NBA players took home a greater percentage of revenue last season than they did the year before, but many teams for the first time will have to pay a luxury tax, which could total as much as $180 million.
NBA players received about 59.5 percent of the NBA's basketball-related income last season after paying an escrow tax of about 10 percent of their salaries. The year before, during the 2001-02 season, players received some of the money back from their escrowed salaries, but only received about 57 percent of basketball-related income, which includes most but not all NBA revenue.
The NBA last week announced that the salary cap for the 2003-04 season would increase by 9 percent to $43.84 million. The league also announced that teams that had payrolls over $52.9 million in the 2002-03 season would pay a tax for each dollar over that threshold. The salary cap is based on projected basketball-related income.
The 2001-02 season was the first season in which teams could have been forced to pay the luxury tax, but player salary levels did not rise high enough to trigger the tax. The luxury tax and escrow tax are components of a six-year collective-bargaining agreement that ended the 1998-99 NBA lockout.
An NBA spokesman declined to comment on how many teams would pay the tax or how much it would be. But Dan Rosenbaum, an economics professor at the University of North Carolina-Greensboro who has studied the NBA luxury tax, estimated that 17 of the 29 teams would pay a total of $180 million. Another source put the total between $170 million and $180 million.
The NBA, in a statement, said the luxury tax money is redistributed to NBA teams, but an NBA spokesman wouldn't say how it is distributed. Last year, the National Basketball Players Association protested a league policy in which teams above the luxury tax threshold receive less luxury and escrow tax money than teams below the threshold.
Although the union called the policy "a double tax," an arbitrator agreed that the league had the right to distribute the money as it saw fit.
Jeffrey Kessler, outside attorney for the players' union, said the players have set aside their appeal of that ruling while they are in talks with the league regarding changes to the collective-bargaining agreement. The players do not like the escrow or luxury tax.
"If we don't work out an extension agreement, [NBPA chief] Billy Hunter might decide to pursue the appeal," Kessler said.
The news announced last week "was good for the players in several respects," Kessler said. The salary cap was up, so the maximum player salaries increased, he said.
Also, the projected luxury tax threshold for the 2003-04 season is about $57 million, meaning teams can spend more without the fear of being taxed, he said.
NBA spokesman Tim Frank said league officials believe the current labor agreement is working well.
"Our goal with the CBA is for salaries and revenues to increase at an even rate," he said. "Salaries are increasing a little bit more, but it is pretty close."
