Exceptions
 

The CBA allows for several scenarios in which a team can sign players even if their payroll exceeds the cap.

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The Larry Bird Exception
 

Perhaps the most well-known of the salary cap exceptions is the “Larry Bird” exception. Free agents who qualify for this exception are called "qualifying veteran free agents" or "Bird Free Agents." 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. To qualify as a Bird free agent, a player must have; played three seasons without being waived or changing teams as a free agent. When a player is traded, his Bird rights are traded with him, and his new team can use the Bird exception to re-sign him. Bird-exception contracts can be up to five years in length. Players claimed off waivers are not eligible for the full Bird exception, but may qualify for the early Bird exception.
 

Early Bird Exception

The lesser form of the Larry Bird exception is the "early Bird" exception. Free agents qualify for this exception after playing two seasons with the same team. Players that are traded or claimed off waivers have their Bird rights transferred to their new team. Using this exception, a team can re-sign its own free agent for either 175% of his salary the previous season, or the NBA's average salary, whichever is greater. Early Bird contracts must be for at least two seasons, but can last no longer than four seasons.

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Non-Bird Exception

"Non-qualifying free agents" (those who do not qualify under either the Larry Bird exception or the early Bird exception) are subject to the non-Bird exception. Under this exception, teams can re-sign a player to a contract beginning at either 120% of his salary for the previous season, or 120% of the league's minimum salary, whichever amount is higher.

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Mid-Level Exception (MLE)

The MLE is the most common way for over-the-cap NBA teams to sign free agents from other clubs for more than the minimum salary. It ensures that each team heads into the offseason with a little spending flexibility, even if that franchise is deep into luxury-tax territory.

Each team is eligible to use a specific type of MLE depending on its proximity to the salary cap. The most lucrative form of mid-level is available to teams that are over the cap but below the tax apron (approximately $6.0 million over the Luxury Tax trigger). Clubs deep into the tax, and even those under the cap, have access to lesser versions of the MLE.

 

For over-the-cap teams:

• Contract can cover up to four seasons.

• First-year salary up to $12 million in 2023-24.

• Once used, the team cannot surpass the “tax apron” for the remainder of the season.
   

For teams above the cap and the first tax apron: (The Taxpayer’s MLE)

• Contract can cover up to three seasons.

• First-year salary up to $6,149,000 in 2022-23.
   

For teams above the second tax apron:

• The is no access to the MLE
   

For teams with cap room: (The Room Exception)

• Contract can cover no more than two seasons.

• First-year salary up to $5,198,000 in 2022-23.
   

Bi-Annual Exception

The bi-annual exception can currently be used by teams below the apron to sign a free agent to a contract starting at $4,040,000. Like the mid-level exception, the bi-annual exception can also be split among more than one player, and can be used to sign players for up to two years.

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A team cannot use this exception in consecutive years. It also cannot be used by a team that has already used an MLE in the same season. Additionally, once a team uses the bi-annual exception, the tax apron becomes a hard salary cap for the remainder of that season.

This exception is eliminated for teams above the tax apron.

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Minimum Salary Exception

Teams can sign players for the NBA's minimum salary even if they are over the cap, for up to two years in length. In the case of two-year contracts, the second-season salary is the minimum salary for that season. The contract may not contain a signing bonus. This exception also allows minimum-salary players to be acquired via trade. There is no limit to the number of players that can be signed or acquired using this exception.

 

Rookie Exception

The NBA allows teams to sign their first-round draft choices to “rookie scale" contracts even if their payroll exceeds the cap.

First-round draft choices are assigned salaries according to their draft position. The first overall pick receives more than the second pick, the second more than the third, and so on. Each contract is for two years, with a team option for the third and fourth seasons.
 

1st Pick - $9,212,600               2nd Pick - $8,242,700              3rd Pick - $7,402,200 

4th Pick - $6,673,700               5th Pick - $6,043,500               6th Pick - $5,489,000  

7th Pick - $5,010,800               Picks 8th - 30th   $4,590,500 - $1,828,300 (sliding scale)       
 

Second-round picks are not subject to a scale, and technically can be paid anywhere from the minimum to the maximum contract amount. In practice, they rarely receive more than the minimum.
 

