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Posts Tagged ‘Luxury Tax’

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

July 9th, 2014 No comments

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 be $4.71 billion.

To get the salary cap for the season ahead, they take 44.74% of that projected amount, subtract projected benefits, and divide 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

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

July 9th, 2013 No comments

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.  Read more…

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A Look at the Finances Behind the Miami Heat’s Success

June 25th, 2013 4 comments

Micky Arison was one of five NBA owners who voted against the current Collective Bargaining Agreement back in December of 2011. It was mostly a symbolic move – he knew the agreement would pass either way. But the point he was making was clear: the harshest elements of the new contract, the more penal luxury tax system and the new revenue sharing model, were clearly aimed directly at his Miami Heat.

The lockout having ended, the season was spared and the Heat went on to win its first, and now its second, championship of the Big Three era. Heat fans have thus far been spoiled by Arison’s willingness to spend his way into ensuring the future is bright in Miami. But could the day of reckoning the league had envisioned for the Heat soon be upon us?

Player salaries, when combined with luxury tax obligations, can get quite expensive for a title contender such as the Heat. Revenue sharing obligations only increase that financial burden.

So the question becomes: How profitable is the Heat organization?

First, some background.

Micky Arison is a multi-billionaire.

He is the son of Ted Arison, co-founder of Carnival in 1972. He became Chairman and CEO of Carnival in 1979. He announced his intention to step down as CEO earlier today, retaining his role as Chairman, but he nonetheless remains the beneficial owner of 174 million shares of the company, currently valued at a whopping $6.0 billion!

He is the majority owner of the Miami Heat, having purchased the team from his father and two other men, Billy Cunningham and Lewis Schaffel, for $68 million in 1995, who themselves paid out $32.5 million in expansion fees in 1988 to bring the team to Miami.  Read more…

Revised Luxury Tax Projections Come in Below Expectations

June 2nd, 2013 No comments

The NBA’s salary cap and luxury tax threshold aren’t expected to rise as much as the league initially projected, a development that could have significant implications for the Miami Heat.

Estimates that were provided by the league to NBA teams on May 31 have the salary cap rising to just $58.5 million and the tax threshold to just $71.6 million for the 2013-14 season, both slight increases from the current levels but considerably lower than what had been projected. The league had previously guided to $60 million and $73 million, respectively, at the beginning of the season. The numbers will be finalized only after the NBA does a full season audit during the first week in July.

The revised projections suggest that revenues for the 2012-13 season are falling short of expectations and, as a result, player salaries are correspondingly too high, triggering escrow adjustments to the following season’s salary cap and tax threshold.  Read more…

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NBA Luxury Tax Projections For Next Season

March 11th, 2013 No comments

There has been widespread speculation in NBA circles over the past year or so about the fate of the Miami Heat for next season and beyond. Articles that emphatically declare the inevitable financially-motivated implosion of Pat Riley’s brainchild have run rampant all across the internet universe.

The cost of doing business in the NBA has increased dramatically under the provisions of the new Collective Bargaining Agreement. The new rules are designed specifically to financially cripple high-spending teams like the Heat, in an attempt to promote competitive balance among all of the league’s 30 teams.

It’s working. Miami’s costs are soaring. But while predictions that call for the Big Three to be broken up to alleviate the hemorrhaging in the years to come are wildly premature and not very likely if things continue to run smoothly on the court, just how much Arison may be willing to spend to surround them depends largely on future luxury tax thresholds.  Read more…

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