The salary cap is a simple and hard rule for most sports. The league determines the amount. The league sets a limit. There is no need for further explanation. There is no need to explain further. The salary cap for the NBA is very flexible. As such, it can be bent and exploited to the point that Golden State could end up paying four times its projected total player expenses next year. You don’t have to be a lawyer or do this as a profession, but there is a chance that you will see a team sign a player through NBA free agency. Ask yourself how they can do it.
To simplify the complex NBA salary cap, here’s a glossary. It contains the most important terms that you will hear during the free agency derby on Thursday. Although this glossary does not cover every rule or exception that affects the NBA salary cap (many of these terms have been simplified), Larry Coon’s indispensable guide to the collective bargaining arrangement can be found here. The full text of the collective agreement can be found here.
Here is our salary cap glossary, presented in alphabetical order. Before we start, a quick reminder: although specific projections are derived from Hoops Rumors these numbers are still not finalized.
Glossary
- Base year compensation: This applies to all players who have been signed and traded. A signed-and-traded team member who signs for more than the minimum and receives a raise of 20% or more and joins a team that exceeds the cap will have their salary. This is for the purpose of trading and acquiring players. His outgoing salary for the trading team is 50 percent of his new salary. If he has a higher salary, it will be 100 percent. His incoming salary is the same as his new salary for the acquiring team.
- Bi-Annual exception: This cap exception allows teams to sign an agent free of charge to a contract that is above the minimum, even though they are over the cap. This exception is only available once every two years and triggers a hard limit. Bi-annual contracts are available for two years and the amount of this exception for the 2022-23 seasons is $4,050,000.
- Bird rights: This is a cap exception that allows teams not to exceed the salary cap to keep their free agents at a certain salary. Bird rights allow a team to pay its players a certain amount depending on their salary history and the number of years he has been with the same team. There are three types of Bird Rights.
- Non-Bird Rights apply to players who do not change teams by the free agency after one season. Without requiring any other exception, teams can offer players up to 120 percent of their former salary.
- Players who have not moved teams via free agency for at least two seasons are eligible to receive early bird rights. The maximum salary a team can offer is 175 percent or 105% of an average player’s previous salary, whichever is higher, without any exception.
- Players who have not moved teams by the free agency during three seasons are entitled to full bird rights. These players can be offered any salary that they wish by the team.
- Buyout: A contract agreement that allows a player and his team to part ways. The player agrees to pay back some of the salaries he owes. After he has cleared waivers, the player becomes an unrestricted, free agent. The team retains the player’s NBA Games for free from the buyout, less any amount he has lost.
- Cap hold A placeholder figure that a team’s free agent uses counts towards their salary cap until he signs a new contract or his rights are renounced. The number of players affected by these factors varies. As long as the team does not lose the rights to the player, they can use any Bird rights that they have above the cap to sign the player. They can’t re-sign that player if they give up their cap.
- Hard cap: A salary limit for a team (set at the apron). It cannot be exceeded once it is triggered. One of these three methods can trigger a hard cap:
- The non-taxpayer mid-level exception is used by a team.
- The bi-annual exception is used by a team.
- A sign-and-trade is a way for a team to acquire a player.
- July moratorium: The league establishes the exact numbers for the cap, luxury taxes line, exceptions, and other financial matters. This period lasts six days at the start of July. This period is open to negotiation between players and teams, but it cannot be used for official moves. Technically, no agreements are binding during this period. However, they are rarely broken. DeAndre Jordan is the most famous example.
- Luxury tax: A league fine that is assessed on a team’s salary. The league then distributes the fine amongst those teams who have not fallen below the line. The 2022-23 luxury tax revenue line is projected to be $149 million. Here is the formula to determine how severe that fine should be.
- Luxury tax apron For the 2022-23 season, the projected apron is $155.7 million.
- Maximum Salary: The maximum amount a player can earn is determined by his salary figure. The player’s maximum salary depends on his experience and achievements. There are four types of max contracts.
