This is my attempt at a salary cap FAQ. From the articles I've been seeing, one seemed to be needed. The rec.sport.basketball. pro FAQ contains a brief section on the salary cap, but much of the information therein is outdated.
Comments and corrections are appreciated. Please e-mail them to me at <tminkoff@cts.com>.
ACKNOWLEDGEMENTS:
The following people have made significant contributions to this FAQ:
Patricia Bender <patricia@netcom.com>
Brian <cicero@cheerful.com>
Larry Coon <larry@fs2.assist.uci.edu>
Brian Harper <brianh@seanet.com>
Martin Hughes <ehughes1@ALPHA2.CURTIN.EDU.AU>
Carl Linder <dclinder@portal.ca>
Tom McGuigan <the.odd.squad@worldnet.att.net>
Garret Okamoto <garret@mail.utexas.edu>
Jonathan Richards <little-jon@bigfoot.com>
Profuse apologies if I have missed anyone.
QUESTIONS:
2. WHAT IS THE LARRY BIRD EXCEPTION?
3. HOW LONG MUST A PLAYER BE WITH A TEAM BEFORE THE LARRY BIRD EXCEPTION APPLIES?
4. DOES THE LARRY BIRD EXCEPTION MEAN THE FREE AGENT CAN BE SIGNED AND NOT COUNT AGAINST THE CAP?
6. OKAY, SO HE COUNTS AGAINST THE CAP. BUT HE DOESN'T HAVE A CONTRACT-- SO HOW MUCH DOES HE COUNT?
10. WHAT IS THE EARLY BIRD EXCEPTION?
13. WHAT IF A DRAFTED PLAYER AND THE TEAM THAT DRAFTED HIM CAN'T AGREE ON A CONTRACT?
14. WHAT ABOUT INCENTIVES? HOW DO THEY COUNT?
17. WHAT IS THE "MILLION DOLLAR EXCEPTION"?
18. WHAT IS THE INJURY EXCEPTION?
19. WHAT IS THE MINIMUM PLAYER SALARY EXCEPTION?
20. WHAT ARE THE RULES GOVERNING THE SALARIES INVOLVED IN TRADES?
21. CAN A FREE AGENT BE SIGNED AND THEN IMMEDIATELY TRADED?
22. CAN AN UNSIGNED FREE AGENT HAVE HIS RIGHTS TRADED?
23. DOES AN ORAL AGREEMENT CONSTITUTE A CONTRACT?
24. WHAT IS A CONTRACT BUY-OUT?
26. WHAT ARE THE RULES REGARDING EXTENSIONS OF EXISTING CONTRACTS?
27. WHAT ARE THE RULES REGARDING RENEGOTIATIONS OF EXISTING CONTRACTS?
28. WHAT IS A RESTRICTED FREE AGENT?
30. WHAT IS PLAYER X'S SALARY?
31. WHEN DOES PLAYER X'S CONTRACT EXPIRE?
32. WHEN DOES THE CURRENT CBA EXPIRE?
34. WHO IS TONY MINKOFF, AND WHAT MAKES HIM AN AUTHORITY ON THE SALARY CAP?
35. YOU SAY, "I DON'T KNOW" IN SEVERAL PLACES IN THIS FAQ.
36. THIS FAQ IS WRONG, CONFUSING, MISSING SOME IMPORTANT QUESTIONS, ETC.
37. CAN THIS FAQ BE REPRODUCED AND DISTRIBUTED?
38. WHERE IS THE OFFICIAL WORLD WIDE WEB SITE FOR THIS FAQ?
And, since they're much more useful this way,
QUESTIONS WITH ANSWERS:
1. WHAT IS THE SALARY CAP?
It is a dollar amount which is, very loosely speaking, a
maximum on an NBA team's player payroll. That is, the sum of
the salaries of all the players on a team may not exceed the
cap, with a few exceptions. Well, actually, a lot of exceptions,
which are described below. It is rare that a team is actually at
or below the cap during the season. For this reason, the cap is
often called a "soft cap," as distinguished from a "hard cap,"
which is a cap that can not be exceeded (such as the National
Football League has).
2. WHAT IS THE LARRY BIRD EXCEPTION?
The Larry Bird Exception is a rule that allows a team to
sign its own free agent to a contract which would cause the team
to exceed the salary cap.
