In contrast to Major League Baseball, the National Basketball Association (NBA) 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-superstars 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 a sport that tried to eliminate such uncompetitive results via a salary cap?
As discussed in this Article, 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. For instance, Miami provides a highly favorable climate both as to weather and taxes because 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 like Miami, this Article then proposes an appropriate solution. Rather than scrapping the salary cap and restoring a competitive advantage to the wealthier clubs, a relatively simple state tax adjustment to the cap amounts would counteract the rich clubs' advantage without substituting an unintended benefit to the no-tax clubs. To achieve this result, 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 Article then refutes more sophisticated arguments as to why the proposed adjustment might go too far.
Mitchell L. Engler,
The Untaxed King of South Beach: LeBron James and the NBA Salary Cap,
San Diego L. Rev.
Available at: https://digital.sandiego.edu/sdlr/vol48/iss2/3