- A max contract that falls in the lowest bracket allows players to receive 25 percent of their salary cap for the first year. This max is available to players who have 4-6 years of experience. The max contract’s tier will be valued at $30,500,000 in the 2022-23 season.
- A player can be paid 30% of the salary cap for the season in the middle bracket of max contracts. This max is available to players who have between 7-9 years of experience. It also applies to 4-6-year-old players who sign extensions with their incumbent teams. These players must be Derrick Rose Rule eligible by being All- NBA in the most recent season, two of the last three seasons, winning Defensive Players of the Year within that timeframe, and winning MVP in any three of the previous seasons. The 2022-23 season’s max contract will have a value of $36,600,000.
- The “supermax” bracket, also known as max contracts, allows a player to receive 35 percent of the season’s salary cap for the first year. This max is open to any player who has 10 seasons or more of experience. The 2022-23 season’s max contract will have a value of $42,700,000.
- Every player can earn 105 percent of his salary from the previous season regardless of whether that amount exceeds what he would normally make.
- Mid-Level exception: This cap exception allows teams to sign up one or more agents for contracts that exceed the minimum salary, even though they are over the cap. There are three mid-level exceptions. One of these exceptions may be used by teams, but the other(s) will depend on how much they have available.
- Cap-room mid-level exemption is granted to teams that are far below the cap in order to allow them to use cap space for free agents. You can use it to sign contracts for no more than two years. The projected amount of this exception in 2022-23 is $5,329,000.
- While the taxpayer mid-level exception is available to any team that exceeds the salary cap, it is typically used by the most costly. This exception offers a lower salary but does not have to be used in order to trigger a hard cap. You can use it to sign contracts for no more than three years. The projected amount of this exception for the 2022-23 season in 2022-23 is $6,392,000.
- Any team above the salary cap can use the non-taxpayer middle-level exception. However, it must be used with caution as any team using it is hard-capped at their apron. You can use it to sign contracts for up to 4 years. The projected amount of this exception for the 2022-23 season is $10,349,000.
- Minimum Salary: The minimum amount that a player can earn is determined by his salary figure. There is no limit on the number of minimum-salaried members a team can sign, as long as the team does not have a hard-capped roster and there is an open spot. The player’s minimum salary is dependent on his level of experience. The minimum salary of a player who has at least one year of NBA experience increases. Two figures are the most important for our purposes:
- The rookie minimum is the amount often offered to undrafted players and second-rounders. It fluctuates based on the percentage that the NBA salary cap has increased or fallen in that season. For the 2022-23 season, the minimum rookie salary is expected to be $1,004,159.
- Minimum two-year veteran’s salary. A team can sign any player with at least two years’ experience to a one-year contract. The team will only pay the minimum amount for a second-year player. The NBA reimburses the player for any difference, but it does not count towards the salary cap. This rule is in place to reduce financial bias against older players. This figure will be used to account for most of the minimum-salary-free agents that you see signing this offseason. For the 2022-23 season, the minimum two-year veteran’s salary is $1811,516.
- Salary cap: This is a figure that is based on league revenues. It determines how much money teams can spend to acquire players via trades or free agency. A team below the limit may freely spend in the free agent and trade markets until it reaches the limit. The traded player exception and one of the other exceptions that we will be covering below are the only ways a team can add salary above the line. The 2022-23 projected NBA salary cap is $122 million. The July moratorium will determine the final number.
- Sign-and trade: A contract between a player and his team. The player signs with the team he signed with, but is then immediately traded to another team. The hard cap will be applied to the acquiring team. The salary-matching criteria for the trade must be identical to normal trade. The contract must be signed by the original team, using either cap space (or a cap exception).
- Stretch provision: This is a way for teams to waive players who are not under contract. It also allows them to stretch the money owed twice as many years as he has left on his contract plus one. A player may owe $20 million for two additional seasons. The team would pay the player $4 million each year for five years if he is not stretched. Once he clears waivers, the player’s cap is reduced accordingly.
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