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 pro FAQ contains a brief section on the salary cap, but much of the information therein is outdated.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:

1. WHAT IS THE SALARY CAP?

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?

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?

6. OKAY, SO HE COUNTS AGAINST THE CAP. BUT HE DOESN'T HAVE A CONTRACT-- SO HOW MUCH DOES HE COUNT?

7. WHAT IS "RENOUNCING"?

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?

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?

10. WHAT IS THE EARLY BIRD EXCEPTION?

11. WHAT ABOUT A PLAYER TO WHOM NEITHER THE LARRY BIRD NOR EARLY BIRD EXCEPTION APPLIES? HOW MUCH CAN HE GET?

12. WHAT ABOUT FIRST-ROUND DRAFT PICKS? HOW MUCH CAN THEY BE SIGNED TO? HOW DO THEY COUNT AGAINST THE CAP?

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?

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?

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?

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?

25. WHAT ABOUT AN OUT-CLAUSE?

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?

29. WHO SETS THE CAP?

30. WHAT IS PLAYER X'S SALARY?

31. WHEN DOES PLAYER X'S CONTRACT EXPIRE?

32. WHEN DOES THE CURRENT CBA EXPIRE?

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?

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.
It is my hope that future versions of this FAQ will be more complete.

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.

37. CAN THIS FAQ BE REPRODUCED AND DISTRIBUTED?

Feel free. Just use a little common sense. (E.g., don't modify it and attribute changes to me that I didn't make.)

38. WHERE IS THE OFFICIAL WORLD WIDE WEB SITE FOR THIS FAQ?

<http://www.ece.utexas.edu/~okamoto/capfaq.html>. This site is maintained by Garret Okamoto.

An alternate site is <http://alpha7.curtin.edu.au/~ehughes1>, maintained by Martin Hughes.