COMPENSATION

The money an NBA player can make is categorized in a few different ways by the CBA, which matter both to the player (for his own earnings) and to the team (for salary cap purposes). All players earn a traditional, regular salary (unless they’re signed to one of the short-term or non-guaranteed contracts that does not require a regular salary). Depending upon a number of factors, a player may also receive deferred compensation (i.e., traditional salary that is earned but payable in the future) and bonuses. But all compensation has to be paid in cash (as opposed to an ownership or investment interest in, say, an NBA team). Below is an overview of these compensation forms. And note, up to 10% of a player’s compensation can be held in escrow — and returned to the league, not the player — depending upon the amount of money the league makes during that season (called basketball-related income).

base compensation

A player’s Base Compensation is all compensation excluding bonuses. This compensation is categorized under the CBA as “Current Base Compensation” or “Deferred Base Compensation.” Exhibit 1 to a player’s uniform player contract requires the team and the player to agree on what amounts are Current Base Compensation and what amounts are Deferred Base Compensation.

  • Current Base Compensation — This is what most of us consider our regular paycheck. At least 20% of a player’s salary (not counting Likely Bonuses or a trade bonus) must be paid as Current Base Compensation in equal semi-monthly installments, starting November 15 of each year and continuing on the 1st and 15th until this compensation is paid in full.

  • Deferred Base Compensation — This is any Base Compensation for a season that is payable after May 1 of that season (i.e., after the regular season has ended). No more than 25% of a player’s compensation for a season can be deferred in this way. And for salary cap purposes, all deferred compensation must be attributable to a particular season. Finally, there are unique salary cap rules for deferred compensation in over 38 contracts.

incentive compensation

Any compensation that is paid to a player based on meeting one of the below incentives is called “Incentive Compensation.”

  • Performance Bonus — A performance bonus is a type of Incentive Compensation where the player’s (or team’s) achievement of agreed-upon benchmarks during a season entitles the player to additional compensation. These benchmarks must be based on numerical measurements (rather than, for example, generally shooting a better free-throw percentage than the prior season) or generally recognized league honors (NBA MVP, Finals MVP, defensive player of the year, sixth man award, most improved, All-NBA team (first, second, or third), all-defensive team (first or second), and All-Star team selection). This type of compensation is important for salary cap purposes, because it can be categorized as a “Likely Bonus” or an “Unlikely Bonus.”

    • Performance Bonus Examples —

      • A player cannot receive a performance bonus for just being on a team’s roster as of a specified date or for a specified duration, or for dressing for or being eligible to play in a specified number of games. But a player can receive a performance bonus for actually playing in a certain number of games.

      • A player also cannot receive a bonus if his team wins any specific NBA game or series of games or attains a certain position in the standings in the league as of a certain date. But a player can get a bonus based on his team’s position in the league’s final standings.

    • Likely vs. Unlikely Bonuses — A performance bonus is a Likely Bonus when the bonus would be earned if the player’s (or team’s performance) was identical to the prior year. For a rookie, a veteran who did not play in the prior year, or a player who has joined an expansion team and could earn a performance bonus based on his team’s performance, that bonus is a Likely Bonus when it is, well, “likely” to be earned. All other performance bonuses are Unlikely Bonuses. The CBA includes a detailed dispute resolution if the NBA or the players’ association cannot agree on whether a bonus is likely to be earned.

      • A team must have room for every performance bonus — whether a Likely Bonus or an Unlikely Bonus — that a player may earn in the first year of his contract in order for a contract to be approved. But no contract may include Unlikely Bonuses in any season that exceeds 15% of the player’s Base Compensation.

      • Once approved, only Likely Bonuses are actually included in the team’s team salary for salary cap purposes.

      • Once a player achieves an Unlikely Bonus, by definition that bonus is treated as a Likely Bonus for the next salary cap year.

  • Physical condition benchmarks or academic achievement benchmarks — A player can receive a bonus relating to his physical condition (like meeting specified weigh-in criteria) or his academic achievement (like earning a college degree). These bonuses are always included in the team’s team salary for salary cap purposes.

