which put it $7.8 million over the NBA’s $84.74 million luxury tax threshold. Exceeding the tax threshold could prove very costly for the Heat.

If the Heat exceeds the tax threshold, it would become the NBA’s first team to ever pay the “repeater tax,” which adds an extra $1 for every dollar by which a team is over the luxury tax threshold, over and above the incremental tax rates that would apply.

For every dollar by which the Heat exceeds the tax level this season, it will need to pay at least $2.50 in taxes. That rate increases to $2.75 per dollar for any incremental amount by which the Heat exceeds the tax by $5 million, increasing further to $3.50 per dollar for any incremental amount by which the Heat exceeds the tax by $10 million, increasing further to $4.25 per dollar for any incremental by which the Heat exceeds the tax by $15 million, and increasing an additional $0.50 for each $5 million increment thereafter.

The final tax tally is calculated based upon the Heat’s team salary as of the start of its last regular season game, which prompted months of speculation that Pat Riley would attempt to shed Chalmers’ $4.3 million salary to reduce the team’s burden. Chalmers was reportedly made available in trade throughout the summer, with the Heat asking for essentially nothing in return.  Read more…

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NBA Salary Cap For 2015-16 Hits $70.0M, Luxury Tax At $84.7M

July 8th, 2015 3 comments
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On Thursday July 9 at 12:01 a.m. ET, the NBA’s 2015-16 season begins. That’s when the league’s salary cap, luxury tax threshold, maximum salaries and other figures all adjust to their new values; when free agents can be can signed; and when players can be traded.

Most NBA business ceases for the first several days of July as the league conducts its annual audit to determine its revenues from the previous season. With that figure in hand, the league huddles with the players association to project revenues for the coming season, and uses it to calculate the new cap, tax and related figures.

Revenues for the now-completed 2014-15 season came in at an all-time record $4.84 billion, up 7.0 percent from the previous year (the highest annual growth rate for the league over a full season in the last eleven years), smashing projections for the season issued last year at this time (off of which the salary cap was based) by a whopping $132 million!

On that basis, the league then projected revenues from sources other than national TV rights to increase by the standard 4.5 percent and added them to the revenues call for in the national TV rights deals (which were set when the deals were signed in 2007), which came to a total of $5.04 billion.

To get the salary cap for the season ahead, the league takes 44.74 percent of that projected revenue amount, subtracts projected benefits, and divides by 30 (the number of teams in the league). The luxury tax uses a similar formula, but is based on 53.51 percent of projected revenues. Adjustments are then made to the cap if players received either too little or too much in salaries and benefits for the just completed season relative to the finalized revenue figure.

The players are contractually guaranteed to receive an exactly 50 percent share of initial revenue forecasts that were determined when the CBA was originally negotiated in 2011, plus or minus 60.5 percent of the amount by which actual revenues exceed or fall short of the forecasts, with a lower limit of 49 percent of actual revenues and an upper limit of 51 percent of actual revenues.

To ensure players do not receive more than their fair share of league-wide revenues, 10 percent of players’ salaries is withheld from their paychecks and deposited into an escrow account. At the end of each season, the players’ guaranteed share of revenues is compared to the amount they were actually paid in salaries and benefits. If the players received more than their fair share of revenues, then the overage is returned to the teams from the escrow account. The players then receive any escrow money that remains. To help ensure such an overage does not happen again, if there is an overage and the system is getting close to exceeding what the league can get back through the escrow system, then the following season’s salary cap (and tax level) may be reduced in order to put on the brakes.

For the 2014-15 season, $218.6 million was deposited into the escrow account.

If the players received less than their fair share of revenues throughout the season in the form of salaries and benefits, the league returns the full amount of the escrow and simply cuts the players a check for the difference. To help ensure such an underpayment does not happen again, the league increases the following season’s salary cap and tax level equal to the amount of the shortfall divided by the 30 teams in the league. The artificially inflated salary cap promotes higher spending on player salaries, and thus decreases the likelihood of a shortfall in the following season.

The system is designed such that the salary cap for each team is set at 44.74 percent of revenues, but the players are actually entitled to receive between 49 and 51 percent of revenues (the exact percentage is tied to the league’s financial performance).

In the past, this has never really been a problem. The NBA has a soft salary cap. Almost every team in the league used to exceed the salary cap by a large enough amount every season – many even exceed the luxury tax – that the players always wound up receiving their fair share of revenues. Typically, in fact, the players wound up getting far more than to which they were entitled, and the league’s escrow system would knock them back down.

Lately, however, it has become a far more significant problem. Punitive new cap rules — hard caps, increasing luxury tax consequences, etc. — coupled with more destructive roster construction models have caused teams to dramatically ratchet down their spending. For the first time ever, two teams failed to reach the league-wide minimum team salary requirement this past season. Eight teams ended the season below the salary cap (excluding cap holds). On the high end, a recording-tying low of five teams were taxpayers this year by a cumulative record-breaking low of just $26 million.

With league-wide revenues of $4.84 billion for the 2014-15 season, $180 million higher than the $4.66 billion originally forecasted when the CBA was negotiated, players were entitled to 50.39 percent of revenues, or $2.44 billion, in salaries and benefits. Throughout the season, they received just $2.38 billion, a $57.3 million shortfall.

The league will therefore return to the players the full $218.6 million from the escrow account, and cut a check for the additional $57.3 million shortfall. It will mark the largest shortfall check sent to players in league history.

The shortfall, in turn, caused an increase to the salary cap for the 2015-16 season of $1.9 million.

