Thursday, June 23, 2011

NBA Salary-Cap Inequality

Nba Mitchell L. Engler (Cardozo) explains in The Untaxed King of South Beach: Lebron James and the NBA Salary Cap (forthcoming San Diego L. Rev. 2011) the real reason both Miami and Dallas made it to the NBA finals this year: both teams get a competitive advantage by being located in no-income-tax states.  Here's the abstract:

In contrast to major league baseball, the National Basketball Association has a salary cap designed to provide every team an equal and fair chance of competing for the championship. The Miami Heat‘s recent incredible success in signing the game‘s three most hotly desired free agents, including mega-stars Lebron James and Dwyane Wade, therefore flies in the face of the NBA‘s attempted level playing field. How could one team so outmaneuver all the others in the sport which tried to eliminate such uncompetitive results via a salary cap?

As discussed in this Essay, the answer lies in the law of unintended consequences and perverse incentives. Some NBA teams are located in more attractive jurisdictions with nicer amenities or lower costs, such as taxes. In particular, Miami provides a highly-favorable climate both as to weather and taxes as Florida does not have a state income tax. In the absence of any salary cap limitations, teams in higher-tax jurisdictions could compete better with Miami for free agent players by offering higher salaries to offset the extra tax. But the NBA salary cap, by its very terms, blocks this usual free-market response.

Having flagged this perverse and unintended benefit to the no-tax clubs, this Essay then proposes an appropriate solution. Rather than scrapping the salary cap and restoring a competitive advantage to the wealthier clubs, a state tax adjustment to the cap amounts would remove the rich clubs‘ advantage without substituting an unintended benefit to the no-tax clubs. The salary cap amounts of no-tax teams simply should be reduced by a percentage equal to the highest state tax rate of any NBA team. After making this simple adjustment, this Essay then refutes more sophisticated arguments as to why the proposed adjustment might go too far. Among other points, this Essay highlights how Miami‘s tax advantage might extend beyond just Lebron‘s salary to include his extensive endorsement income as well. Expanding the analysis to such deeper level therefore highlights an even greater need for a state tax adjustment to the NBA salary cap.


Wage & Hour | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference NBA Salary-Cap Inequality:


And, of course, there's the fact that Florida is a Right to Work state, which also means that players for teams in these jurisdictions do not have to pay union dues (don't know what it is for the NBA).

Posted by: James Young | Jun 23, 2011 7:32:17 AM

Silly even by your standards, James -- or so say the players from multi-championship franchises in non-"right to work" states such as the Lakers, Celtics, Pistons, Bulls, etc.

Posted by: Joseph Slater | Jun 23, 2011 12:48:35 PM

Joseph, were you BORN a gratuitously insulting a**hole, or do you have to work at it?

It was not my intention that the reader infer that that a Right to Work law has a direct impact upon championships. My point is that the relief from the burden of paying union dues or agency fees in states that provide the protection of a Right to Work law is also one of the "lower costs" --- or at least a potential lower cost --- to which the author refers. Of course, I have no idea whether the specific players to which the author refers, or players in such franchises generally, actually exercise their right.

Posted by: James Young | Jun 24, 2011 8:31:11 AM

James: Your point was silly. Sorry if I made you feel bad by pointing it out. Perhaps I should try to live up to your fine standards of posts such as "heh, heh, heh" in response to the recent Wisconsin Supreme Court ruling. Or put another way, don't dish it out if you can't take it. As to your gratuitous insult above, I'll just assume that you're channeling your inner Prosser.

Posted by: Joseph Slater | Jun 26, 2011 3:28:40 PM

Post a comment