  • Extra-promotional appearances — For most promotional appearances for a team’s commercial sponsor, a player will be paid $3,500 per appearance. But if a player makes at least eight promotional appearances, then he’s paid $4,500 for any additional appearances. Players and teams can also agree to different bonus amounts if the player makes extra promotional appearances for his team (whether or not for a commercial sponsor). These extra-promotional appearance bonuses are always included in the team’s team salary for salary cap purposes.

signing bonus

A signing bonus is a lump sum bonus that is earned as a result of a player signing a uniform player contract or an extension. (A signing bonus cannot be tied to just a renegotiation; the contract being renegotiated must also be extended.) Uniform player contracts cannot include a signing bonus that is more than 15% of the compensation (excluding Incentive Compensation) called for by the contract. But offer sheets cannot include a signing bonus that exceeds 10% of the compensation (excluding Incentive Compensation) called for by the offer sheet.

maximum player salary

 
 
 
 

The Maximum Player Salary is the maximum amount of money a player can make in a single season. A player’s maximum salary depends on a number of factors, like his years of service in the league and the type of contract he is eligible to sign. The maximum amount applies to the first season covered by his contract, renegotiation, or extension. After that first season, the next seasons are governed by the 8% and 5% annual salary increase (or decrease) rules. Players can receive the “super max” salary if they meet certain performance-based criteria described below.

  • General “Max” Rules —

    • 6 years or less — A player that has completed fewer than 7 years of service can be paid the greater of (i) 25% of the salary cap, or (ii) 105% of the player’s salary for the prior season.

    • 7-9 years — A player that has completed at least 7 years and no more than 9 years of service can be paid the greater of (i) 30% of the salary cap, or (ii) 105% of the player’s salary for the prior season.

    • 10+ years — A player that has completed 10 or more years of service can be paid the greater of (i) 35% of the salary cap, or (ii) 105% of the player’s salary for the prior season.

  • “Super Max” Rules —

    • Designated Rookie Scale Player Extension — A first round draft pick that has completed 3 years of service on his rookie scale contract (i.e., is entering his fourth season in the league) that is otherwise eligible to sign a designated rookie scale player extension (i.e., the player rendered all of his services to his current team) can be paid salary in the first year of the extension of least 25% of that year’s salary cap. The first year salary can (but is not required) to be between 25%-30% of that year’s salary cap if the player meets one of the performance-based criteria described below.

      • The extension cannot include any incentive compensation.

      • The extension must provide for full 8% annual salary increases for each year of the extended term.

      • Example — In October of 2017 (just before the start of his fourth season on his Rookie Scale Contract), the Philadelphia 76ers signed Joel Embiid to a Designated Rookie Scale Player Extension, pegging his salary at 25% of the salary cap in the first year of the extended term (just over $25.467 million for the 2018-19 season). Including his annual 8% increases, the original projected value of Embiid’s extension was over $146 million. As Bobby Marks reported, Embiid’s extension includes a clause that increases his salary to 30% of the salary cap if he makes the All-NBA first team — if he achieves that honor, his extension’s overall value would increase by $30 million (and cause the 76ers to lose $5 million in cap space for each salary cap year).

    • “5th Year Eligible Player” — A player that has completed 4 years of service (i.e., is entering his fifth season in the league) can be paid by his current team (and only his current team) up to 30% of the salary cap if he meets the performance-based criteria described below. Any 5th Year Eligible Player that receives a starting salary greater than 25% of the salary cap must sign a contract covering 4 years (excluding any option year).

    • Designated Veteran Player Extensions — A player that has completed 7 or 8 years of service (i.e., is entering his eighth or ninth season in the league) that is otherwise eligible to sign a designated veteran player extension (i.e., the player rendered all of his services to his current team) can be paid salary in the first year of the extension of at least 30% and no more than 35% of the salary cap.

      • The extension cannot include any incentive compensation.

      • Salary may increase (or decrease) in the extended term by up to 8% of the salary in the first year of the extension.