To arrive at its salary cap and luxury tax figures, the league took its $5.04 billion revenue projection, multiplied it by 44.74 percent and 53.51 percent respectively, subtracted projected benefits, and divided the result by 30. It then added the $1.9 million adjustment to the final tallies. On that basis, the new salary cap and tax thresholds were set.

The new salary cap has been set at $70.00 million, an 11.0 percent increase from last season. That is substantially larger than the $66.3 million initial projection from last year at this time (which contained no salary-related adjustment) and the $67.1 million project issued last April (which contained a $500K salary-related adjustment).

The new luxury tax line been set at $84.74 million, a 10.3 percent increase from last season. That is substantially larger than the $80.7 million initial projection from last year at this time (which contained no salary-related adjustment) and the $81.6 million projection issued last April (which contained a $500K salary-related adjustment).  Read more…

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NBA Issues Updated Salary Cap Guidance to Teams

April 17th, 2015 No comments
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At the Board of Governors meetings in New York, NBA teams were advised that the league expects the salary cap to increase from its current $63.1 million figure to $67.1 million next season and $89 million in 2016-17, while the luxury tax is expected to increase from its current $76.8 million figure to $81.6 million next season and $108 million in 2016-17.

The figures are non-binding forecasts that have been circulated several months before the official salary cap and luxury tax threshold for the 2015-16 season are announced on July 8 following a league-wide audit (that is what July Moratorium is for).

As part of the audit, accountants jointly appointed by the NBA and the players’ association will finalize the total revenue haul for the past season and, on that basis, project the revenues for the year ahead.

They will then take 44.74 percent of that projected amount, subtract projected benefits, and divide by 30 (the number of teams in the league) to get the salary cap for the season ahead. Adjustments are then made to the cap if players received way too much, or too little, in salaries and benefits for the then prior season relative to the finalized revenue figure; this serves as a mechanism to maintain the integrity of the agreed-to revenue spit between owners and players. The luxury tax uses a similar formula, but is based on 53.51 percent of projected revenues.

The latest projections suggest that the revenue haul for this season is expected to be much stronger than originally forecasted.

The league initially forecasted revenues for the 2014-15 NBA season of $4.66 billion when the current collective bargaining agreement was drafted back in 2011. The forecast was revised upward to $4.71 billion last July, off of which projection the salary cap was based. Today’s announcement suggests the league is now expecting that when they are finalized in July, revenues will come in at approximately $4.76 billion.  Read more…

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NBA Sets Salary Cap and Tax Level Numbers for 2014-15

July 9th, 2014 No comments
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On Thursday July 10 at 12:01 a.m. ET, the NBA’s 2014-15 season begins. That’s when the league’s salary cap, luxury tax threshold, maximum salaries and other figures all adjust to their new values.

Most NBA business ceases for the first several days of July as the league conducts its annual audit to determine the league’s revenues from the previous season. With that figure in hand, the league huddles with the players association to project revenues for the coming season, and uses it to calculate the new cap, tax and related figures.

Revenues on the season came in at an all-time high $4.52 billion, up 5.3% from the previous year and more than $50 million higher than initially projected. On that basis, the league then projected revenues for next season to increase another 4%, to $4.71 billion.

To get the salary cap for the season ahead, they took 44.74% of that projected amount, subtracted projected benefits, and divided by 30 (the number of teams in the league). Adjustments are then made to the cap if players received too much (or too little) in salaries and benefits for the completed season relative to the finalized revenue figure; this serves as a mechanism to maintain the integrity of the agreed-to revenue spit between owners and players. The luxury tax uses a similar formula, but is based on 53.51% of projected revenues.

The finalized figures were announced at 5 p.m. Wednesday in a memo distributed by the league to all member teams.

The new salary cap has been set at $63.065 million, a 7.5% increase from last season. That is slightly less than the $63.2 million estimate teams had been using since April, but higher than previous forecasts. Last year at this time, the league initially forecasted a cap of $62.5 million, before increasing it to $62.9 million in November and again in April.

The new luxury tax line will be $76.829 million, a 7.1% increase from last season. Tax projections started at $76.1 million last year at this time, before rising to $76.6 million in November and $77.0 million in AprilRead more…

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League-Wide Spending is Down, Keeping Luxury Tax Projection Up

October 27th, 2013 No comments
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Those among us who have been biding our time until the start of the 2013-14 NBA season by creating hypothetical machinations whereby the Miami Heat maintains and extends its current dominance into the 2014-15 season and beyond are quietly getting some good news.

League-wide spending is down.

Which means salary cap and luxury tax projections for next season are staying up.

The league is currently projecting a 2014-15 salary cap of $62.5 million and a tax level of $76.1 million. Pending league-wide revenue performance during the course of the season, these projections seem fairly safe for now.

The cap and tax levels are set by calculations based on projected amounts for revenue (termed 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. Barring any adjustments that are necessitated, they typically use the projected revenues from national broadcast rights (which is determined in advance), plus the BRI for the previous season (other than national broadcast rights) increased by 4.5%.

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 current 2014-15 projections assume a 4.5% increase in revenues. They are based on an estimated $4.672 billion of projected BRI and $217 million in projected benefits (including $47 million of benefits, or 1% of BRI, to be allocated to the player benefits pool). They assume no salary-related adjustments.

The rest is basic math. Simply multiply the projected BRI by the respective percentages for the cap and tax threshold, subtract projected benefits, and divide the difference by 30. That’s it. Read more…

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