Two-Way Contracts

Each NBA team can sign two players to contracts that allow them to assign the players to the G League without risk of being "poached" by another NBA team. The players signed to such deals benefit by receiving a considerably higher salary than other G League players while in that league, as well as earning a prorated share of the NBA minimum rookie salary for each day they are with their contracted NBA team. Salaries of two-way players are not included in salary cap calculations. Additionally, a team can convert a two-way contract to a standard NBA contract at any time, with the player's salary becoming the NBA minimum for the player's years of service, prorated from the time of the conversion; a converted contract also does not count in cap calculations.
 

Exhibit 9

Typically, a team is responsible for an injured player’s entire salary for the current season (or until he recovers). That risk could prevent an NBA franchise from adding prospects to the training camp roster. To limit that risk, through an Exhibit 9 contract, a team is only obligated to pay $6,000 to an injured player. The exhibit functionally expires if the player makes the regular-season roster. Exhibit 9s are very common over the offseason but aren’t accessible once the season begins.

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Exhibit 10

Related to the two-way contract, is an attachment to the standard NBA contract known as Exhibit 10. A contract that contains this attachment may be converted to a two-way contract at the team's option. Exhibit 10 can be used only in one-year, non-guaranteed contracts for the minimum NBA salary, with no bonuses except for an "Exhibit 10 bonus" of $5,000 to $50,000. The bonus is paid if the player is waived by his NBA team, signs with the G League, is assigned to that NBA team's G League affiliate, and remains with the affiliate at least 60 days. The bonus is not counted against the salary cap, but is counted in overall league salaries. Each NBA team is limited to six active contracts that contain Exhibit 10 at any given time.

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Traded Player Exception

Ordinarily a team can not engage in a trade which would leave it 100,000 dollars above the salary cap, regardless of whether the trade reduces or increase its overall payroll, and requires exceptions in order to do so, the traded player exception is one of such.

The exception allows a team to trade for any player, or number of players, as long their collective incoming salary does not exceed a set amount, which is based on whether if the team pays the Luxury Tax after the trade, and the collective outgoing (of the players the team is trading away) salary. Taxpaying teams can absorb up to 125% of the outgoing salary + $100,000, and for non-taxpayers the amount is as follows:
 

Outgoing Salary                       Incoming Salary Allowed
 

$0 - $6,533,333                        175% of the outgoing salary, plus $100,000

$6,533,334 - $19.6 million        Outgoing salary + $5,000,000

<$19.6 million                           125% of the outgoing salary + $100,000
 

Also, if a team trades away players with higher salary than of the players they acquire in return, the traded player exception allows them acquire players with salaries not exceeding such difference + $100,000, for up to one year after the trade in which they acquired such a credit.

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Disabled Player Exception

A team that is over the cap can acquire a replacement for a disabled player who will be out for either the remainder of that season (for in-season injuries/deaths) or the next season (if the disability occurs during the offseason). The maximum salary of the replacement player is either 50% of the injured player's salary, or the mid-level exception for a non-taxpaying team, whichever is less.

 

Reinstatement

A player banned from the league for a drug-related offense who is reinstated may be re-signed by his prior team for a salary up to his previous salary.

 

Note that while teams can often use one exception to sign multiple players, they cannot use a combination of exceptions to sign a single player.

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Individual contracts under the CBA

The maximum amount of money a player can sign for is based on the number of years that player has played and the total of the salary cap. The maximum salary of a player with 6 or fewer years of experience is 25% of the total salary cap (projected for 2017–18), whichever is greater. For a player with 7–9 years of experience, 30% of the cap, and for a player with 10+ years of experience, 35% of the cap. There is an exception to this rule: a player is able to sign a contract for 105% of his previous contract, even if the new contract is higher than the league limit.

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Designated Player

Each NBA team is been able to nominate a player on his rookie contract to receive a "Designated Player" contract extension. A Designated Player is eligible for a 5-year contract extension, instead of being held to the standard 4-year restriction. All teams were limited to having a maximum of two Designated Players contracted on their roster at any time.

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Under the 2017 CBA, the "Designated Player" limit remains at two, but in a new feature, teams are now able to create Designated Player contracts from their own veteran contracts. In addition, teams may now use their Designated Player slots on any combination of their own rookie contracts, their own veteran contracts, or players acquired in trades.

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"Supermax" Rule

There is a provision in the CBA that allows teams to create Designated Player contracts for their own veteran players, officially known as the "Designated Veteran Player Extension" (DVPE). The contract is commonly called "The Supermax".

