Different Salary Cap Exceptions In The NBA (Explained)

NBA Salary Cap, NBA Luxury Tax, Mid-level Exception

Since 1984 the NBA has had a Salary Cap in place to keep teams in larger markets from extending their revenue advantage over the smaller market teams by buying all the top players. The Salary Cap increases year by year depending on the league revenue numbers of the previous year.

See the chart below to see the history of the Salary cap and how it has grown in the last 34 years.

The NBA institutes a ‘soft cap’ as appose to a ‘hard cap’ like the NHL and NFL. ‘Soft Cap’ meaning that there are several Exceptions and loopholes to exceed the salary cap. Hard Cap meaning them is little or no circumstances on which teams may exceed the Salary cap.

There are several different Salary cap exceptions in the NBA:

  • The Mid-level exception explained – Teams are allowed to sign one or multiple players as long as they do not exceed the total mid-level exception. The Mid-level exception is set at what the average NBA salary is. The Mid-Level Exception for the 2007-08 NBA season is $5.36 million. Only teams that are over the Salary Cap can use the mid-level exception to sign free agents.
  • The Bi-annual Exception explained – The Bi-annual Exception – Teams may use this exception every other year to sign a free agent or free agents at an amount that is set by the NBA (was known as the $1 Million exceptions in the 1999 CBA). Teams can use this exception to sign players up to two years with raise on the second year of up to 8%.
  • The Rookie exception explained – The current CBA allows teams to sign their first-round draft choices to contracts based on a scale the NBA set forth. To view the NBA rookie scale.
  • The Larry Bird exception explained – ‘The Bird’ exception allows teams to exceed the salary cap to resign its own free agents, at an amount up to the maximum salary, and up to six years in length.
  • Early Bird exception explained – Free agents qualify after playing two seasons without being waived or changed teams as a free agent. A team may sign its own free agents for either the NBA’s average salary or 175% of his previous year’s salary, whichever is greater.
  • Non-Bird exception explained – Allows teams to re-sign players to contract as long as 6 years and worth 120% of his past season salary or 120% of the league minimum whichever amount is greater.
  • Minimum Salary exception explained – Teams can sign players to the league minimum even if they are over the cap, contracts can be 2 years in length were the second season will be the minimum for that year.
  • Traded Player exception explained – Teams are allowed to trade away a player with a salary greater than the salary of the player they acquire, in which they would receive a trade exception. Teams with the trade exception have one year to use the exception in which they can acquire more salary in another trade as long as the salary in that trade is less than or equal the amount of their trade exception.
  • Disabled Player exception explained – Enables teams to sign a player to replace a player that suffered an injury and is out for the season or the remainder of the season depending on when the injury accrued. The max salary the replacement player can be signed for is 50% of the injured players yearly salary. Teams may use one exception to sign multiple players but they are not permitted to use multiple exceptions to sign one player.
  • Free Agency explained – There are two types of free agency, restricted and unrestricted. A restricted free agent is subject to his right of first refusal, meaning a restricted free agent may sign an offer sheet with a different team. The player’s current team then has 15 days in which they can match said offer sheet and retain that player. An unrestricted free agent is free to sign with any team.
  • Options explained – Most contracts in the NBA are structured with option years for either the team or the player, giving the party with the option to control whether to extend or terminate the contract.
  • Sign and Trade agreements explained – When a team signs one of its free agents for another team and then trades him to the said team, in return they will receive compensation. For example, the Seattle SuperSonics agreed to sign Rashard Lewis and trade him to the Orlando Magic for a second-round draft pick, Seattle also earned a trade exception in the deal.
  • Trading under the Salary Cap explained – Teams under the salary cap may make trades without regard to salary as long as they do not end up $100,000 over the cap after the trade. Teams above the cap cannot acquire more than 125% plus $100 000 of the salary they trade away. Free agents may not be traded until December 15th or until three months have passed since their signing, whichever is later. If a team decides to trade a player they have recently acquired in a trade they can do so immediately if the trade is straight up for another player. If the team wishes to package that player with another to make a trade they must wait 60 days before completing said trade.
  • Base Year Compensation explained – The intention of the base year compensation is to prohibit teams from signing players to match the salaries of a player they wish to trade for. A base year compensation player’s trade value is 50% of the outgoing salary of his new salary or his previous salary whichever is greater. BYC players are players that resign with their previous team for more than 20% of their previous salary. BYC only applies when the team is over the salary cap.
  • Waivers explained – Teams can release players at any time to the waiver wire. The player can stay there for as long as 48 hours. If the player is claimed off waivers during that period, the claiming team will honor his existing contract. If the player makes it passed the 48-hour window they become an unrestricted free agent and are able to sign with any team.
  • Released players explained – Released or waived players with guaranteed contracts are still included in the team’s salary number. Players on non-guaranteed contracts do not count against the team’s salary cap number unless they make the regular season roster. If a player that was released and signs with another team, his previous team is able to reduce that said player’s cap number against their cap.