    • Designated Veteran Player Contracts — A player that has completed 8 or 9 years of service that is otherwise eligible to sign a designated veteran player contract (i.e., the player rendered all of his services to his current team) can be paid salary in the first year of the contract of at least 30% and no more than 35% of the salary cap.

      • If the contract is with a player’s prior team that has Bird or Early Bird rights, salary may increase (or decrease) by up to 8% of the salary in the first year of the contract.

      • Otherwise, as a general rule, salary may increase (or decrease) by up to 5% of the salary in the first year of the contract.

  • Max Performance-Based Criteria —

    • A player can receive a “super max” salary in a designated rookie scale player extension, a designated veteran player extension, or a designated veteran player contract, or if he’s a 5th Year Eligible Player (described above) if he meets one of the following:

      • The player was (i) named to the All-NBA first, second, or third team or (ii) named defensive player of the year, in each case in the immediately prior season or in two of the three prior seasons; or

      • The player was the NBA MVP during one of the immediately prior three seasons.

    • Note, for a 5th Year Eligible Player (described above) where the first season of the contract was the 2017-18 season, the max performance-based criteria is that he must have met one of the following during his initial 4 seasons in the league: (i) named twice to the All-NBA first, second, or third team, (ii) voted in twice as an All-Star starter; or (iii) named the NBA MVP. (If the contract’s or extension’s first season is the 2018-19 season or later, the player only has to satisfy the criteria in the prior two bullet points above.)

    • The CBA allows a rookie and a team entering into designated rookie scale player extension to negotiate specific triggers for what performance-based criteria increase his percentage of the salary cap. The CBA doesn’t allow veterans and teams to negotiate this point.

minimum player salary

The Minimum Player Salary is the minimum amount of money a player can make, depending on his years of service in the NBA. Generally speaking, the Minimum Player Salary is the amount set forth in Exhibit C to the CBA (the “Minimum Annual Salary Scale”), adjusted each year based on changes in the salary cap. For example, in the 2019-20 season, a player that had not played in the NBA before (i.e., had 0 years of service) will make at least $898,310 in the first year of his contract. A player with 10 or more years of service will make at least $2,564,743 in the first year. (If a player signs a multi-year deal for the Minimum Player Salary, then the scale amount they receive for each year of the contract is tied to the scale in effect for the contract’s first season.)

When it comes to one-year deals, the CBA uses two mechanisms to encourage teams to sign veterans instead of less seasoned players (i.e., less expensive labor). First, if a team signs a player with 3 or more years of service to a one-year contract, 10-day contract, or rest-of-season contract, then the league reimburses the team for any amounts above the Minimum Player Salary for a player with 2 years of service. In the 2019-20 season, that means an established player will only cost $1,620,564 in real dollars (with the NBA reimbursing the team for the balance). Second, for salary cap purposes, that team’s team salary only includes an amount equal to the Minimum Player Salary for a player with 2 years of service. So in the 2019-20 season, that means an established player only counted $1,620,564 towards the team’s cap for that salary cap year, but the player could actually have earned as much as $2,564,753.

  • Example — When Luol Deng (a 15-year veteran) agreed to a buy-out with the Los Angeles Lakers in September of 2018, he quickly signed a deal with the Minnesota Timberwolves for the Minimum Player Salary for a player with 10+ years of service. For the 2018-19 season, this was just under $2.4 million. But because the CBA encourages teams to sign veterans, he only cost the team about $1.5 million (both in real dollars and for the Timberwolves’ team salary) because that’s what a player with 2 years of service earned.

Rookie salary scale

A first round draft pick’s compensation under a rookie scale contract is determined by the Rookie Salary Scale table attached to the CBA as Exhibit B-1 and updated before each season based on the amount of the upcoming season’s salary cap. Within each season’s scale, a first round draft pick’s applicable salary is determined by his selection number in the draft.

  • In the initial 3 seasons of a rookie scale contract (assuming the team exercises the option for the third season), at least 80% of the player’s rookie scale amount must be paid in Current Base Compensation and be protected for lack of skill and injury or illness to at least 80% of their Current Base Compensation. The player’s total salary, including Unlikely Bonuses, cannot exceed 120% of his applicable rookie scale amount. In the fourth season of a rookie scale contract (assuming the team exercises the option for the fourth season), the player’s salary is increased by the applicable percentage called for by the rookie salary scale table.

