NBA Owners Accept Luxury Tax
In one of the first signs of possible progress in the NBA lockout, the owners agreed Friday to accept the union's concept of a luxury tax on some contracts to see if such a system will slow salary growth.
"We are willing to try it the union's way, but they have to agree that if it doesn't work, we then have to try it our way," deputy commissioner Russ Granik said.
The league asked for a two-year trial, with higher tax rates and a lower threshold than the union had proposed. A hard salary cap would kick in for the 2000-01 season if the percentage of league revenue devoted to salaries failed to drop from 57 percent to 52 percent.
The union did not immediately respond.
According to the league's projections, the tax would have no impact on 85 percent of the league's future contracts.
The league also included an exemption for any player who accepts a so-called Larry Bird contract with a 5 percent raise. Such a rule would allow the Chicago Bulls to re-sign Michael Jordan for about $36 million next season without having to pay any tax.
Although the sides may have found a mechanism that will get them to the middle ground on the main economic issue, a host of other topics still have to be resolved before a collective bargaining agreement could be put up for a ratification vote.
Granik said it will take about a week to settle the rest of the issues after the sides agree to a new economic system.
The NB has already canceled the first two weeks of the season, or a total of 99 games. More games will be lost if the sides can't reach agreement soon.
There was no decision Friday from arbitrator John Feerick on the issue of whether players with guaranteed contracts must be paid during the lockout. Feerick's decision is due Sunday.
The league's proposal calls for a tax to be levied on any contract signed under the Bird exception for more than $2.6 million, which was the average salary in the 1997-98 season.
The tax would be paid by owners, with the revenue redistributed to low-revenue teams. In theory, it would deter teams from signing overly lucrative contracts.
The tax rate would be 50 percent of the amount over $2.6 million for all contracts worth up to $10 million annually. For contracts worth between $10 million and $15 million, the tax would be 100 percent, between $15 and $20 million it would be 150 percent, and for contracts worth more than $20 million the rate would be 200 percent, Granik said.
Under the union's tax proposal, which was presented to the owners Tuesday, a 50 percent tax would be levied on any Bird contract worth more than $18 million annually. (The Bird rule allows teams to exceed the salary cap to retain their own free agents.)
"The proposal made by the union would have resulted in a tax on only two of the approximately 400 contracts in effect last season," Granik said. "We analyzed it every which way, and like the union's other proposals, it would have increased -- not decreased -- the percentage of league revenue paid to players."
"However, in the spirit of compromise we have attempted to fashion a system that uses a tax, instead of a hard salary cap, even though we're skeptical about the ability of any tax system to keep player salaries at a set percentage of league revenue," Granik said.
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