CBA Breakdown

TEAM SALARY

A team’s Team Salary determines whether they are under or over the Salary Cap and by how much. Generally, a team’s Team Salary is the amount a team owes to players (1) under contract and (2) who have been waived but are still being paid guaranteed money (i.e., protected compensation). Free agents and first round draft picks are also included in Team Salary at a placeholder amount — a “cap hold” — discussed below.

Because teams can structure a player’s compensation in a number of ways, the CBA includes extensive rules for determining when and what part of a player’s salary counts towards Team Salary for a particular salary cap year.

• Example 1 — If a player’s contract is assigned (which can occur by trade, sale, or through the waiver procedure), then the acquiring team include’s all of the player’s salary in its Team Salary for the then-current salary cap year and going forward.

  • This is true even through the player can be acquired well into (and even after) the team’s season has ended (but before the salary cap year has ended).

  • For example, on April 9, 2019, the Miami Heat waived Rodney McGruder. The Los Angeles Clippers claimed him off waivers, which then immediately reduced Miami’s Team Salary for the 2018-19 season, brought Miami under the luxury tax, and actually put them in a position to receive luxury tax distributions.

  • But note, this example only applies to calculating a team’s Team Salary for Salary Cap purposes. When it comes to calculating how player trades, sales, or waivers impact a team’s Team Salary with respect to the 90% minimum team salary, the teams involved in the trade, sale, or waiver each include a pro-rated portion of the player’s salary in their respective team salaries.

• Example 2 — If a player’s contract includes a signing bonus and that player’s compensation is protected for lack of skill, then the signing bonus (for Salary Cap purposes) is allocated over the number of salary cap years covered by the contract (excluding any season that falls after an early termination option). But if none of the player’s compensation is protected for lack of skill, then the entire signing bonus (for Salary Cap purposes) is allocated to the contract’s first salary cap year.

Cap Holds

The CBA assumes that teams will both re-sign their free agents and sign their first round draft picks, and so it reserves a spot for these players in each team’s Team Salary using “cap holds.” The specific amount of a player’s cap hold is a multiple of the player’s salary, depending on the factors described below.  Each free agent is included in his team’s Team Salary at the beginning of each salary cap year at his cap hold amount until he actually re-signs with his current team, signs with another team, or is renounced. Each first round draft pick is included in his team’s Team Salary at his cap hold amount right when he is selected until the player signs with that team or that team loses or trades its exclusive draft rights.

• For veteran free agents, the amount of the cap hold included in a team’s Team Salary as of July 1 of a salary cap year is:

  • Qualifying veteran free agent (“Bird” rights) —

    • 150% of his prior salary if it was equal to or greater than the average player’s salary for that salary cap year,

    • 190% of his prior salary if it was less than the average player’s salary for that salary cap year, or

    • for those finishing the second option year of a rookie scale contract, 250% of his prior salary if it was equal to or greater than the average player’s salary for that salary cap year, or if it was less than that average, 300% of his prior salary.

  • Early qualifying veteran free agent (“Early Bird” rights) —

    • 130% of his prior salary,

    • but the team can renounce its rights to use the early qualifying veteran free agent exception to sign this player, which will make the player a non-qualifying veteran free agent for salary cap purposes (including which salary cap exceptions the team can use and how the traded player exception aggregation rules operate in a sign-and-trade).

  • Non-qualifying veteran free agent — 120% of his prior salary.

  • Two-way player finishing his two-way contract — an amount equal to the annual minimum player salary for a player with zero years of service.

• For first round draft picks, the amount of the cap hold included in a team’s Team Salary right when they are selected in the draft is 120% of the player’s rookie salary scale amount.

ROOM

A team can sign players if it has Room. Room is either (1) the amount of money that a team’s Team Salary is less than the Salary Cap, or (2) the amount of an exception to the Salary Cap that the team can use. The NBA’s “CBA 101” primer has a few helpful examples of this from the 2017-18 salary cap year, which are shown below:

• Example 1 — Assume (i) Salary Cap = $99.093 million, (ii) Team Salary = $85 million. The team has Room of $14.093 million and may sign one or more players for up to $14.093 million.

• Example 2 — Assume (i) Salary Cap = $99.093 million; (ii) Team Salary = $110 million, (iii) the team can use the $8.406 million non-taxpayer mid-level salary exception. The team has Room of $8.406 million and may sign one or more players for up to $8.406 million.

