An Important Amendment: New Yearly Adjustments to the Apron and Luxury Tax

Colin Maher, Salary Cap Specialist and Contributor to Not Trade Clause

When a free agent signs a lucrative contract someone undoubtedly says “the Salary Cap will continue to rise, so it won’t look as bad in a couple of years.”

While this is technically true, it doesn’t tell the whole story. 

Yes, if the Salary Cap rises at a greater rate than the player’s salary, the salary’s share of the Salary Cap will decrease. However, under the 2017 CBA,  this was not the case for the Apron threshold and Luxury Tax brackets. The Apron only increased at half the rate of the Salary Cap, while the Luxury Tax brackets remained fixed at $5 million intervals.

Under the new 2023 CBA, the First Apron, newly implemented Second Apron and Luxury Tax brackets will all rise at the same rate of the Salary Cap (beginning in 2024-2025). This is a significant change teams will consider when projecting their team salaries in the future.

Adjustable Apron Thresholds

The below chart is a comparison showing how a standard contract at 5% raises would eat into the Apron over time under the 2017 CBA, but descends in proportion to the Apron over time under the 2023 First Apron. This is assuming an 8% yearly increase to the Salary Cap.

The Salary Cap increases at a faster rate than the salary.  However, the 2017 Apron grows at a slower rate than the salary, meaning the salary eats more and more into the Apron threshold each year. Under the 2023 CBA, the Player’s salary takes up less of a proportion of the First Apron year after year.

Let’s try it with a 30% maximum player getting his 8% raise to see where he ends up.

While at a lesser rate, the same result occurs. If a team believes the League’s Salary Cap will increase 8% year after year (or perhaps even 10% with the new TV deal), even a maximum salary contract will decrease in proportion to the Apron thresholds over time.

Adjustable Tax Brackets

The same can be said for Luxury Tax brackets. The increase in First and Second Aprons will provide relief for roster-building purposes. The adjustable Tax Brackets will help lower the overall tax bill for owners (which in turn will allow front offices to spend more in Team Salary, thus providing indirect relief for roster-building purposes).

Below is a comparison of the first four Tax Brackets (the total threshold including the Tax Level) with hypothetical Salary Cap numbers through 2025-2026.

Conclusion

As the Salary Cap continues to increase over the next few years, we will  see a strategy shift knowing the salary of a player at the time of signing will not consume the same amount of the Apron threshold in the future.