Abstract

http://ssrn.com/abstract=1868971
 


 



The Untaxed King of South Beach: Lebron James and the NBA Salary Cap


Mitchell L. Engler


Benjamin N. Cardozo School of Law

June 1, 2011

San Diego Law Review, 2011
Cardozo Legal Studies Research Paper No. 340

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.

Number of Pages in PDF File: 32

Keywords: salary cap, state income tax, tax rates, NBA, incumbency rule, road income tax

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Date posted: June 22, 2011  

Suggested Citation

Engler, Mitchell L., The Untaxed King of South Beach: Lebron James and the NBA Salary Cap (June 1, 2011). San Diego Law Review, 2011; Cardozo Legal Studies Research Paper No. 340. Available at SSRN: http://ssrn.com/abstract=1868971

Contact Information

Mitchell L. Engler (Contact Author)
Benjamin N. Cardozo School of Law ( email )
55 Fifth Ave.
New York, NY 10003
United States
(212) 790-0217 (Phone)
(212) 790-0205 (Fax)

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