ARTICLE VII:
BASKETBALL RELATED INCOME, SALARY CAP, MINIMUM TEAM
SALARY, AND ESCROW ARRANGEMENT
INDEX
Section 1. Definitions
Section 2. Calculation
of Salary Cap and Minimum Team Salary
Section 3. Determination
of Salary
Section 4. Determination
of Team Salary
Section 5. Operation
of Salary Cap
Section 6. Exceptions
to the Salary Cap
Section 7. Extensions,
Renegotiations and Other Amendments
Section 8. Trade Rules
Section 9. Miscellaneous
Section 10. Accounting
Procedures
Section 11. Players
Association Audit Rights
Section 12. Escrow and
Tax Arrangement
Section
10. Accounting Procedures.
(a)
(1) The NBA and the Players Association shall jointly
engage an independent auditor (the “Accountants”)
to provide the parties with an “Audit Report”
(and a “Draft Audit Report,” and, if applicable,
an “Interim Audit Report” and, if applicable,
an “Interim Escrow Audit Report”) setting
forth BRI, and Total Salaries and Benefits for the
immediately preceding Salary Cap Year and the information
called for by Section 12 below (the “Escrow
Information”). The audit reports provided for
by this Section 10(a)(1) are to be prepared in accordance
with the provisions and definitions contained in this
Agreement. The engagement of the Accountants shall
be deemed to be renewed annually unless they are discharged
by either party during the period from the submission
of an Audit Report up to January 1 of the following
year. The parties agree to share equally the costs
incurred by the Accountants in preparing the audit
reports provided for by this Section 10(a)(1).
(2) The Accountants shall submit a “Draft Audit
Report” for each Salary Cap Year to the NBA
and the Players Association, along with relevant supporting
documentation, two (2) weeks prior to the scheduled
issuance of the final Audit Report.
(3) The final Audit Report shall be submitted by the
Accountants to the parties on or before the last day
of the Moratorium Period following the conclusion
of the Salary Cap Year. The Audit Report shall not
be deemed final until the parties have confirmed in
writing their agreement (in a form acceptable to the
parties) with such Report. The NBA, the Players Association
and the Teams shall use their best efforts to facilitate
the Accountants’ timely completion of the Audit
Report.
(4) In the event that, for any reason, the Accountants
fail to submit to the parties a final Audit Report
by the last day of the Moratorium Period, the Accountants
shall prepare an interim Audit Report (the “Interim
Audit Report”) by such date setting forth the
Accountants’ best estimate of BRI and Total
Salaries and Benefits for the preceding Salary Cap
Year and, based upon such best estimates, the Escrow
Information. Such Interim Audit Report shall include:
(ii) All amounts of BRI and Total Salaries and
Benefits (or the portions thereof) and all Escrow
Information (or the portions thereof) for such Salary
Cap Year as to which the Accountants have completed
their review and, by written agreement of the Players
Association and the NBA (waiving their respective
rights to dispute such amounts), are not in dispute.
(iii) With respect to any amounts of BRI or Total
Salaries and Benefits (or portions thereof) as to
which the Accountants have not completed their review
or which are the subject of a good faith dispute
between the parties, the NBA’s good faith
proposal as to the proper amount, if any, that should
be included in the Audit Report.
(iv) With respect to any items of Escrow Information
that are the subject of a good faith dispute between
the parties, the Accountants’ good faith determination
as to such items, taking into account the provisions
of Section 10(a)(2) (i) and (ii).
As soon as practicable after the Interim Audit Report
is submitted to the parties, the Accountants shall
submit the final Audit Report, including a description
of the differences, if any, from the Interim Audit
Report. The Audit Report shall not be deemed final
until the parties have confirmed in writing their
agreement (in a form acceptable to the parties) with
such Report or all disputes with respect to such Report
have been finally resolved by means of the dispute-resolution
procedures provided for by this Agreement.
If, at the conclusion of the Audit Report Challenge
Period (as defined by Section 12(b)(4) below), the
Accountants have not submitted or are unable to submit
a final Audit Report (because, by way of example but
not limitation, there are disputes or claims that
have been asserted pursuant to Article XXXII, Section
9(c) and which remain pending), the Accountants shall
prepare and submit to the parties, within five (5)
business days following the completion of the Audit
Report Challenge Period, an Interim Escrow Audit Report
that shall include the information set forth in the
Interim Audit Report as adjusted or amended so as
to reflect any final determinations made by the System
Arbitrator or the Appeals Panel (as the case may be)
in proceedings commenced pursuant to Article XXXII,
Section 9(b) and involving disputes or claims with
respect to such Interim Audit Report. The sole purpose
for which any Interim Escrow Audit Report is to be
used under this Agreement is to perform or form the
basis for the calculations to be made pursuant to
Article VII, Section 12 below.
