NBA Salaries: Concepts and Rules

NBA Salaries: Concepts and Rules you need to know to understand the market

 

Salary Cap: A limit on the amount teams can spend on player contracts, which helps to maintain competitive balance in the league. Without a salary cap, teams with deeper pockets could simply outspend the remaining teams for the better free agents. The basic idea behind a salary cap is that a team can only sign a free agent if its total payroll will not exceed the cap — so a team with deep pockets is on a more level playing field with every other team.

The salary cap and luxury tax values for the current season are $58.679 million and $71.748 million, respectively, which means the new cap projection for next season represents a 7.7% increase over this season.

The NBA issued new projections for the 2014-15 and 2015-16 salary cap and luxury tax thresholds. The 2014-15 salary cap is now projected to be $63.2 million and the tax level is projected to be $77.0 million. The numbers for 2015-16 are now projected to be $66.5 million and $81.0 million, respectively.

Note that these are only updated projections. The official numbers won’t come out until late July, when the league conducts its audit. The cap and tax thresholds are based on revenues for the current season. When they count all the beans in late July they also project the revenues for the upcoming year.

Minimum payroll: the minimum amount each team must pay its players. If a team doesn’t meet its minimum payroll it is surcharged at the end of the season for the shortfall. That money is distributed among the players on that team. Amounts paid as buyouts to international teams do not count toward the minimum team payroll.

Season Minimum Payroll Amount
2011-12 80% of the cap $46.435 million
2012-13 85% of the cap $49.337 million
2013-14 90% of the cap $52.811 million
2014-15 90% of the cap
2015-16 90% of the cap

CBA (Collective Bargaining Agreement): It’s the legal contract between the league and the players association that sets up the rules by which the league operates. The CBA defines the salary cap, the procedures for determining how it is set, the minimum and maximum salaries, the rules for trades, the procedures for the NBA draft, and hundreds of other things that need to be defined in order for a league like the NBA to function. The CBA also prevents the NBA from being in violation of federal antitrust laws. Many of the league’s practices (such as the salary cap and draft) would violate antitrust laws were they not agreed to via collective bargaining.

Minimum Team Payroll: Minimum amount each team must pay its player: 90% of the salary cap.

Minimum Salary: Minimum salaries, based on how long the player has been in the league.

Years in NBA 2013-14 2014-15 2015-16
0 $490,180 $507,336 $525,093
1 $788,872 $816,482 $845,059
2 $884,293 $915,243 $947,276
3 $916,099 $948,163 $981,348
4 $947,907 $981,084 $1,015,421
5 $1,027,424 $1,063,384 $1,100,602
6 $1,106,941 $1,145,685 $1,185,784
7 $1,186,459 $1,227,985 $1,270,964
8 $1,265,977 $1,310,286 $1,356,146
9 $1,272,279 $1,316,809 $1,362,897
10+ $1,399,507 $1,448,490 $1,499,187

Maximum Salary: Maximum salaries, based on how long the player has been in the league.

Years in NBA Defined maximum salary 2011-12 2012-13
0 – 6 25% of cap $12,922,194 $13,668,750
7 – 9 30% of cap $15,506,632 $16,402,500
10+ 35% of cap $18,091,071 $19,136,250

Luxury Tax: A mechanism that helps control team spending. It is paid by high spending teams — those with a team salary exceeding a predetermined tax level. These teams pay a penalty for each dollar their team salary exceeds the tax level. The salaries of players waived via the Amnesty provision are exempt from the luxury tax.

Team salary above tax level

Non-repeater

Repeater

Lower Upper Tax rate Incremental maximum Tax rate Incremental maximum
$0 $4,999,999 $1.50 $7.5 million $2.50 $12.5 million
$5,000,000 $9,999,999 $1.75 $8.75 million $2.75 $13.75 million
$10,000,000 $14,999,999 $2.50 $12.5 million $3.50 $17.5 million
$15,000,000 $19,999,999 $3.25 $16.25 million $4.25 $21.25 million
$20,000,000 N/A $3.75, and increasing $.50 for each additional $5 million. N/A $4.75, and increasing $.50 for each additional $5 million. N/A

Salary Cap Exceptions: The basic rule of the NBA’s salary cap is that a team can’t sign a player or make a trade that leaves the team’s team salary above the cap, unless the team is using an exception. Exceptions are the mechanisms that allow teams to function while above the cap. Some exceptions are available only for making trades.

