When the NBA began 77 years ago, players earned on average $4,000-$5,000 per season. At the time, it was certainly nothing to laugh at. Today, the LA Clippers have a payroll of $192 million for the 2022-2023 season. While a lot has changed in 77 years, I'm not sure if anything has kept up with the rate of change of the salaries of NBA basketball players.
What is the NBA Salary Cap?
The NBA salary cap is a limit on the total amount of money that teams are allowed to pay their players each season. The cap is determined by the league's revenue and is typically adjusted each year.
When the NBA began in the 1940's, it actually started with a salary cap. However, it was set aside after one season, as competitive parity was secondary to driving interest to the league.
In 1984, the NBA re-introduced the salary cap as a means to keep competitive balance. If mid-market teams were going to compete, the NBA expand, etc., the league needed a way to level the playing field.
Today, the 2022-2023 NBA salary cap is $122.7 million and is projected to rise 8.3% to $134 million for next season. Compare this to the 2021-2022 season below, and you'll notice a slight increase.
What is the NBA Luxury Tax?
As we discussed, teams are subject to a salary cap, which is a predetermined limit on how much a team can spend on player salaries. The NBA luxury tax is an additional penalty that teams must pay if their payroll exceeds a certain threshold, which is set higher than the salary cap. During the 2022-2023 season, the cap is $150,267,000. The luxury tax is designed to discourage teams from spending too much on player salaries and to promote competitive balance within the league.
If a team exceeds the luxury tax threshold, they are required to pay a tax on the excess amount. The amount of the tax is determined by a sliding scale that increases with the amount of money over the threshold that a team spends. The tax revenue collected from teams that exceed the luxury tax is then distributed to the teams that did not exceed the threshold.
Here is a breakdown of the sliding scale:
For teams between $0 and $4,999,999 over the cap, the tax rate is $1.50 for every dollar over the cap.
The incremental maximum for this level is $7.5 million.
For teams between $5,000,000 and $9,999,999 over the cap, the tax rate is $1.75 for every dollar over the cap.
The incremental maximum for this level is $8.75 million.
For teams between $10,000,000 and $14,999,999 over the cap, the tax rate is $2.50 for every dollar over the cap.
The incremental maximum for this level is $12.5 million.
For teams between $15,000,000 and $19,999,999 over the cap, the tax rate is $3.25 for every dollar over the cap.
The incremental maximum for this level is $16.25 million.
As previously mentioned, the Clippers, with a payroll of $192 million, are roughly $42 million over the cap, which results in a hefty luxury tax bill.
So How Does This Impact Player Salaries?
As you can assume, the higher the salary cap, the more players make. When you hear talk of max contract thresholds and tiers, these numbers are directly traced to the salary cap.
The salary cap also has a direct impact on the rookie pay scale. Based on the projected 2023-2024 salary cap, the #1 pick in June's NBA draft will make approx. $11.79 million in his first year. That number will then go all the up to $16.6 million by his fourth season. Assuming he plays well, he'll then be eligible for a contract extension.
$11.79 million for a rookie is a lot of money, but in pales in comparison to someone like Steph Curry. Curry will make $48 million this season. In 4 years, he'll be up to $59.6 million. This obviously doesn't include any endorsement deals off the court.
If Curry is the highest paid player in the NBA this season, you may be wondering who is second?
Surprisingly, it's John Wall, who is making $47 million this year despite hardly playing. Rounding out the top 5 are Russell Westbrook, LeBron James, and Kevin Durant.
The Rapid Appreciation
We began this article talking about how no industry has evolved quite like the NBA. Here's the proof. In 1984-1985, Magic Johnson was the highest paid player in the NBA. His salary? $2.5 million.
Ironically, ten years later, in 1994-1995, the NBA's highest paid player was?
His salary? $14.7 million.
Fast forward another ten years, and in 2004-2005, Shaquille O'Neal made a whopping $27.7 million.
Things took a breath for a bit, as Kobe Bryant claimed the crown for the NBA's top earner in 2014-2015. His salary of $23.5 million was actually less than Shaq's from ten years prior, though.
As it stands today, in 2024-2025, Stephen Curry will make $55.7 million. As new contracts are signed, this is sure to be eclipsed.
For a simple comparison to the working man/woman, in 1985, the median yearly income in the United States (according to the US Bureau of Labor and Statistics) for an accountant was $23,816. An engineer took home $34,372. In 2021, the median salary for an accountant was $77,251 and $99,049. That's a 224% increase for accountants and a 188% increase for engineers.
Curry's $45.7 million in 2021 vs. Magic's $2.5 million in 1985? That's a 1728% increase.
We can't all be NBA players, but you'll be hard-pressed to find an industry with this type of salary appreciation over the past 40 years.
John Willkom is the author of Amazon best-selling basketball books: Walk-On Warrior and No Fear In The Arena. John is an avid reader, sports fan, and father to two incredible little girls.
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