How does all this stuff work?
Some important questions and answers concerning the NBA’s salary cap:
→What is the July moratorium period, and why have one?
It’s the period when teams can’t sign players or make trades while the league finalizes its salary cap for the upcoming season. The moratorium starts July 1 and generally lasts a week to 10 days. NBA players annually become free agents on July 1, but no signings or trades can be made until the cap is set.
→What is the luxury tax?
It is a dollar-for-dollar payment teams must pay for each dollar their team salaries exceed the pre-determined tax level, making the tax threshold often more significant than the salary cap figure itself. For the 2008-09 season, the luxury tax level is $71.15 million, while the salary cap is $58.68 million.
→How do trades work under the salary cap?
Teams that are under the salary cap are free to take on up to $100,000 more than the salary cap. Teams that are over the cap can only trade players who have similar salaries as the sum of the incoming players and cannot take back more salary than 125 percent plus $100,000.
→What is a sign-and-trade deal, and why make one?
This happens when a free agent signs a new contract with his current team and is immediately traded to a new team. It’s a deal that gives teams compensation for losing their free agents, players an opportunity to receive a longer and more lucrative contract because they’re resigning under their "Bird” rights, and teams that are over the cap an opportunity to acquire a free agent with a big contract.