In signing Andrei Kirilenko, the Brooklyn Nets are paying the San Antonio Spurs around $4.2 million per year. That’s oversimplifying a lot of things, but that’s an absolute ton of money to be giving up.
To get there, let’s take a look at just how the luxury tax works.
The Luxury Tax
The NBA’s salary cap is at $58.679 million. This got figured out back in 2011. The cap isn’t fixed – it’s based on league wide revenues based on what the league pulled in in the previous season. The thing is, teams can easily exceed the cap, through Larry Bird exemptions, and semishady sign-and-trade deals. So in addition to that soft cap, there’s a luxury tax level.
In picking up Andrei Kirilenko, the Nets have bumped their projected payroll up to over $100 million – meaning the Nets are forking over $80 million in luxury tax to Stern and the League. The reality is that AK-47’s $3.18 million comes closer to costing the Nets $16.7 million, once you consider what luxury taxes the Nets have to pay.
The Nets are hardly the only offenders – though they are this year’s worst. Other teams that are expecting to shell out include Chicago, Miami, the Lakers, Orlando, Portland, and of course, the Knicks – regular cap criminals. A very rough estimate says these teams are paying out another $86 million in luxury tax. Combined, we’re talking $160 million in luxury tax the league is raking in.
How is the Tax Spent?
Here’s the big deal. About half of the tax is redistributed to teams under the tax level, as a sort of incentive to spend responsibly, and a reward for not being massive overspending lunatics. So teams like Toronto, San Antonio, and lowly Milwaukee are cashing in, getting around $4.2 million per year in tax payouts from the league.
The Real Cost