Larry Bird Early Bird Non-Bird Non-Taxpayer Mid-Level Taxpayer Mid-Level Room Mid-Level Bi-Annual Rookie Minimum Disabled Player
Who Qualifies? Own free agent, 3 seasons without changing teams as a free agent Own free agent, 2 seasons without changing teams as a free agent Own free agent, if not Larry Bird or Early Bird Any Any Any Any Team’s first round draft pick(s) Any Any
Minimum Years 1 2 1 1 1 1 1 2 plus two team options 1 1
Maximum Years 5 4 4 4 3 2 2 2 plus two team options 2 1
Maximum Salary Maximum salary Greater of 175% of previous salary or average salary Greater of 120% of previous salary or 120% of minimum salary 5.150.000 (+ 3% each season) 3.183.000 (+ 3% each season) 2.652.000 (+ 3% each season) 2.016.000 (+ 3% each season) 120% of scale amount Minimum salary Lesser of 50% of injured player’s salary or average salary
Maximum Raises 7.5% 7.5% 4.5% 4.5% 4.5% 4.5% 4.5% Defined in salary scale Salary always minimum N/A
Can be split? No No No Yes Yes Yes Yes No No No
Other Cannot be used in consecutive seasons Restricted free agency following option years Approval from the league required. Can be used for a limited time only.

Restricted Free Agent: “Restricted free agency gives the player’s original team the right to keep the player by matching a contract the player signs with another team. Restricted free agency exists only on a limited basis. It is allowed following the fourth year of rookie “”scale”” contracts for first round draft picks. It is also allowed for all veteran free agents who have been in the league three or fewer seasons. However, a first round draft pick becomes an unrestricted free agent following his second or third season if his team does not exercise its option to extend his rookie scale contract for the next season. All other free agency is limited to unrestricted free agency.”

In order to make their free agent a restricted free agent, a team must submit a qualifying offer to the player. The qualifying offer is a standing offer for a one-year guaranteed contract, which becomes a regular contract if the player decides to sign it. This ensures that the team does not gain the right of first refusal without offering a contract themselves. The amount of the qualifying offer for players on rookie “scale” contracts is based on the player’s draft position. The qualifying offer for all other players must be for 125% of the player’s previous salary, or the player’s minimum salary plus $200,000, whichever is greater.

If the player is coming off the fourth year of his rookie scale contract, then in addition to a qualifying offer, his team can also submit a maximum qualifying offer. A maximum qualifying offer is for five seasons at the maximum salary with 7.5% annual raises. It can contain no options, ETOs or bonuses of any kind, and must be fully guaranteed. When a team submits a maximum qualifying offer, it places a more stringent requirement on other teams’ offer sheets. A player can elect to accept his qualifying offer and play the following season under its terms. This is sometimes done in order to become an unrestricted free agent the following summer.

When a restricted free agent wants to sign with another team, the player and team sign an offer sheet, the principal terms of which the original team is given three days to match. The offer sheet must be for at least two seasons. If the player’s prior team also submitted a maximum qualifying offer, then the offer sheet must be for at least three seasons. If the player’s original team exercises its right of first refusal within three days, the player is then under contract to his original team, at the principal terms of the offer sheet. If the player’s original team does not exercise its right of first refusal within three days, the offer sheet becomes an official contract with the new team. As with any contract offer, a team must have enough room for the offer sheet. They must also maintain sufficient room while the offer sheet is outstanding. Likewise, the player’s prior team cannot match an offer sheet that is greater than their room. They must have enough room at the time they are given notice that the player has signed an offer sheet, and at all times until matching. They cannot make moves to create sufficient room after receiving an offer sheet.

Unrestricted Free Agency: An unrestricted free agent is free to sign with any other team, and there’s nothing the player’s original team can do to prevent it.

Option ClausesAn option clause allows a contract to be extended for one additional season after the date it is scheduled to end. For example, a three-year contract with an option for the fourth year means that if the option is exercised, then the contract extends through the fourth season, but if the option is not exercised, then the contract ends after the third season. Once exercised, an option cannot be revoked. Conditional options are not allowed. There are three types of options: Team Options, that give the team the right to invoke the option (there can only be one option year); Player Options, that give the player the right to invoke the option (there can be only one option year); and Player Early Termination Options (ETOs), that give the player the right to terminate the contract early.

