The NBA could not escape the economic reality of a world in recession.

The league announced late Tuesday night that the salary cap for next season will be set at $57.7 million, a drop of almost $1 million from last year's figure of $58.68 million. It is only the second time in the history of the modern cap that there has been a drop from one year to the next (the cap fell from $42.5 million in 2001-02 to $40.27 million in 2002-03). But the drop, while expected, wasn't as bad as many teams had initially feared, with many teams struggling with ticket sale renewals.

The drop occurred even though overall revenues increased this past season. But over projecting the amount of expected revenues in past seasons, according to a source with knowledge of the auditing procedure between the league and the Players Association, meant an adjustment had to be made this year.

The Luxury Tax threshold also dropped, however, and that may have a chilling effect on many more teams than the drop in the cap. The tax threshold will go down next year from its current $71.15 million to $69.92 million. Teams with salaries in excess of $69.92 million will pay a $1 tax for every dollar they're above the threshold; in effect, paying double once they're above it. That will impact the decision making of teams that may have expected to be comfortably below the tax and now find themselves close to or above it, making them pass on potential free agent signings and/or trades that bump up their bottom line even by a few thousand dollars.

Despite the drop in the cap and tax, however, the mid-level cap exception--the average salary paid in the league--will increase next year, to $5.854 million from its current $5.585 million, because average salaries increased last year. The mid-level is a primary means by which teams can sign veteran free agents who otherwise might have to take veteran minimum salaries to stay in the league during their prime playing seasons.

Players like Ron Artest (Lakers) and Trevor Ariza (Rockets), that have agreed to new deals with new teams using the mid-level, and will receive annual eight percent raises from their new teams, will make $33.738 million on five-year contracts.