Dan Rosenbaum

From a variety of sources, here is my best guess at how the disbursement of luxury taxes/escrow will work.

First of all, a couple of definitions.

luxury tax threshold - team salary at which luxury tax kicks in, the sum of luxury tax threshold (multiplied by 29) and total player benefits equals 61.1% of basketball-related income (BRI), my best guess is that this will kick in at about $52 million in 2002-2003

cliff provision threshold - team salary at which teams receive a 0% share of luxury tax disbursements and 70% share of escrow disbursements, the sum of the cliff provision threshold (multiplied by 29) and total player benefits equals 65% of BRI, my best guess is that this will kick in at about $55.1 million in 2002-2003

And now the basic rules.

1. Teams below the luxury tax threshold receive a 100% share of the luxury tax disbursements (about $7.1 million) and a 100% share of the escrow disbursements (about $5.7 million) for a total of about $12.8 million.

2. Teams above the cliff provision threshold receive a 0% share of the luxury tax disbursements and a 70% share of the escrow disbursements (about $4 million) for a total of about $4 million.

3. Teams between the luxury tax threshold and cliff provision threshold receive luxury tax and escrow disbursements equalling 70% share of the escrow disburements (about $4 million) and a fraction of the difference in the disbursements between those teams below the luxury tax threshold (about $12.8 million) and above the cliff provision threshold (about $4 million). This difference in disbursements is about $8.8 million.

4. This fraction is equal to the difference between the cliff provision threshold and team salary divided by the difference between the cliff provision threshold and luxury tax threshold (about $3.1 million). So for a team with a team salary of $53 million, their fraction would be equal to ($55.1-$53)/$3.1 = 0.677, implying that their disbursement would be equal to about $10 million ($4 + 0.677*$8.8).

5. This disbursement scheme leaves some of the luxury tax and escrow undisbursed (approximately $135 million). After the commissioner takes out an undisclosed chunk, the remainder is divided by the 29 teams. Assuming the commissioner takes say $10 million, then the each of 29 teams would receive another disbursement of about $4.3 million.

6. Consequently, teams below the luxury tax threshold will get a total disbursement of about $17.1 million. Teams above the cliff provision will get a total disbursement of about $8.3 million, and teams between the two threshold will get something between these two amounts.

7. Note that this disbursement plan implies that a move that increases team salary from $52 million to $55.1 million results in $3.1 million in luxury taxes being paid and disbursements falling from about $17.1 million to about $8.3 million. Net payroll would rise from about $34.9 million to about $49.9 million, which implies that the marginal tax rate over the range from about $52 million to about $55.1 million is about 380%.

Well, there is more that I can say about this, but I will stop for now.