Waivers: Waivers are a temporary status for players who are released by their team. A player stays “on waivers” for 48 hours, during which time other teams may claim the player and assume his contract. If no team has claimed the player before the end of the waiver period (which is always 5:00 PM Eastern Time), he is said to have “cleared waivers.” The player’s contract is terminated and he becomes a free agent. The only way to terminate a contract early is through the waiver process. The waiver period includes weekends and holidays. If a team makes a successful waiver claim, it acquires the player and his existing contract, and pays the remainder of his salary — the waiving team is relieved of all responsibility for the player. There is a fee of $1,000, payable to the league office, for claiming a waived player. If more than one team tries to claim a waived player, the team with the worst record gets him. If the player clears waivers he becomes a free agent, and is free to sign with the team of his choice.

Contract Buyout: Sometimes players and teams decide to divorce each other. They do this by mutually agreeing that: 1) The team will waive the player; 2) If the player clears waivers, the player’s guaranteed salary will be reduced or eliminated; 3) In contracts signed or extended under the previous CBA, the payment schedule for the remaining salary may be shortened or lengthened; 4) Optionally the team’s set-off rights may be waived. After the player clears waivers, he and his former team are free to go their separate ways. There is a quid-pro-quo between the player and team regarding contractual obligation and salary — in exchange for gaining his freedom, the player agrees to give the team a break on the remaining salary he is owed.

Amnesty Provision: Amnesty is a one-time opportunity for teams to release one player via the waiver process and remove him from their team salary and luxury tax computations. For a player to be eligible for the Amnesty provision he must be on his team’s roster continuously from July 1, 2011 to the date he is amnestied, without any new contract, extension, renegotiation or other amendment to his contract in the meantime. Players who were waived prior to July 1, 2011 and are still receiving guaranteed salary are also eligible. Teams cannot amnesty players they sign, receive in trade, extend, renegotiate, or otherwise amend after July 1, 2011. Amnesty can be used prior to the 2011-12 through 2015-16 seasons, although teams may use the provision only once in total — not once per season. For the 2011-12 season the Amnesty provision was available from December 9-16, 2011. For the 2012-13 through 2015-16 seasons it is available for the first seven days that follow the July moratorium. The waiver period for amnestied players is 48 hours. Players waived using this provision are not counted in team salary or luxury tax computations. As with any other waived player, teams must continue to pay the guaranteed base salary of their amnestied players. The player’s full salary comes off the team salary as soon as he is placed on waivers.

Roster Size Limit: An NBA team can have a maximum of 15 players on its roster during a season (and up to 20 during the offseason). A team may have 12 or 13 players on its active roster, although it can drop to 11 for up to two weeks at a time. They must suit-up at least eight players for every game. Any remaining players must be on the team’s Inactive List, and are ineligible to play in games. A minimum of zero players (if the team has 13 active players) or one (if the team has 12 active players) must be on the team’s Inactive List, although a team with 12 active players can drop to zero for up to two weeks at a time. Teams can temporarily have four players on their Inactive List (bringing their roster size to 16) with league approval in the event of a hardship. A hardship can be deemed to occur when the team has four players who are sick or injured and have missed at least three games, and will continue to be unable to play.

The composition of the Inactive List can change on a game-by-game basis — no less than 60 minutes prior to tipoff, the team must present to the official scorer a list of the players who will be active for that game. A player can be inactive for as little as one game. While individual teams are only required to carry a minimum of 13 players, (12 active and one inactive), the NBA also guarantees a league-wide average of at least 14 players per team. The league is surcharged if they do not meet this obligation.

Traded Player Exception: Any trade which leaves the team over the salary cap requires an exception — even if the team is moving downward in salary. For example, if the salary cap is $60 million, a team has a team salary of $65 million, and they want to trade a $5 million player for a $4 million player, they still have to use an exception. Even though their team salary is decreasing by $1 million as a result of the trade, the fact that they would finish over the salary cap ($64 million) means that an exception is required. The Traded Player exception is the primary means by which teams over the cap complete trades. It allows teams to make trades that leave them over the cap, but it places several restrictions on those trades.

Tampering: Tampering is when a player or team directly or indirectly entices, induces or persuades anybody (player, general manager, etc.) who is under contract with another team in order to negotiate for their services. The NBA may impose suspensions and/or fines up to $50,000 if tampering is discovered, however the league’s practice has been to wait until a team lodges a complaint before investigating.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s