• Example 3 — Assume (i) Salary Cap = $99.093 million; (ii) Team Salary = $130 million; (iii) Tax Level = $119.266 million, and (iv) the team can use the $5.192 million taxpayer mid-level salary exception. The team has Room of $5.192 million and may sign one or more players for up to $5.192 million.

“Stretch” Provisions

When a team terminates a player’s contract (normally through the waiver procedure), the team may then “stretch” the terminated player’s compensation for Salary Cap purposes by allocating his remaining salary over more years than the actual contract’s length. This rule is the same as the automatic stretch provision that applies to the actual timing of when a team pays a waived player’s protected compensation. Unlike that rule (which is automatic), a team can choose whether or not it wants to stretch a player’s compensation for Salary Cap purposes. If a team elects to do so, the player’s remaining protected compensation is stretched over twice the number of years remaining on the contract plus one more year. If a team waives a player on or after September 1, then the current season’s salary cannot be stretched and only future seasons will be.

• To prevent teams from escaping the consequences of bad contracts, no team can stretch a waived player’s protected compensation for Salary Cap purposes if all of its waived players’ salaries in future seasons would exceed 15% of the Salary Cap in effect during the season when the player was waived.

• If a team elects to stretch a player’s protected compensation, 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.

• Example — In the 2018-19 season, the Los Angeles Lakers waived Luol Deng on September 1 in order to terminate his contract and stretch the remaining compensation he was owed. At the time, Deng was owed $18 million for the 2018-19 season and $18.810 million for the 2019-20 season. As a part of being waived, Deng agreed to give up $7.5 million in protected compensation. Because he was waived on September 1, the Lakers could only stretch the protected compensation for the 2019-20 season, and could do so over 3 salary cap years (2019-20, 2020-21, and 2021-22). Before the Lakers made these moves, they were projected to have $25 million in Room for the 2019-20 season, but increased that to about $38 million, which gave the Lakers the ability to sign a “max” player in free agency. Deng went on to sign a one-year deal with the Minnesota Timberwolves for the minimum player salary.

SEt-OFF

When a team terminates a player’s contract (normally through the waiver procedure), but still owes that player protected compensation and the player goes on to sign another contract to play professional basketball, the team may choose to set-off a portion of the amount the new team pays the player against the unpaid protected compensation the team still owes him. There are three key points about a team’s right of set-off. First, if a team chooses to exercise this right, the team’s Team Salary for Salary Cap purposes is reduced and (somewhat cruelly, depending on your perspective) the amount of money the team actually pays the player is reduced. Second, teams can elect to use their set-off rights when a player signs with an NBA team, with a team in a foreign basketball league, or even in the G league. Third, players and teams can agree to modify the set-off right or eliminate it altogether.

As a practical matter, the relative amount of savings (from the team’s perspective) that the set-off achieves is only significant for Salary Cap purposes. The set-off amount is calculated by taking the total compensation the player will earn from the subsequent team and subtracting from that an amount equal to the annual minimum player salary for a player with 0 years of service (if the player had 0 years of service at the time his contract was terminated) or 1 years of service (if the player had 1 or more years of service at the time his contract was terminated). If this results in a negative number, then the team has no set-off rights. But if the result is a positive number, then the team’s liability to the waived player is reduced by 50% of that positive number.

• The NBA’s “CBA 101” primer illustrates the concept with this example: Assume (i) a second-year player is waived by his team during the 2017-18 season, (ii) he has two guaranteed years remaining on his contract, (iii) he clears waivers and then signs a contract with another team, (iv) the player is owed $10 million for the first of the remaining years and $11 million for the second, and (v) he signed a two-year deal with the other team for $3 million for year one and $3.150 million for year two. The team’s right of set-off for each year would be calculated using this formula: (New Salary – Applicable Minimum Salary) x 50%. The results are:

  • Year One – ($3 million - $1,312,611) x 50% = $843,695

  • Year Two – ($3.150 million - $1,312,611) x 50% = $918,695

• Examples — Given the limited savings team’s can realize by exercising this right and that players can negotiate to have it waived, it is used infrequently. At the end of the 2017-18 season, the Sacramento Kings used it against Anthony Tolliver and Aaron Afflalo to save an additional $2 million in Salary Cap space. But just a year before that, at the end of the 2016-17 season, the Kings did not use it against Matt Barnes, so he continued to receive the full guaranteed amount the Kings owed him, plus what his new team contracted for.