Basketball Related Income (BRI) explained:

The income compiled through the season by the following sources of league-generated revenues:
1. Regular season gate receipts 2. Broadcast rights 3. Exhibition game proceeds 4. Playoff gate receipts 5. Novelty, program and concession sales (at the arena and in team-identified stores within a 75-mile radius) 6. Parking 7. Proceeds from team sponsorships 8. Proceeds from team promotions 9. Arena club revenues 10. Proceeds received by Properties, including international television, sponsorships, revenues from NBA Entertainment, the All-Star Game, the McDonald’s Championship and other NBA special events 11. Proceeds from non-NBA basketball tournaments 12. Proceeds from mascot and dance team appearances 13. Proceeds from beverage sale rights 14. 40% of proceeds from arena signage 15. 40% of proceeds from luxury suites 16. Proceeds from summer camps

Luxury Tax explained:

Since the NBA utilizes a soft cap allowing teams to exceed the salary cap to resign their players, the league instituted a luxury tax in 1999 to penalize teams that exceeded the cap by a large amount. Even though the luxury tax was instituted in 1999, the first year it came into effect was the 2002-03 season. For each dollar, a team is over the luxury tax they must pay one dollar to the league which is then dispersed between the teams below the luxury tax threshold. The Luxury Tax again was not triggered in 2004-05 as the BRI(Basketball Related Income) as the players paid into there escrow accounts lowering the BRI percentage of salaries and benefits below the trigger point of 55%.
For example, the Dallas Mavericks have a payroll totaling $79,351,704 and the Luxury Tax for the 2007-08 season is $67,865,000 so the Dallas Mavericks will need to pay the league $1 for every dollar they are over the luxury tax threshold. In this case, the Mavericks will owe $11,486,704 to the league as a penalty for exceeding the Luxury Tax number.
In the new CBA agreed upon in 2005 provided an ‘amnesty clause’ which is a one time opportunity to waive one and only one player to avoid him counting against the teams luxury tax number however his salary will still count against their cap number. A team may not re-sign or acquire said player until the length of the terminated contract.

Escrow explained:

There is an escrow system built into the CBA that ensures player salaries stay under a certain percentage of the league revenues. This is designed to deposit the player’s extra salary into an escrow account for withdrawal at a later date.

History Of The Salary Cap

Year Salary Cap Luxury Tax Mid Level Exception
2017-18 $99,09 Million $119 Million $8,40 Million
2016-17 $94,14 Million $113.3 Million $5.628 Million
2015-16 $70 Million $84.7 Million $5.5 Million
2014-15 $63,06 Million $76.8 Million $5.3 Million
2013-14 $58,67 Million $71.7 Million $5.15 Million
2012-13 $58,04 Million $70.30 Million $5 Million
2011-12 $58,04 Million $70.30 Million $5 Million
2010-11 $58,04 Million $70.30 Million $5 Million
2009-10 $57,700 Million $58.68 Million $5.85 Million
2008-09 $58.68 Million $55.630 Million $5.356 Million
2007-08 $55.63 Million $67.865 Million $5.36 Million
2006-07 $53.135 Million $65.42 Million $5.215 Million
2005-06 $49.5 Million $61.7 Million $5 Million
2004-05 $43.9 Million 0 $4.9 Million
2003-04 $43.8 Million $54.6 Million $4.9 Million
2002-03 $40.3 Million $52.9 Million $4.5 Million
2001-02 $42.5 Million 0 $4.5 Million
2000-01 $35.5 Million 0 $2.3 Million
1999-2000 $34 Million 0 $2 Million
1998-99 $30 Million 0 $1.8 Million
1997-98 $26.9 Million 0 0
1996-97 $24.4 Million 0 0
1995-96 $23 Million 0 0
1994-95 $15.9 Million 0 0
1993-94 $15.1 Million 0 0
1992-93 $14 Million 0 0
1991-92 $12.5 Million 0 0
1990-91 $11.9 Million 0 0
1989-90 $9.8 Million 0 0
1988-89 $7.2 Million 0 0
1987-88 $6.2 Million 0 0
1986-87 $4.9 Million 0 0
1985-86 $4.2 Million 0 0
1984-85 $3.6 Million 0 0
Key words: Salary Cap, Luxury Tax, Basketball related income, Bird rules, Mid-level exception, The Bi-annual Exception, The Rookie exception, The Larry Bird exception, Early Bird exception, Non-Bird exception, Minimum Salary exception, Traded Player exception, Disabled Player exception,Free Agency, NBA Free agency, NBA, NBA Salary Cap, NBA Luxury tax.