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For a veteran player to qualify for such an extension, he must be entering his 8th or 9th season in the NBA, and have either:

• made the All-NBA team (at any level) in either the season immediately before signing the extension, or two of the three previous seasons;

• been named NBA Defensive Player of the Year in either the season immediately before signing the extension, or two of the three previous seasons; or

• been named NBA MVP at least once in the previous three seasons.

 

Additionally, the team offering the extension must have originally drafted the player, or obtained him in a trade while he was on his rookie contract.

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Players who qualify can be offered contracts with a starting salary between 30 and 35% of the salary cap. The extension cannot last more than five years after the expiration of the player's current contract (or five years for a player who is a free agent when signed), but can be negotiated and signed one year before the current contract expires. The extension can be offered to a team's own free agent as well as a player with time left on his contract. Additionally, once a player signs a supermax, he cannot be traded for one year.

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"Derrick Rose" Rule

 Designated Player coming off his rookie contract may be eligible to earn 30% of the salary cap (rather than the standard 25%) if he passes certain criteria:

• Selection to an All-NBA team (at any level) in the player's fourth season, or in two of the three seasons between his second and fourth seasons.

• Selection as Defensive Player of the Year in the player's fourth season, or in two of the three seasons between his second and fourth seasons.

• Selection as MVP in any season from the player's second onward.
   

Over-38 Rule

The cap also includes a provision to close a potential loophole that would provide incentives for teams to skirt the cap by signing an older player to a long-term deal that would not end until after the team expects the player to retire. Cap analyst Larry Coon outlined how this potential loophole would work:
 

For example, suppose the Non-Taxpayer Mid-Level exception is $9 million. With 5% raises, a three-year contract would total $28.35 million. But if they added a fourth year to the contract, the salary would total $38.7 million. If the player retires after three seasons and continues drawing his salary for the additional season, then he effectively will be paid $38.7 million for three years' work. In essence, they are giving the player a three-year contract with additional deferred compensation.
 

To address this issue, CBA includes what is now called the "over-38 rule", under which certain contracts that extend past the player's 38th birthday are presumed to cover seasons following the player's expected retirement. The salary for any years that come after the player's 38th birthday is presumed to be deferred compensation, and is shifted for cap purposes to the under-38 seasons of the deal, with the over-38 year(s) being referred to as "zero years" in the CBA. If the player continues to play under the deal (proving the presumption of retirement wrong), the salary that had originally been treated as deferred is distributed evenly over the remaining years of the contract, starting with the second season before the zero years.
 

Several members of the union's executive committee at the time the 2017 CBA was negotiated were older players who were seen as potential major beneficiaries of a change to an over-38 rule. For example, the change to an over-38 rule gave union president Chris Paul, scheduled to become a free agent after the 2016–17 season, a potential gain of nearly $50 million over the life of his next contract.

 

Options

Many NBA contracts are structured with options for either the player or the team. An option simply gives the party that controls the option the right to extend the contract for one more season at a salary no less than the prior year's amount.

Free Agency

There are two types of free agency under the NBA's Collective Bargaining Agreement: Unrestricted and Restricted.

Unrestricted Free Agent

An unrestricted free agent is free to sign with any team that they choose to.

Restricted Free Agent

A restricted free agent is subject to his current team's Right of First Refusal, meaning that the player can be signed to an offer sheet by another team, but his current club reserves the right to match the offer and keep the player. An offer sheet is a contract offer of at least two years made by another team to a restricted free agent.

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For first-round draft picks, restricted free agency is only allowed after a team exercises its option for a fourth year, and the team makes a Qualifying Offer at the Rookie-scale amount after the fourth year is completed. For any other player to be a restricted free agent, he must be at most a three-year NBA veteran, and his team must have made a Qualifying Offer for either 125% of his previous season's salary or the minimum salary plus $200,000, whichever offer is higher.

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Teams are limited in what they can offer an unrestricted free agent with two years or less experience. The maximum first-year salary in an offer sheet is the mid-level exception. The second-year salary can be raised a maximum of 4.5%. The third year salary is limited to the maximum a team has available in their salary cap. The salary in the fourth season may increase (or decrease) by up to 4.1% of the salary in the third season. The offer sheet can only increase in the third season if it provides the highest salary allowed in the first two seasons, the contract is fully guaranteed, and it contains no bonuses. A player's original team can use the Early Bird exception or their Mid-Level exception to re-sign the player.

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If the raise in the third season is greater than 4.5% of the first year, the offering team must be able to fit the average of the entire contract under their cap.

