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NBA Salary Cap 101 - the Cap, the Luxury Tax and the Apron

The NBA salary cap system is convoluted and complex. In this first of a series of articles, I hope to simplify and add clarity to these concepts. This first article explains the salary cap, the luxury tax and the apron.
by Jon Hamm Modified: May 9, 2014 at 2:54 pm •  Published: May 9, 2014

photo - You don't have to be Sam Presti to figure out the NBA salary cap. Just read Jon Hamm's NewsOK Contributor columns. Photo by Jim Beckel, The Oklahoman
You don't have to be Sam Presti to figure out the NBA salary cap. Just read Jon Hamm's NewsOK Contributor columns. Photo by Jim Beckel, The Oklahoman

It’s been my privilege to share some of my mundane NBA salary cap musings on Berry Tramel’s blog and on a recent Thunder Buddies podcast. To my surprise, I’ve received plenty of positive feedback. The one I hear most is along the lines of, “Great job! By the way, what’s a salary cap?” Seems I’ve been doing this mostly backwards. There are some basic concepts that require explanation before one spouts off about amnesty waivers and salary cap exceptions.

Larry Coon’s Salary Cap FAQ is excellent. A masterpiece. The Library of Congress should bend its rules and allow it to be added. But the sheer amount of information Larry provides can give pause to the casual passerby. After all, a layman’s explanation of an animal as complex as the NBA’s Collective Bargaining Agreement can’t be fully conveyed in a single page, double-spaced Word document. That’s the nature of any agreement or legislation that requires extensive compromise from one or more parties.

In this day and age of building NBA basketball teams, there are three concepts to understand first: the salary cap, the luxury tax and the apron. Every fan needs at last a passing understanding of these before concocting deals from their armchair. Here’s my attempt to add some color to these concepts (with the disclaimer that I’m not trying to re-invent the wheel that Mr. Coon has already created):

Salary Cap

Coon says it best: “A salary cap is a limit on the amount teams can spend on player contracts.” Basically, every year the NBA performs a bunch of math involving what it defines as Basketball Related Income (I assume this involves a supercomputer in Oak Ridge, Tennessee) and produces a dollar figure that becomes the salary cap that applies to all 30 teams.

By comparison, Major League Baseball does not have a salary cap. They rely instead on what is somewhat laughingly called a “competitive balance tax”. Perhaps “Yankee Tax” would be more apropos, since they’ve paid 95% of all luxury tax since MLB began collecting it.

The NFL has a salary cap system with a hard salary cap. They too crank out a salary cap figure every year, except their figure is a payroll limit that teams cannot exceed. However, the NFL also lives in a world of huge signing bonuses, unguaranteed base salaries and frequent contract renegotiations, so its salary cap system is not quite as simple as it may sound.

As for the NHL, that’s the league where points are scored with a rubber puck, right? Thanks to Wikipedia, I now know that the NHL apparently has a hard salary cap system similar to the NFL. So there’s that. I learn something new every day.

The NBA’s salary cap is described as a “soft cap” because teams can exceed the salary cap figure. I’ve never felt that description was very accurate. Because of the enormous holes that are designed into the salary cap system, I prefer “Swiss cheese cap.” There are scenarios, though, where a team can hard cap itself for a season.

In general, a team with a total team salary that is less than the salary cap can do just about anything as long as they don’t exceed the salary cap. For example, if a team is considered $5 million under the salary cap, they can sign a free agent for $5 million. Or they can trade almost nothing for a player making $5 million (there’s actually an extra $100,000 buffer in this scenario, so make it $5.1 million). Or a team can just sit on the cap room and do nothing with it. Teams must spend at least 90% of their cap but otherwise they can live below the salary cap if they wish.

Teams can exceed the salary cap year to year with existing contracts. They can exceed the salary cap in order to sign their first-round draft picks. Salary cap exceptions are available to sign free agents or trade players with other teams. It’s not unusual for teams to hover above the salary cap for years. In fact, Dallas once had at least a 10-year stretch where they were over the salary cap.

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by Jon Hamm
NewsOK Contributor
I am a long-time follower of NBA basketball. While I love the sport, it's the behind-the-scenes activity that fascinates me most. For over 20 years I have studied how the NBA's Collective Bargaining Agreement impacts the final product. I was...
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