    • For the 2019 draft, Bobby Marks broke down the estimated compensation for the top picks — notably, the #1 pick can earn up to $44.2 million over his four-year contract. (At the time of this Marks’ tweet, the 2019-20 salary cap was projected to be $109 million, and was later bumped up slightly to $109.14 million, which slightly increases the #1 pick’s earnings.)

    • By comparison, in the 2013 draft, the four-year contract for the #1 pick (Anthony Bennett) was “just” $24 million.

  • Rookie scale contracts cannot include a signing bonus or a loan.

COMPENSATION PROTECTION

The CBA allows teams to “protect” a player’s Base Compensation in the below circumstances, which results in a team having to pay the protected amount even if it terminates the player’s contract. (While most NBA contracts are 100% protected — i.e., fully guaranteed — not all players receive this guarantee.) Compensation Protection can be included in a player’s contract when the team terminates the contract for (i) lack of skill, (ii) death, (iii) a basketball-related injury or other injury or illness (but a player’s compensation can only be protected for either a basketball-related injury or the other injury or illness, but not both), (iv) mental disability, or (v) the miscellaneous categories described below.

  • The amount of protection is negotiable (for example, a team could protect 25%, 75%, or 100% of the player’s Base Compensation). But the maximum amount of Base Compensation that can be protected in a two-way contract in any season is $50,000.

  • The specific amount of protection, the “automatic” stretch provision, and the acts that will override a player’s right to receive their protected salary are included in Exhibit 2 to the player’s contract. The automatic stretch provision, for purposes of Compensation Protection, allows a team to pay the amount of protected salary remaining on the contract over twice the number of years remaining on the contract plus one more year (if a team terminates a contract on or after September 1, then the current season’s salary will not be stretched and only future seasons will be). These stretch rules can also come into play when it comes to calculating a team’s salary for salary cap purposes.

  • Note, teams and players are permitted to amend a contract to reduce or eliminate a player’s Compensation Protection so that the contract can then be terminated — when articles talk about a player agreeing to a “buy-out,” they’re talking about this part of the CBA. If this reduction or elimination is done and the contract is terminated, then the team cannot re-sign or re-acquire that player before the later of (i) one year from the date the contract was terminated or (ii) July 1 of the last season covered by the player’s contract.

The types of Compensation Protection that players can receive are:

  • Lack of Skill — If a team decides to terminate a player’s contract because they aren’t good enough and the contract includes Compensation Protection for lack of skill, then the player (with limited exceptions) will still be paid his protected Base Compensation.

    • Note, if a player’s contract does not include Compensation Protection, he is injured while playing, and his contract is terminated for lack of skill before January 10, then he will still be paid his Base Compensation but only through the end of that season. (Similarly, if a two-way player’s two-way contract does not include Compensation Protection, he is injured while playing, and his two-way contract is terminated for lack of skill before January 20, then the two-way player will still be paid his Two-Way Salary but only through the end of that season.)

    • Note, if a player’s contract does not include Compensation Protection and his contract is terminated for lack of skill after January 10 (whether he’s injured or not), then he will still be paid his Base Compensation but only through the end of that season. (Ditto for a two-way player whose contract is terminated for lack of skill after January 20.)

  • Death — If a team terminates a player’s contract because they have died and the contract includes Compensation Protection for death, then the player or his estate (with limited exceptions) will still be paid his protected Base Compensation. Teams cannot protect more than $30 million of Base Compensation for death.

  • Basketball-Related Injury or Other Injury or Illness — If a team decides to terminate a player’s contract because of either (i) a basketball-related injury or (ii) other injury or illness and the contract includes Compensation Protection for one of these types, then the player (with limited exceptions) will still be paid his protected Base Compensation. Note, the CBA only permits a player’s compensation to be protected for either a basketball-related injury or the other injury or illness, but not both.

