Do not feel embarrassed or alone. The reaction is commonplace. The mere mention of "NBA salary cap," even to a savvy basketball fan, can cause brainlock, glazed eyes and expressions of cluelessness.
Even as the NBA's popularity increases, confusion reigns as to how its 29 teams conduct trades, sign free agents and structure player contracts.Try telling fans that each NBA team operates within the same salary-cap allotment, which for the 1996-97 season is $24.3 million. Many fans regard the NBA cap as a nebulous figure that teams exceed at will, the way Jerry Jones breaks NFL sponsorship agreements.
If anything, this summer's unprecedented NBA free-agent mega-dollar free-for-all has enhanced perception that the cap is a crock. How can the Lakers give Shaquille O'Neal a seven-year, $121 million contract and still have enough "cap room" to pay 11 other players?
How can the Chicago Bulls pay Michael Jordan $30 million for the 1996-97 season (more than Dallas' entire current payroll of $24.27 million), then commit an additional $8 million to Dennis Rodman?
The answers are contained in the NBA's seven-pound, 238-page collective bargaining agreement, the office bible of all NBA general managers and player agents. Almost every NBA team has a controller, or "capologist," on staff, but teams frequently call the league office for cap-rule clarifications. The Mavericks' controller is Tom Kelly.
"Our teams have gotten real good at this stuff," NBA general counsel Joel Litvin said. "On balance, there's not a lot of confusion. Some teams, some general managers, are frustrated with some of the new rules, but we've always had that."
But what about the fans? How can they anticipate their favorite team's moves or plot potential trades and free-agent signings over the office water cooler if they don't have a grasp of the cap rules? Not all of the rules. Just the basics.
"It can be confusing, but when you look at it, it's really not that hard," Mavericks' vice president of operations Keith Grant said. "The biggest misconception is the big contracts. Fans see this big number and wonder how (teams) fit it in. Don't focus on the overall salary. Focus on the first-year salary."
Fans may be surprised to learn that the new collective bargaining agreement has fewer loopholes than the previous one.
In exchange for significantly increasingthe cap (from $15.9 million in 1993-94 to $23 million last season to a projected $30 million in 1999-2000), the NBA was able to tighten several cap loopholes. Notably, it all but abolished "slots" - the practice of placing a new player into a departing player's old salary hole.
Many NBA general managers and player agents predict this summer's free-agent explosion will be an aberration. So many teams have committed long-term, mega-dollar contracts to players that there will be little cap room for future free agents.
"The old cap might have been softer," Grant said. "I think down the line, this cap is going to, in effect, be even more hard."
Still, there are loopholes, or, as the NBA calls them, "exceptions." Unlike the NFL salary cap, which is a hard cap with no exceptions, the NBA defines its salary structure as a "soft cap system" - that is, a system with exceptions.
Understanding these cap exceptions, along with some of the NBA's key trade guidelines and accounting rules, can go a long way toward understanding the system.
Here's the basics for "capology" undergraduates:
EXCEPTIONS
- Veteran Player (or "Larry Bird") Exception.
Even if it is over the salary cap, a team is allowed to pay its own free agent (a player whose contract has expired) any amount it chooses, provided he has been with the team at least three years.
The Bird exception gives teams a clear advantage in preventing their free agents from jumping to other teams. It also is the main reason some teams climb well over the salary cap.
EXAMPLES: By offering Michael Jordan $30 million for the 1996-97 season, Chicago eliminated the possibility another team would make a higher offer. Any other team bidding for Jordan would have had to do so with available cap room.
The Lakers, conversely, had to clear more than $10 million under the salary cap to woo Shaquille O'Neal away from Orlando. By giving him a $10 million first-year salary, with league-maximum 20 percent increases for seven seasons, the Lakers were able to give him a $121 million package.
The expiration of Dennis Rodman's contract enabled the Bulls to pay him $8 million, in addition to Jordan's $30 million. Had they been so inclined, they could have paid Rodman even more.
Unlike the previous collective bargaining agreement, the Bulls will not have a $30 million "slot" should Jordan decide to leave after this season - just as O'Neal's departure did not leave Orlando with a $5.7 million "slot" (his 1995-96 salary).
