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What are the NBA Salary Cap Rules

The NBA Salary Cap restricts how much clubs may spend on wages for their players. The NBA’s overall revenue, Basketball Related Income (BRI), determines this limit as a league from season to season. This wage limit, however, is quite flexible since various caveats enable clubs to exceed it in certain situations and at a financial cost to the owners. As a result, the NBA salary cap is termed a ‘soft cap’ in contrast to the NFL‘s ‘hard cap’, which cannot be surpassed. The wage limit is in place to keep the league balanced, profitable and let clubs maintain their players for extended periods.

Each year within the terms laid out by the NBA’s collective bargaining agreement with the Players Association a Salary Cap is determined. This is based on calculations to do with Basketball Related Income. About 45% of the NBA’s BRI goes to the players through their wages. This number will determine the value of the NBA Salary cap each season.

Within the overall NBA Salary Cap value, the 2022-23 NBA season was set at $123million, each Franchise has to sign players to fill the roster requirements for games that season. These contracts are complex as they often span multiple seasons and salary caps. The NBA has created many rules to help franchises navigate this.

It is each franchise’s GM’s job to navigate these player contracts and ensure the franchise fields a team fit to meet the owners expectations, while fitting into the overall Salary Cap rules.

Rule of the Designated Player

Every NBA franchise is allowed to nominate one rookie for a designated player extension. This extension permits clubs to give this player a 5-year contract rather than the typical 4-year restriction. A team’s roster may only include one designated player at a time. On the other hand, teams may sign a designated player from another club, allowing them to have two.

The “Derrick Rose Rule,” as it was termed, states that a designated player may earn 30 per cent of a team’s wage cap rather than the typical restriction of 25 per cent. To do so, the player must meet specific requirements, including being selected to start in the All-Star game at least twice, being named to an All-NBA team at least twice, and winning MVP.

Derrick Rose (Chicago Bulls), Blake Griffin (LA Clippers), and Paul George (Indiana Pacers) are the only players who have signed such a deal. However, the NBA’s wage cap is flexible. The Soft Cap, therefore, allows various exceptions to enable a club to sign a player, even if it means going over the Cap.

Mid-Level Exception

Each club may utilise the Mid-level Exception (MLE) to sign a player once every season. The Team’s position in the Cap determines the contract value and length. In other words, if utilising actual numbers, clubs without cap space but below the tax apron (not in luxury tax – The luxury tax is a penalty levied by the NBA on clubs whose total team payroll exceeds a particular level. The luxury tax is intended to prevent clubs from overspending on player contracts and to foster competitive balance among teams.)

Exception for every two years

The Bi-Annual exemption permits clubs to sign players for contracts beginning at $1.6 million for the first year, with a maximum annual rise of 8%. Teams already subject to the luxury tax are not permitted to sign players using this loophole, as several did to sign high-paid players. The Rookie Exception lets players sign their draft picks to rookie scale contracts even if it means exceeding the salary cap.

Exceptional Bird

They were named after Larry Bird, the first player to be re-signed using this method. The Bird Exception permits them to re-sign their players even if it means exceeding the cap limit. A player must have played three consecutive seasons without being released or changing clubs through free agency to be eligible. When a player is moved or amnestied, their bird rights are passed to their new club. Bird rights players may be signed up to the maximum wage for any price. Players claimed off waivers are ineligible for full bird privileges. However, they may be eligible for the early-bird exemption.

The Early-Bird Exception is a subset of the complete Bird Exception, and free agents are eligible for it after just two years with their club. Teams may sign free agents for 175 per cent of their previous season’s wage or the league’s average salary, whichever is greater.

Exception for Players Who Have Been Traded

The Traded-Player Exception allows a club to get a trade exception if they deal a player with a greater salary than the one they receive in exchange. This implies that clubs who qualify for this exemption have up to a year to obtain more money in other deals than they send away if the gap is the same.

Exception for Disabled Players and drug-related infractions

The Disabled Player Exception permits a club to sign a player who will be sidelined for the remainder of the season (due to death or injury) even if they are over the Cap. If an injury happens over the offseason, this may also be utilized for the next season.

Teams may sign players for half of the disabled player’s contract or the MLE for a non-luxury tax team, whichever is less. This player is only available for one season. A player suspended from the league due to a drug-related infraction may be restored and re-signed by the same club under the same contract.

Waivers and the Free Agent

NBA clubs may release players via waivers. The player is placed on the “waiver wire” and may be claimed for 48 times his current salary. If not claimed, they are considered average free agents and may be signed by any club. Released players with guaranteed contracts stay on the payrolls of their prior clubs. Assume the released player joins another team. The money paid by their former Team may then be lowered under the right of set-off.

Amnesty Clause During the week after the July Moratorium, each NBA club may amnesty one player per year (between 2010-11 and 2015-16). Players who signed before the 2010-11 season are eligible. This implies the franchise may waive the player, but their contract will not count against the salary cap or luxury tax. Teams may claim the amnestied player for a reduced fee, with the difference paid by the player’s previous Team. If the player is not claimed, they become a free agent.

The NBA – Stick to the Rules

Players may come and go, and Teams and coaches will come and go, but the NA will remain an institution in American Basketball. The rules and regulations of the NBA will therefore have to be adhered to, no matter how brilliant the Team, how great the Coach, or how Iconic the Player.