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):
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.
The NBA’s salary cap figure for the 2013-14 season is $58.679 million. Recent calculations project a salary cap of $63.2 million for the 2014-15 season. The salary cap typically increases each season, though it actually decreased in the 2009-10 season (even the NBA was not immune to the impact of the 2008 global financial crisis).
A line in the financial sand is drawn roughly $12 million to $13 million above the salary cap. Teams are subject to a luxury tax if their payroll exceeds it. For the 2013-14 NBA season, the luxury tax line is $71.748 million. The luxury tax line is projected to rise to $77 million next season.
Prior to this season, the Luxury Tax was simple $1 for every $1 over the tax line. Starting this season, the tax rates are much stiffer, starting at $1.50 for every $1 over the tax line and increasing incrementally for every $5 million over the tax line. Starting next season, a team that has been a taxpayer in three out of the previous four seasons faces even higher rates thanks to a concept known as the Repeater Tax. Teams in a “repeat offender” situation would be hit with tax rates starting at $2.50 for every $1 over the luxury tax.
The Brooklyn Nets ran up a luxury tax bill of over $80 million this season. A handful of teams, including the Sonics/Thunder, have never paid luxury tax since the rule’s inception prior to the 2002-03 season. The New York Knicks have paid the most luxury tax in the league, forking over $205 million in tax bills. That has bought the team only five playoff series over the past 11 seasons.
In 2011 the NBA introduced another level above the luxury tax line known as the “apron”. This is a line $4 million above the luxury tax line. If a team’s payroll is above this level, they essentially lose access to several salary cap exceptions. If a team is under the apron but uses certain salary cap exceptions, they will be hard-capped at the apron until the following June 30. And by hard-capped, I’m referring to the NFL-style hard cap. If a team is subject to the hard cap, has 10 players under contract and a payroll at the apron, they don’t get exceptions to sign more players.
For example, Brooklyn worked its payroll into and above the apron with the trades and re-signings they’ve made over the past few seasons, but they have not triggered a hard cap. On the other hand, the Minnesota Timberwolves are hard capped for this season. They acquired Kevin Martin from Oklahoma City in a sign-and-trade transaction and used other exceptions that trigger the hard cap. The T’Wolves aren’t in a crunch, however, since their team payroll is about $6 million under the apron.
The rest of the rules surrounding signing, trading and waiving players work around these three concepts. I will elaborate on some of these convoluted rules, and how the Thunder used them to their advantage, in subsequent writings.
We're looking for
Are you passionate about a topic, an expert, a writer, a photographer, a story teller or maybe an artist looking for an audience? Do you want to make a difference?
We can help connect you to the topics, sources, coaching and community to help you publish in major media outlets like NewsOK and The Oklahoman. You provide trusted content, and Contributor Connect will help you get traffic.