The New CBA: Luxury-Tax Distribution

Today’s topic in the NBA’s new collective bargaining agreement:

LUXURY-TAX DISTRIBUTION

2005: Teams that did not pay tax each received 1/30th of the total tax fund. Taxpaying teams forfeited their tax distribution and their money was used for “league purposes” such as the revenue-sharing program.

2011: No more than 50 percent of the tax funds can go exclusively to teams that did not pay tax.

Definition: The money collected from escrow and luxury tax may be distributed to teams or used for league purposes, subject to certain rules. Note that in some cases, taxpaying teams receive more than enough money to offset the luxury tax they pay. The distribution rules are different for escrow money and tax money. Escrow: Some or all of the escrow money may be reserved for league purposes. This is likely to be a small percentage of the total escrow amount, but there is no cap on the amount that is used for league purposes. The league could, at their discretion, use all of it. Tax money: Teams under the tax level receive a full share (1/30) of the tax money. (Note that if the league expands, the fraction changes.) Any remaining tax money that is distributed to teams must go to all teams in equal shares.