3. HOW LONG MUST A PLAYER BE WITH A TEAM BEFORE THE LARRY BIRD
EXCEPTION APPLIES?
Three years. However, when a player is traded, his Larry
Bird Exception status is traded with him. Basically what this
means is that the Larry Bird Exception applies to a player if he
has been in the league for the last three years without changing
teams as a free agent.
4. DOES THE LARRY BIRD EXCEPTION MEAN THE FREE AGENT CAN BE
SIGNED AND NOT COUNT AGAINST THE CAP?
No. It simply means that the free agent can be signed
despite the cap. It still counts against the cap, and if it
puts the team at or over the cap, then the team has no cap
room left.
5. CONSIDER A PLAYER WHOSE CONTRACT HAS JUST EXPIRED. HE HAS
NOT YET BEEN SIGNED TO A NEW CONTRACT. DOES HE COUNT AGAINST
THE CAP?
Yes, unless his team renounces its rights to him.
6. OKAY, SO HE COUNTS AGAINST THE CAP. BUT HE DOESN'T HAVE A
CONTRACT-- SO HOW MUCH DOES HE COUNT?
150% of his previous year's salary, if that salary was below
or at the league average; or 200% of his previous year's salary,
if that salary was above the league average. For example, if his
salary last year was $1 million, he counts as $1.5 million (150%
of his previous year's salary) against the cap now. If his
salary last year was $4 million, he counts as $8 million (200% of
his previous year's salary) against the cap now.
7. WHAT IS "RENOUNCING"?
When a team renounces its rights to a free agent, that
player no longer counts against that team's cap. The team is
then forbidden to sign that player (even without using the
Larry Bird Exception) until the passage of some deadline which is
approximately 55 days after the start of the regular season.
The team renouncing the player is also forbidden from acquiring
the player by a trade before that deadline.
8. MY TEAM HAS SEVERAL PLAYERS WHO WILL BE FREE AGENTS AT THE
END OF THE YEAR. CAN MY TEAM CLEAR CAP ROOM BY LETTING THEIR
CONTRACTS EXPIRE, USE THE CAP ROOM TO SIGN OTHER FREE AGENTS,
AND THEN USE THE LARRY BIRD EXCEPTION TO RESIGN ITS OWN FREE
AGENTS?
No. See the previous two questions. Allowing their
contracts to expire does not clear up cap room unless they are
renounced, in which case they can not then be signed (even if
there is room under the cap).
9. WHAT ABOUT A FREE AGENT TO WHOM THE LARRY BIRD EXCEPTION DOES
NOT APPLY? DOES THIS MEAN HIS TEAM CAN'T GIVE HIM A BIG
RAISE?
The team can still give the player a big raise, if the new
contract would fit under the team's salary cap.
10. WHAT IS THE EARLY BIRD EXCEPTION?
The Early Bird Exception is a weaker form of the Larry Bird
Exception that applies to a player who has been with a team for
two years. It allows the team to offer the player a contract
with a salary which is 175% of his previous salary, or which is
the average salary in the league, whichever is more, even if
such a salary would put the team over the cap.
A contract signed under the Early Bird Exception must be at
least two years in length. (Thus a player can not sign a one-
year contract under the Early Bird Exception while waiting for
the Larry Bird Exception to kick in the following year.)
11. WHAT ABOUT A PLAYER TO WHOM NEITHER THE LARRY BIRD NOR EARLY
BIRD EXCEPTION APPLIES? HOW MUCH CAN HE GET?
His current team can offer him a salary which is 120% of his
salary of the previous season. (If the team is under the cap,
it can offer him whatever is available under the cap.)
12. WHAT ABOUT FIRST-ROUND DRAFT PICKS? HOW MUCH CAN THEY BE
SIGNED TO? HOW DO THEY COUNT AGAINST THE CAP?
The Collective Bargaining Agreement defines a salary range
for each first-round draft pick. This range is based on a
weighted average of salaries given to rookies drafted at the
same position over the previous seven years, with adjustments
for growth. The player and the team must sign a three-year
contract with a starting salary in this range. This can be done
even if the salary puts the team over the cap. During the
off-season between the second and third seasons, the player and
the team may negotiate an extension of up to six years in length
and at any salary, even if it puts the team over the cap.
