NBA Salary Cap

The National Basketball Association has many different complex rules and regulations. However, none of them are more complex and confusing than the NBA’s Salary Cap, which remains the most complicated salary capping mechanism in any professional sport. It is so strange and Byzantine that both NBA clubs and major news outlets often hire "Salary Cap Experts" to help them navigate through it. Since we assume that none of our Best Sport’s Blog readers have a personal Salary Cap Expert on call (though, if you do, please introduce him to us), we decided to do our best to break down the various components of the NBA Salary Cap and explain how it works. Of course, if you have any other questions or would like more information on a topic in question, please just post on the Forum!

Unlike the National Hockey League (NHL) or the National Football League (NFL), the NBA uses what is called a "soft cap." That means that the NBA sets a fixed number that each club can spends on salary and "caps it" so, in theory, no team is allowed to spend above that number. The 2010-2011 NBA Salary Cap was set at 58 million. In a hard cap system like that used by the NHL, that would mean that no NBA team could spend over 58 million dollars on player salaries under any circumstances. It was that type of uncompromising cap system that forced the NHL's Chicago Blackhawks, winners of the 2010 Stanley Cup, to dismantle their championship team and lose nine players from the winning roster.

The NBA's salary cap is not nearly so uncompromising, however, and there are a lot of different ways to get around it and spend over the cap number. Let's go over some of the most important ones first. The most important distinction between the NBA's soft system and a hard cap is the implementation of the "the "Larry Bird exception" and the "luxury tax line." These two rules dovetail together to help most teams spend over the cap year after year. The Larry Bird exception allows teams to sign their own players to deals regardless of the cap number and exceed it if necessary. That is why the Dallas Mavericks were able to sign star power forward Dirk Nowitzki to a four year extension last summer despite a payroll of over 70 million dollars. But, if teams exceed both the cap and the luxury tax line, which was set at 70 million for 2011, then they must pay one dollar to the league for every additional dollar they spend. This often proves extremely costly so, if at all possible, small to mid market franchises almost always stay between the salary cap and luxury tax lines.

As a result, the 58 million dollar NBA salary cap is only truly meaningful for trades and free agency. Teams cannot sign a free agent (though their own restricted free agents follow under the Bird exception) to a new contract if that contract pushes them over the cap. That is why the Miami Heat had to go through so many financial hoops (and give away future star forward Michael Beasley) to sign both LeBron James and Chris Bosh to free agency deals last summer. Additionally, when teams over the cap engage in trades, they must make sure that they take back contracts of equal or lesser value than those they send out. This makes NBA trades very complicated affairs that are difficult to complete because additional teams often need to be recruited (and compensated) to make the math work.

Even in these two cases, however, there are some very significant exceptions to the rule that help teams function smoothly while over the NBA salary cap. Teams over the salary cap can sign one player annually to what is termed the "midlevel exception;" a single contract for the exact average player salary value. In recent years, this annual value has been close to six million so teams have been able to use this deal to make very significant additions: just last summer the Heat added sharpshooter Mike Miller, the Celtics added former All Star Jermaine O'Neal and, in 2009, the Lakers signed former defensive player of the year Ron Artest. These players are all very accomplished NBA role players and critical roster members so, even when operating over the cap in unrestricted free agency, teams have a lot of flexibility to improve the quality of their rosters.

Additionally, there are a few other minor exceptions that also add up. Teams have a bi-annual exception valued at two million (the Lakers used it to sign valuable swingman Matt Barnes last summer), second round picks do not count against the cap (the Bulls used this to sign Omer Asik), teams may always sign their first round draft picks, and teams may sign any player to a deal for the veteran's minimum regardless of the NBA salary cap. The veteran's minimum, which was valued at around 1.2 million last year depending on how many years of service the player had accrued, comes in particularly useful after the February trade deadline and team buyouts. This year, for example, Nets power forward Troy Murphy, one of the best shooting forwards in the NBA, is expected to be bought out if he is not traded by the deadline and his skills would help a lot of teams contend for a title. The Celtics, with their deep frontcourt rotation, do not have a shooting-rebounding combination at power forward and their rivals, the Miami Heat, could also use Murphy's varied skill set. Therefore, to sum up, the only ways that the cap really limits NBA teams are that it prevents contract-absorption trades and it stops teams over the cap from signing a new star in unrestricted free agency.

The NBA Salary Cap may be due for a major makeover after this season. The salary cap is part of the NBA's Collective Bargaining Agreement (CBA) between owners and players and that contract expires after this season. While all the press on "lockouts" currently concerns NFL football, the NBA is actually a greater threat to lock out without a resolution. Unlike the NFL, which remains an extremely profitable outfit, the NBA is on rocky financial footing. Team and league revenue have been declining for years for most teams and, depending on whose accounting you believe, as many as half of the NBA's teams are losing money. The owners are in no mood to compromise and, according to reports on the closed negotiations, the league wants a hard cap, a lower NBA salary cap number, and lower average salaries for players. The players, on the other hand, like the current system and would be weakened dramatically by the owner's desired changes so there is little hope for immediate compromise. Either way, after it's all over the NBA salary cap system will be very, very different. Of course, here at The Best Sports Blog, we will keep you updated so stay tuned.

Check out our articles about the NBA Minimum Salary and to learn how player salaries work in the NFL visit Pro Football Player Salaries.

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