The NBA’s push for a “spending cap” in the new CBA could threaten labor peace

In some ways, business has never been better for the NBA. According to NBA Commissioner Adam Silver, the league made a record $10 billion in sales and $8.9 billion in basketball revenue last year, and franchise valuations are also skyrocketing.

However, nine-figure luxury tax bills from the Golden State Warriors, Los Angeles Clippers and Brooklyn Nets have reportedly made some team-owning groups nervous. As a result, the league is pushing for a “spending cap,” a hard salary cap, in its ongoing negotiations with the National Basketball Players Association over the next collective bargaining agreement, according to multiple reports.

When these reports first surfaced in late October, sports illustrated‘s Howard Beck noted that the hard cap proposal was a time-honored tradition during the CBA negotiations. The NBA usually floats the idea, the union flatly rejects it, and the two sides move on to negotiating other thorny issues.

However, it appears the NBA isn’t bluffing this time around, which could seriously jeopardize the league’s decades-long labor peace.

The NBA and players’ union have until December 15 to either opt out of the current CBA or negotiate an extension for that opt-out date. If either side does so, the CBA will expire after the 2022-23 season. If not, the current CBA runs through the 2023-24 season.

Longtime NBA insider Marc Stein wrote on Substack that the league’s “increasingly determined push” for the spending cap “remains the #1 stumbling block in recent negotiations.” He added, “This doesn’t appear to be the usual test-balloon push for a hard spending limit that the NBA has known to hover in previous negotiations and then suddenly fall to get concessions in other areas.”

That appears to be a non-starter for the NBPA. A union source told Stein in October that “before there’s a hard cap, there will be a lockout.”

Under the current CBA, the NBA has a soft cap. Things like bird rights and the mid-level exception allow teams to break the salary cap to either sign free agents or re-sign their own players. Once teams exceed the luxury tax threshold, they have to shell out additional money for tax penalties depending on how far over the limit they are.

The NBA’s proposal would “replace the luxury tax with a hard limit that teams could not exceed to pay salaries.” according to ESPN’s Adrian Wojnarowski. “The league “believes the current system does not provide a sufficient playing field to make more of the 30 teams competitive and claims that the top teams’ spending disparities ultimately made the imbalance unsustainable,” he added.

Under the current CBA, teams are severely limited when signing a free agent using the mid-level non-taxpayer exception or semi-annual exception, or acquiring a player in a sign-and-trade. These teams cannot cross the luxury tax apron at any time for the remainder of the league year. However, these are the only three mechanisms where a team is hard capped in the current system.

Coverage to date hasn’t shared many details of the NBA’s hard cap proposal. It’s unclear if the spending limit would be set at the current lead-in, which is nearly $7 million above the luxury tax limit this season, or if it would be higher or lower.

Not all team governors agree with this proposal, Stein noted. Some fear that an actual payroll cap that absolutely cannot be exceeded, as opposed to the current bill, which relies on the luxury tax and repeat tax to accomplish the task of a hard cap, could make it even harder to maintain their best players.”

Teams will always spend as much money as is allowed on Superstars, even if the league implements its spending cap. However, a hard cap could make it even harder for teams to build two or three players with maximum contracts. In the unlikely event that the league does pull through, front offices would need to reevaluate their team-building strategy.

The two sides are likely to explore alternative solutions that effectively achieve the same goals of a hard cap without actually implementing one. Raising the team tax rate above the luxury tax threshold is the lowest hanging fruit.

Under the current CBA, teams are taxed at $1.50 for every dollar they spend between $0 and $4,999,999 over the tax limit, and the amount increases gradually from there. It jumps to $1.75 per dollar for the next $5 million, then $2.50, $3.25, and $3.75 per dollar up to $15 million, $20 million, and $25 million, respectively. From there, teams are charged $3.75 per dollar for the next $5 million and an additional $0.50 for each additional $5 million.

If teams are subject to the repeat tax, meaning they have been in the luxury tax bracket for at least three of the previous four seasons, the tax rate is even stricter. It starts at $2.50 per dollar and increases from there by the same amount as the regular tax. Teams like the Warriors and Clippers now owe nine-figure tax bills.

If frugal teams are concerned about the spending habits of their wealthy peers, they might look to further tighten tax penalties. Perhaps the current repeater rate (starting at $2.50 per dollar) could be the non-repeater rate in the new CBA, and the new repeater rate could start at $3.50 per dollar. The tax rate could also increase by $0.75 per $5 million instead of how it’s structured now.

Passing these two changes would leave repeat tax teams alone owing a whopping $63.8 million in tax penalties for being $15 million over the tax limit. It would become prohibitively expensive to go much higher, even for the richest governors in the league. While it wouldn’t technically be a hard cap, it would effectively achieve the same goal.

The league’s push for a hard cap could still become much ado about nothing. However, if a side pulls out of the CBA within the next week, industrial peace may not be guaranteed beyond the 2022-23 season as a result of this proposal.

Unless otherwise noted, all statistics via NBA.com, PPBStats, cleaning the glass or Basketball Reference. All salary information per Spotrac or RealGM. All odds over FanDuel Sportsbook.

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