From the moment of the draft, the drafted player counts
against the cap in the amount of the bottom of the permitted
salary range. The team may eliminate the burden against the
cap by renouncing the rights to the draftee (see the question
on renouncing free agents; this works the same way).
13. WHAT IF A DRAFTED PLAYER AND THE TEAM THAT DRAFTED HIM CAN'T
AGREE ON A CONTRACT?
The player has several options. If he has not hired an
agent and has not exhausted his college eligibility, he may
return to school and play. Or, he may play in another
professional league (such as in Europe). In either of these
cases, the team that drafted him maintains his rights, and the
player does not count against the team's salary cap. The
player can become a free agent by going one full year without
playing organized basketball.
(Larry Coon believes that the player becomes eligible to
reenter the draft by going one full year without playing, and
becomes a free agent by going two full years without playing.
Can anybody confirm or deny this?)
14. WHAT ABOUT INCENTIVES? HOW DO THEY COUNT?
Incentives count against the cap as ordinary salary if
they are "likely to be achieved." They do not count if they
are not likely to be achieved. The league office determines
what is likely and what is not.
Hey, I didn't make it up.
15. MY TEAM HAS $X AVAILABLE UNDER THE CAP, BUT THEY JUST OFFERED
A FREE AGENT A CONTRACT AVERAGING $Y PER YEAR, AND Y > X.
HOW IS THIS POSSIBLE?
Only the starting salary must fit under the cap. The
salary can then increase (or decrease) at up to 20% per year,
where the 20% is based on the first year of the contract. For
example, if the team has $5 million available under the cap, they
can offer a player a 4-year contract paying $5 million in the
first year, $6 million in the second year, $7 million in the
third year, and $8 million in the fourth year, for a total of $26
million, and an average of $6.5 million.
16. IF A TEAM TRADES A PLAYER FOR DRAFT PICKS, OR THE PLAYER
RETIRES, CAN THE TEAM THEN USE THAT PLAYER'S CAP SPACE TO
ACQUIRE ANOTHER PLAYER?
Only the the extent that the team gets below the salary cap
by the move. If the move leaves the team at or above the cap,
it has no cap room. You may hear talk from time to time of
"slots," but these were a feature of the previous Collective
Bargaining Agreement, and no longer exist.
There is an exception for players forced to retire for
medical reasons; if a player retires for medical reasons and a
league-appointed physician confirms that he is medically unfit
to continue playing, then the player does not count against the
cap. As of this writing, the Charlotte Hornets are trying to
convince Muggsy Bogues to take medical retirement, so that he
won't count against Charlotte's cap. Bogues prefers to
continue to play. If he were to agree to retire, the doctor
would have to confirm that the retirement was indeed a medical
necessity in order for Charlotte to get the cap room.
17. WHAT IS THE "MILLION DOLLAR EXCEPTION"?
The million dollar exception allows a team that is at or
over the cap to sign a player to a contract with a starting
salary at or below $1 million, or to sign a combination of
players to contracts whose starting salaries total no more
than $1 million. A team may not use the million dollar exception
in consecutive years. A team must be at or over the cap to use
the million dollar exception. A team may not use the million
dollar exception to resign its own free agent. In, under a
bizarre rule whose logic (if any) utterly escapes me, a team may
not use the million dollar exception unless it has first resigned
one of its own free agents.
Contracts signed under the million dollar exception are
limited to two years in length, and are limited to a 15% raise
between the first and second years.
Note that the million dollar exception can not be "combined"
with existing cap room. For example, if a team has $2 million of
cap space below the cap, it may not use the million dollar
exception to sign a player to a $3 million salary. It may,
however, sign one player to a $2 million salary (using the
available cap room) and then sign another player to a $1 million
salary (using the exception).
18. WHAT IS THE INJURY EXCEPTION?
The injury exception allows a team which is over the cap to
sign a replacement for an injured player. The maximum allowable
salary for the replacement player is 50% of the injured player's
salary, or 108% of the average salary in the league for the
previous season, whichever is less. There are two cases in which
the injury exception applies:
If the player is injured prior to Dec. 1 and is out for the
remainder of the season, the team may use the injury exception to
sign a replacement player. In this case, the replacement player
must be signed within 30 days.