(b) For purposes of determining BRI, Total Salaries
and Benefits and the Escrow Information, the Accountants
shall perform at least such review procedures as shall
be agreed upon by the parties. In connection with the
preparation of Audit Reports for each Salary Cap Year,
each Team and the NBA shall submit a report to the Accountants,
the NBA and the Players Association setting forth BRI,
Team Salaries and Benefits information for such Salary
Cap Year, on forms agreed upon by the NBA, the Players
Association and the Accountants (the “BRI Reports”).
The NBA and the Players Association shall agree upon
such forms no later than April 1 of each Salary Cap
Year.
(c) The Accountants shall review the reasonableness
of any estimates of revenues or expenses for a Salary
Cap Year included in the Teams’ and the NBA’s
BRI Reports for such Salary Cap Year and may make such
adjustments in such estimates as they deem appropriate.
To the extent the actual amounts of revenues received
or expenses incurred for a Salary Cap Year differ from
such estimates, adjustments shall be made in BRI for
the following Salary Cap Year in accordance with the
provisions of Section 10(f) below.
(d) With respect to expenses deducted by the NBA or
the Teams, the NBA and the Teams shall report in BRI
Reports only those expenses that are reasonable and
customary in accordance with the provisions of Section
1(a)(1) above. Subject to the terms of Section 1(a)(6)
above and Section 11 below, all categories of expenses
deducted in a BRI Report completed by the NBA or a Team
shall be reviewed by the Accountants, but such categories
shall be presumed to be reasonable and customary and
the amount of the expenses deducted by the NBA or a
Team that come within such expense categories shall
also be presumed to be reasonable and customary, unless
such categories or amounts are found by the Accountants
to be either unrelated to the revenues involved or grossly
excessive.
(e) The Accountants shall notify designated representatives
of the NBA and the Players Association: (1) if the Accountants
have any questions concerning the amounts of revenues
or expenses reported by the Teams and the NBA or any
other information contained in the BRI Reports; or (2)
if the Accountants propose that any adjustments be made
to any revenue or expense item or any other information
contained in the BRI Reports.
(f) The Accountants shall indicate which amounts included
in BRI for a Salary Cap Year, if any, represent estimates
of revenues. With respect to any such estimated revenues,
the Accountants shall, in preparing the Audit Report
for the immediately succeeding Salary Cap Year (“Subsequent
Audit Report”), or the Audit Report for the same
Salary Cap Year in the event that an Interim Audit Report
was previously issued for that Salary Cap Year, determine
the actual revenues received for the prior Salary Cap
Year and include as a credit or debit to BRI in such
Subsequent Audit Report the amount of the aggregate
difference, if any, between all such estimated revenues
for the prior Salary Cap Year and the actual revenues
received for such Salary Cap Year (the “Estimated
Revenue Adjustment”).
(g) In the event that in the course of preparing an
Audit Report for a Salary Cap Year the Accountants discover
that they committed an error in computing BRI in the
Audit Reports for either of the two previous Salary
Cap Years, which error resulted in a material understatement
or overstatement of BRI for either of such Salary Cap
Years, and the parties agree that such error was committed
and agree as to the amount of the resulting understatement
or overstatement (or, if they do not agree, an error
(and the amount of such error) is established pursuant
to the dispute resolution procedures provided for in
this Agreement) the amount of such understatement or
overstatement of BRI shall be added to or subtracted
from BRI, as the case may be, with interest (at a rate
equal to the one year Treasury Bill rate as published
in the Wall Street Journal on the date of the issuance
of such Audit Report) accruing from the date of the
Audit Report for the Salary Cap Year in which such understatement
or overstatement occurred in equal annual amounts over
the then-current and subsequent Salary Cap Year. Notwithstanding
the foregoing, the parties will jointly instruct the
Accountants that their audits shall not include procedures
specifically designed to detect errors committed in
prior audits.
(h) In the event that there is an NHL players’
strike or owners’ lockout (“work stoppage”)
resulting in the cancellation of all or part of any
NHL season in any Salary Cap Year, and such work stoppage
results in a refund being made to luxury suite-holders,
premium seat license-holders or to purchasers of fixed
arena signage and/or naming rights in arenas in which
both an NBA Team and an NHL team plays its home games,
then the revenues for luxury suites, premium seat licenses
and fixed arena signage and/or naming rights in such
arenas shall be determined as if such refunds were not
made. If the work stoppage continues for a second year,
then the NHL revenues shall be deemed to be the amount
included for the prior year.
(i) All disputes with respect to any Interim Audit Report
shall be resolved exclusively in accordance with the
procedures set forth in Article XXXII.
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