- The "Buck Williams" (or "Early Bird") Exception.
A player who finishes a two-year contract with his team can re-sign with that team for an increase of 75 percent of his second-year salary, or for the average NBA salary, whichever is greater. The new contract must be for at least two years.
- Rookie exception.
Even if a team is over the salary cap, it can sign its first-round picks for up to 120 percent of his rookie salary scale amount.
- $1 million exception.
If a team is over the salary cap July 1 - and does not fall under the cap any time after July 1 - it can sign one or more players to contracts totaling $1 million per year. Teams can use this exception no more than three times during the six-year collective bargaining agreement.
EXAMPLE: San Antonio, one of the few teams that did not have room under the cap this summer, tried to use the $1 million exception to sign Harper.
- Minimum contract exception.
Even if a team is over the cap and has no other exceptions available, it can sign as many players as necessary to one-year, minimum-salary contracts. The minimum this year is $247,500 for veterans who were first-round picks, $220,000 for all other players.
EXAMPLE: Now that many teams are maxed-out capwise, after adding high-dollar free agents this summer, several will have to fill out their 12-man rosters with minimum-salary players.
For "capology" graduate students, you should know:
- The 15 percent rule.
Even if a team is over the cap, it can trade players with another team provided the sums of the contracts being traded are within 15 percent, plus $100,000. The $100,000 "fudge figure" was added because the NBA abolished the practice of renegotiating contracts to make trades work.
EXAMPLE: If Player A makes $3 million, he can be traded for Player B, provided Player B makes $2.45 million or more, or $3.55 million or less.
ACCOUNTING RULES
- The 20 percent rule.
A player's contract may increase annually by no more than 20 percent of his first-year salary. The exception is a "Larry Bird exception" free agent, whose contract can increase by any amount, year-to-year.
- 150 percent and 200 percent rules.
When a player's contract expires, a team must carry him on its salary cap until it decides whether to renounce, or re-sign him. This prevents teams from keeping a player's status in limbo throughout the off-season.
If the player's final-year salary was higher than the league average, his team must carry him at 200 percent of that amount until it decides whether to keep him or renounce him. Players making less than the league average count 150 percent.
EXAMPLE: Before the Mavericks signed free-agent Chris Gatling, they created $3 million of cap room by renouncing Lorenzo Williams, Scott Brooks, Lucious Harris and David Wood. Under NBA rules, Dallas was not required to renounce those players until it needed the cap room. Had the Mavericks kept Williams on their payroll throughout the summer, his $1.555 million 1995-96 salary would have counted 200 percent, or $3.1 million.
EXTENSIONS
A player can extend his contract by six or seven years anytime following year four of his original deal. A player can extend his deal by four or five years anytime after year three of his original deal.
If a player signs an extension while still under contract, the biggest raise he can receive is 20 percent in the first year of the extension. By waiting until after his contract expires, however, he can become a "Larry Bird" free agent and receive an unlimited raise.
A player playing under his three-year rookie contract, however, can extend his deal by any amount between July 1 and Oct. 1 after his second season. The third year of the rookie deal would remain intact, and the extension would begin in year four.
Got that?
Don't worry, you won't be quizzed until the season opens Nov. 1.
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ADDITIONAL INFORMATION
Basic salary cap terms salary cap terms
AGGREGATION - NBA teams are allowed to combine players (two-for-one, three-for-one, three-for-two, etc.) in order to match salary totals and complete a trade. Prior to last season, the NBA did not allow aggregation.
COLLECTIVE BARGAINING AGREEMENT - The 238-page agreement between the NBA, its owners and the league's players association. It was originally ratified last summer, but wasn't officially signed until last month. The agreement is for six years, through the 2000-2001 season.
"SOFT" CAP - Means NBA teams have the ability to exceed the cap, through the use of exceptions.
EXCEPTION - Loophole in the salary-cap system that enables teams that are over the cap to sign additional players. For instance, a team over the cap can sign any number of players to the NBA minimum salary ($247,500 for ex-first-round picks, $200,000 for other players).
ROOKIE SCALE - Enacted last summer, first-round draft picks automatically receive a three-year contract, based on a pre-determined salary scale.