Luxury Tax (sports)
A luxury tax in professional sports is a surcharge put on the aggregate payroll of a team to the extent to which it exceeds a predetermined guideline level set by the league. The ostensible purpose of this "tax" is to prevent teams in major markets with high incomes from signing almost all of the more talented players and hence destroying the competitive balance necessary for a sport to maintain fan interest. The money derived from the "tax" is either divided among the teams that play in the smaller markets, presumably to allow them to have more revenue to devote toward the contracts of high-quality players, or in the case of Major League Baseball, used by the league for other pre-defined purposes.
In North America, Major League Baseball has implemented the luxury tax system. The National Basketball Association also has a luxury tax provision; its utility is somewhat limited by the fact that the league also has a salary cap provision. The "hard" salary cap of the National Football League has prevented any need for a luxury tax arrangement. The National Hockey League also has a hard salary cap.
Read more about Luxury Tax (sports): Methods For Limiting Payroll
Famous quotes containing the words luxury and/or tax:
“Physical force has no value, where there is nothing else. Snow in snow-banks, fire in volcanoes and solfataras is cheap. The luxury of ice is in tropical countries, and midsummer days. The luxury of fire is, to have a little on our hearth; and of electricity, not the volleys of the charged cloud, but the manageable stream on the battery-wires. So of spirit, or energy; the rests or remains of it in the civil and moral man, are worth all the cannibals in the Pacific.”
—Ralph Waldo Emerson (1803–1882)
“Rumble thy bellyful! Spit, fire! Spout, rain!
Nor rain, wind, thunder, fire are my daughters.
I tax you not, you elements, with unkindness;
I never gave you kingdom, called you children.”
—William Shakespeare (1564–1616)