If the player is injured on or after Dec. 1 and is out for
the remainder of the season and the entire following season, the
team may use the injury exception to sign a replacement player.
In this case, the replacement player must be signed by Oct. 1.
19. WHAT IS THE MINIMUM PLAYER SALARY EXCEPTION?
This rule simply states that a team that is over the cap may
still sign free agents to one-year contracts at the minimum.
Note that the minimum for veterans is slightly higher than the
minimum for rookies. In 1996-97, the minima were $247,500 for
veterans and $220,000 for rookies.
20. WHAT ARE THE RULES GOVERNING THE SALARIES INVOLVED IN TRADES?
If a team making a trade is over the salary cap, the
players being received in trade must not have combined salaries
in excess of 115% of the combined salaries of the players being
traded away, plus some small fudge factor (about $100K). For
example, if the players being traded away have combined
salaries of $3,000,000, then then combined salaries of the
players being received in trade must be no more than
1.15*($3,000,000)+$100,000, or $3,550,000.
There are also other rules regarding "base year
compensation" players, players in the first year of a contract
being included in multi-player packages, players traded twice
within a sixty-day period, and other special situations. I must
confess a lack of thorough knowledge of these rules, so this
version of the FAQ does not explain them.
21. CAN A FREE AGENT BE SIGNED AND THEN IMMEDIATELY TRADED?
A team may resign its own free agent and then immediately
trade him. The league doesn't like it, but the right to do
so was established by an arbitrator regarding an incident
in the '97 off-season involving Chris Dudley and the Portland
Trailblazers, who resigned Dudley and then immediately traded
him to the New York Knicks.
It is not legal, however, for a team to sign a free agent
not its own and then immediately trade him.
22. CAN AN UNSIGNED FREE AGENT HAVE HIS RIGHTS TRADED?
No, the rights to a free agent can not be traded. The rights
to a draft pick, however, can be traded.
23. DOES AN ORAL AGREEMENT CONSTITUTE A CONTRACT?
This is another fuzzy area. The league says yes, but most
players and teams say no.
There was an incident in the 1996 off-season regarding the
Miami Heat. The Heat had an oral agreement with free agent
Alonzo Mourning for a new contract with a starting salary of
more than 200% of his previous salary. Since the contract had
not been signed, the Heat claimed that Mourning counted against
the cap in the amount of 200% of his previous salary; the
league disagreed, ruling that the agreement constituted a
contract, and therefore counted against the cap. Based on
this ruling, the league prevented Miami from using some of
their cap room to sign Washington's free agent, Juwan Howard.
(There were also issues in this situation involved incentives
in the contracts of other players.) Miami threated to take the
league to court, but ultimately dropped their claim, so no
precedent was set.
There was another incident in the 1997 off-season involving
the Vancouver Grizzlies and their draft pick, Antonio Daniels.
The rookie pay scale dictated that Daniels starting salary be
in the range (approximately) $1.80 to $2.15 million, and so
he counted as $1.80 million against Vancouver's cap from the
time of the draft. When reports surfaced that Daniels and
Vancouver had reached on oral agreement that Daniels would
receive the maximum allowable salary of $2.15 million, the
league ruled that Daniels counted as $2.15 million against
Vancouver's cap. Vancouver was displeased with the ruling, but
did not challenge it.
To be on the safe side, if a team and a player do come to an
oral agreement, it's probably best to be covert about it.
24. WHAT IS A CONTRACT BUY-OUT?
A player and a team sometimes negotiate an agreement in which
the team "buys out" the remaining years on the player's contract
by paying him some portion of his salary for the remaining years,
and terminating the contract. Sometimes the right to buy out the
contract is negotiated into the original contract. When a team
buys out a contract, the money paid by the team to the player
under the terms of the buy-out counts against the team's cap.
25. WHAT ABOUT AN OUT-CLAUSE?
An out clause is a clause in a contract that gives the player
the option of becoming a free agent. In order to contain an out
clause, a contract must be at least five years in length, and the
out clause can not be before the third year.
26. WHAT ARE THE RULES REGARDING EXTENSIONS OF EXISTING
CONTRACTS?
