NBA Salary cap | Explained
What’s a salary cap?
A salary cap is an agreement or rule that places a limit on the amount of money that a team can spend on player’s salaries.
Why salary cap?
The NBA salary cap limits the teams to pay a limited amount of money to their players. This includes all the 30 teams that play in the league. This brings parity to the league and also raises the level of competition.
One of the biggest needs for a salary cap is that NBA players don’t team up to form a super team.
Who decides the cap?
The National Basketball Players Association (NBPA) and the National Basketball Association (the commissioner and the 30 team owners) formed a collective agreement called Collective Bargaining Agreement (CBA). CBA plays a huge role in salary cap restrictions.
The player’s union collectively with the owners dictates the rules of player contracts, trades, revenue distribution, and most importantly the salary cap.
Can they exceed the cap?
Unlike other sports such as NFL and NHL, the NBA implements a soft cap. This makes it possible for teams to sign players even if they exceed the cap. Here are some of the exceptions that teams can leverage to sign players.
- Luxury tax
Teams can’t get away with signing all the best players on the market. A luxury tax payment is required of teams whose payroll exceeds a certain tax level, determined by a complicated formula, and teams exceeding it are punished by being forced to pay bracket-based amounts for each dollar by which their payroll exceeds the tax level.
Exceptions
Since NBA has a soft salary cap it allows several scenarios where a team can exceed the cap.
- Mid-level exception
Teams can use a mid-level exception (MLE) to sign a player to a contract for a specified maximum amount. MLE can be used only once per year. The duration and the amount of MLE depends on the team’s current cap status. Teams can sign players for up to 4 years using this exception.
- Bi-annual exception
The bi-annual exception can be used by teams below the tax apron to sign a free agent. The starting salary would be $3.29 million. Like MLE the bi-annual exception can be split among more than one player and can be used to sign players for up to 2 years. Teams cannot use this exception in consecutive years.
- Two-way contracts
The two-way contracts were first introduced in 2017 by the CBA which allows teams to sign players from NBA-associated leagues such as the NBA G League. The salaries of two-way contracts are not included in salary cap calculations. Also, a team can convert any two-way contract to a standard NBA contract at any time during or after the season.
- Larry Bird exception
Probably the most well-known salary-cap exception, named after the NBA legend Larry Bird of the Boston Celtics. Free agents who qualify for this exception are called qualifying veteran free agents or Bird Free Agents in the CBA, and this exception falls under the terms of the Veteran Free Agent exception. In essence, the Larry Bird exception allows teams to exceed the salary cap to re-sign their own free agents, at an amount up to the maximum salary.
Here are some more exceptions
In short, the salary cap allows the CBA and the NBA in collection to regulate the team salaries, exceptions, trades, free agency signings and revenue distribution.
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