  • Mental Disability — If a team terminates a player’s contract because he has a mental disability and the contract includes Compensation Protection for mental disability, then the player (with limited exceptions) will still be paid his protected Base Compensation.

  • Miscellaneous Categories — For contracts entered into or extended after July 1, 2017, a player’s compensation can also be protected for the following: (i) whether the team waives a player by a certain time (i.e., a player’s Compensation Protection can increase if the team does not waive the player by a certain date), (ii) performance criteria relating to the team’s or the player’s performance are met, (iii) a player having a specific injury or illness (i.e., revoking a player’s Compensation Protection if he injures his left knee), and (iv) the team’s ability to obtain insurance for a specific coverage and in a specific dollar amount by a specific date.

If a player’s contract protects his salary above $50,000 and the team trades or terminates that contract, then (i) the player cannot play for the team’s G league affiliate under a G league contract for the remainder of that season or (ii) enter into a two-way contract with that team for the remainder of the season.

Annual salary increases and decreases

Generally, player salaries may increase or decrease each season after the first season of a contract by up to 5% of the first year’s salary. Qualifying veteran free agents (“Bird” players) and early qualifying veteran free agents (“Early Bird” players) that re-sign with their current teams can have their salary increase or decrease each season by up to 8% of the contract’s first year salary. (Note, the sign-and-trade rules where a team re-signs its own free agent but then immediately trades them fall under the 5% maximum increase or decrease rules.)

  • Example 1 — When LeBron James signed a maximum contract with the Los Angeles Lakers in free agency starting with the 2018-19 season, his 4-year deal with the Lakers “only” included 5% annual salary increases because he did not re-sign with his current team.

    • Year 1 — $35,654,150 (35% of that year’s salary cap of $101.869 million); Year 2 — $37,436,858; Year 3 — $39,219,565; Year 4 — $41,002,273

    • 5% of Year 1 Salary and Annual Increase Amount = $1,782,707.50

  • Example 2 — When Stephen Curry re-signed with the Golden State Warriors starting with the 2017-18 season, his 5-year “super max” contract included 8% annual salary increases because he re-signed with his current team as a qualifying veteran free agent (“Bird” player).

    • Year 1 — $34,682,550 (35% of that year’s salary cap of $99.093 million); Year 2 — $37,457,154; Year 3 — $40,231,758; Year 4 — $43,006,362; Year 5 — $45,780,966

    • 8% of Year 1 Salary and Annual Increase Amount = $2,774,604.00

Note, the annual salary increases for rookie scale contracts are higher than these percentages, but are set by the Rookie Salary Scale.

Two-Way Salary

A two-way player is paid based on which team — the NBA team or the G league affiliate — he is playing for on a given day. (A two-way player generally cannot play more than 45 days in the NBA.) The Two-Way Salary is a tiered salary and works this way:

  • While playing for the G league affiliate, the salary ranges from $75,000 (for the 2017-18 season) to $92,241 (for the 2024-25 season; and yes, the CBA set a salary for the 2024-25 G league season even though the CBA may expire on June 30, 2024). The actual salary paid to the player for his G league service is then pro-rated based on the number of days he plays in the G league.

  • While playing in the NBA, the salary — regardless of the player’s years of service — starts with the NBA’s equivalent of 0 years of service. The actual salary paid to the player for his NBA service is then pro-rated based on the number of days he plays in the NBA.

During the season, the player’s Two-Way Salary is excluded from the team’s team salary.

ESCROW RULES

Players and owners collectively bargained to split 49% to 51% of basketball-related income. To make sure that players only receive their split, each team withholds 10% of their players’ individual salaries from their paychecks and deposits this amount into an escrow account. At the end of each season, the NBA determines whether and how much of the money goes to the players or back to the league.

It’s also possible that the league’s total player costs are so much less than the players’ bargained-for share, that the league has to make up this shortfall by paying additional amounts to players. Because of unique rules applicable to players waived by the automatic stretch provision (basically players that continue to receive their stretched paychecks while they are not on any team’s roster), these players can only receive their escrow proceeds and not the additional shortfall payment.