A 6- or 7- year contract can be extended when at least four
years have passed since the signing of the contract. A 4- or 5-
year contract can be extended when at least three years have
passed since the signing of the contract. A contract which has
already been extended can be extended again after three years.
Raises in the extension are limited to 20% of the salary in the
last year of the existing contract.
(Of course, none of this applies to the three-year contracts
signed by first-round draft picks. Those rules are covered in
another question.)
27. WHAT ARE THE RULES REGARDING RENEGOTIATIONS OF EXISTING
CONTRACTS?
A contract may be renegotiated when three years have passed
since it was signed. Salaries may not be renegotiated downward
(i.e., the renegotiated contract must have at least the same
salary in each year as the original contract). Salaries may be
renegotiation upward, but only to the extent that the team has
room under the cap.
28. WHAT IS A RESTRICTED FREE AGENT?
Restricted free agency was a feature of the previous CBA;
it no longer exists.
29. WHO SETS THE CAP?
The cap is defined by the Collective Bargaining Agreement
to be 53% of average team gross revenues. For 1997-98, it is
$26.9 million.
30. WHAT IS PLAYER X'S SALARY?
I know of no official source for players' salaries.
Unofficial figures are available at Patricia Bender's Web site, at <http://www.dfw.net/~patricia/index.html>.
31. WHEN DOES PLAYER X'S CONTRACT EXPIRE?
That information is available in _Rick Barry's Pro Basketball
Bible_. Check your favorite book stores. Unfortunately, this
publication does not contain information on out clauses or team
options.
This information is also available on Patricia Bender's web
site, mentioned above. This site also contains the date a
contract was signed, free agency year, and opt-out years. Caveat
lector: Ms. Bender describes her information in this area as
"not complete or necessarily accurate."
32. WHEN DOES THE CURRENT CBA EXPIRE?
The following paragraph is from Larry Coon:
The current CBA was signed prior to the 95-96 season,
and is effective through the 2000-01 (?) season.
However, there are "out" clauses (I'm fuzzy here), one of
which may come up following the 97-98 season (I think
it's tied to whether the salaries actually matched or
exceeded 53% of league revenues.) Many people think that
the CBA will be modified following the 97-98 season. For
example, Rick Fox opted for a 1-year deal, rather than a
2-year deal, with the Lakers because he felt there was a
reasonable chance of some of the current restrictions
being lifted following the 97-98 season.
I have read a slightly different take in another source:
that the league has the option to terminate the agreement after
the 97-98 season, but probably will not exercise it. The
feeling is that the league took advantage of dissension in the
players' ranks when the current CBA was negotiated and hence
negotiated an agreement which was more favorable to the owners
and to the league than the league would be able to negotiate in
'98.
33. OKAY, THIS FAQ IS A NICE SUMMARY, BUT I NEED COMPETE DETAILS,
RIGHT FROM THE SOURCE. WHERE CAN I GET A COPY OF THE
COMPLETE COLLECTIVE BARGAINING AGREEMENT?
It hasn't been published, and the league isn't in the habit
of giving out copies to the public. You probably wouldn't like
to read it anyway-- it's literally hundreds of pages of legalese.
34. WHO IS TONY MINKOFF, AND WHAT MAKES HIM AN AUTHORITY ON THE
SALARY CAP?
I'm not an authority, but I believe that I have a much
better understanding of the cap than typical UseNet authors
display, so I wrote this FAQ. I am not infallible, and this
FAQ may contain errors. I can be contacted at
<tminkoff@cts.com>.
35. YOU SAY, "I DON'T KNOW" IN SEVERAL PLACES IN THIS FAQ.
Yeah. Well, see the previous question. Sorry.
36. THIS FAQ IS WRONG, CONFUSING, MISSING SOME IMPORTANT
QUESTIONS, ETC.
I appreciate any constructive criticism. If you have a
question which you would like to see added to the FAQ, please
let me know. If you find some passage difficult to read,
please let me know, and tell me why you find it confusing, and
I will try to clarify it for the next version. If some of the
information in this FAQ is incorrect, or if you can fill in
some of the missing information, please contact me with the
correct information so it can be included in the next version
of the FAQ. Please also include the source of your information,
if possible.
It is my hope that future versions of this FAQ will be
more complete.