Evaluating the current state of the NBA, a fan might wonder why the discrepancy between the top of the League and the bottom is so striking. Throughout the 2020-21 NBA season, the Brooklyn Nets have been putting the finishing touches on one of the most star-studded NBA rosters in history. With Kevin Durant, James Harden, and Kyrie Irving as a Big 3, Brooklyn is considered a favorite to win an NBA Championship this summer.
A closer look at the Brooklyn Nets Payroll presents some questions about how these expensive rosters are allowed to exist within the NBA's rules. The NBA Salary Cap for the 2020-21 season is $109.1 million, and that number is predetermined before each Salary Cap Year. The Cap is calculated by finding 44.74% of Basketball Related Income for a Salary Cap Year, less Projected Benefits for that Salary Cap Year, divided by the number of Active NBA teams that year. Therefore, the number is a representation of the finances of the League as a whole. This number acts as a spending limit for NBA franchises designed to promote a competitive balance across the League and prevent larger-market teams from dominating the Free Agency Market. The NBA's Salary Cap is a 'soft' one, meaning it can actually be exceeded.
On top of that threshold, the NBA also has a Luxury Tax, which is set at $132.6 million for this season. The Luxury Tax acts as a higher suggested threshold in a team's overall salaries. The tax features financial penalties, which are incurred when a team's salary exceeds that number. As the spending surplus increases more and more, the penalties increase exponentially. For example, teams are penalized $1.50 for each dollar spent up to $4,999,999 over the limit, and teams are penalized $3.25 for each additional dollar spent up to $19,999,999 over the limit.
Brooklyn's loaded roster includes $166,391,878 in Total Guaranteed Salary for the 2020-21 season. This consists of the salaries of the current 19 Nets and two more who have recently left the team but are still on the payroll. This number exceeds the 2020-21 Salary Cap by $57,291,878 and the Luxury Tax by $33,791,878. Here is a breakdown of the penalties the Nets will face as a result of the Luxury Tax:
1st Tax Bracket: $1.50 x $4,999,999 = $7,499,998.50
2nd Tax Bracket: $1.75 x $5,000,000= $8,750,000
3rd Tax Bracket: $2.50 x $5,000,000= $12,500,000
4th Tax Bracket: $3.25 x $13,791,879= $44,823,606.80
Total Luxury Tax Penalties: $73,573,605.30
The Nets' excessive spending throughout the season does not go unpunished. The team will be forced to pay millions of dollars a year as long as they want to maintain their 'super team' status. But considering that, there is nothing in the Collective Bargaining Agreement stopping Brooklyn, or any team for that matter, from signing a roster full of superstars if they have the money to back it up.
There is a common belief for many NBA fans that the Salary Cap or the Luxury Tax is a sharp cutoff that NBA teams cannot exceed. This is the case in some other professional sports leagues, like the NFL, but not the NBA. This assumption leads people to question how teams like the 2020-21 Brooklyn Nets can sign so many superstars. In reality, teams have been exceeding these thresholds for years with regularity. For instance, the 2016 Cleveland Cavaliers and the Golden State Warriors, who would meet in the NBA Finals 4 years in a row, both had total guaranteed salaries well over the thresholds. So as long as ownership's pockets are deep enough and they are willing to shell out for the luxury tax, there is nothing stopping teams like Brooklyn from continuing to sign stars.
Until next time…