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If the original team matches, and has enough cap space to absorb the average annual salary of the offer, it can choose to take cap hits of either the actual contract payouts or the average of the contract in each season.

 

Cap Holds

The end of a free agent's contract does not remove him from a team's cap calculations. Until the player signs with a team, or the free agent's former team renounces its rights), each free agent carries a specified salary cap charge for his last team, most often called a "cap hold". Normally, the cap hold can be no more than a player's maximum salary, or less than his minimum salary, based on years of service. The only exception is for free agents who made the minimum salary in the previous season.
 

 The cap hold varies based on the status of the free agent and his salary in the previous season:

• Bird free agent:

  • If not coming off a rookie scale contract, and salary was at or above the estimated average salary, 150% of previous salary.

  • If not coming off a rookie scale contract, and salary was below the estimated average salary, 190% of previous salary.

  • If coming off the fourth season of a rookie scale contract, and salary was at or above the estimated average salary, 200% of previous salary.

  • If coming off the fourth season of a rookie scale contract, and salary was below the estimated average salary, 250% of previous salary.

  • If coming off the third season of a rookie scale contract, the maximum amount that the team can pay under the Bird exception.

• Early Bird:

  • If coming off the second season of a rookie scale contract, the maximum amount that the team can pay under the Bird exception.

  • Otherwise, 130% of previous salary.

• Non-Bird: 120% of previous salary.

 

Sign & Trade Agreements

When a team is willing to sign an upcoming free agent, but the player's current team wants something in return, it might be in the best interest of both clubs to execute a sign-and-trade deal. This occurs when one team signs one of its free agents and immediately trades that player to another team. A sign-and-trade is beneficial to both the player and the teams; the player receives a bigger contract than he might ordinarily get from a team that he would like to play for, while the trading club gets something in return for a free agent, and the recipient of the trade gets the player they desire. Sign-and-trades are a reality in the NBA because of the CBA's rules, teams that lose free agents receive no compensation.

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When a team initiates a sign-and-trade agreement, it must trade the signed player immediately; teams cannot renege on the arrangement and keep the player for themselves, using the other team's financial situation to leverage the signee into a more favorable deal for themselves.

 

The receiving team cannot exceed the so-called "apron" ($6+ million above the luxury tax line) as a result of the trade. Additionally, the apron becomes a hard salary cap for the first season after the signing. Teams above the apron before the trade cannot receive a player unless the trade leaves the team below the apron.

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While restricted free agents can be signed and traded, this is not allowed if that player has signed an offer sheet with another team.

A team that has used the taxpayers' MLE cannot receive a player in a sign-and-trade deal in that season.

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Trading & The Salary Cap

• Teams below the salary cap may trade without regard to salary, as long as they don't end up more than $100,000 above the cap following a trade.

• Teams above the cap (or teams below the cap but would end up more than $100,000 over the cap following a trade) cannot acquire more than 125% plus $100,000 of the salary they trade away. Under the CBA, teams that remain below the Luxury Tax threshold even after the trade can acquire the lesser of 150% plus $100,000, or 100% plus $5 million, of the salary they trade away. There is no lower limit—teams may divest themselves of as much salary as they wish (or can convince another team to take on) in a trade.

• A player acquired in a trade and waived by his new team cannot re-sign with his original team until one year after the trade or July 1 after the expiration of his contract, whichever is sooner.
   

Base Year Compensation

Certain players in the first few months of a new contract are subject to base year compensation (BYC). The intent of BYC is to prevent teams from re-signing players to salaries specifically targeted to match other salaries in a trade (in other words, salary should be based on basketball value, not trade value). BYC is only applied to outgoing salary in sign-and-trade deals.

 

Waivers

NBA teams can release a player to the waiver wire, where he can stay for 48 hours. While he is on waivers, other teams may claim him, for his existing salary. If he is not claimed, he is said to have "cleared waivers", and is treated like any free agent, able to sign with any team (with the special restriction noted above for players who were traded and then waived).

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Released Players

Released/waived players with guaranteed contracts continue to be included in their former team's payroll. Players whose contracts are guaranteed are included in team salary in the amount they made while they were with the team.

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If another team signs a released player who had a guaranteed contract (as long as the player has cleared waivers), the player's original team is allowed to reduce the amount of money they still owe the player (and lower their team payroll) by the right of set-off. This is true if the player signs with any professional team—it does not even have to be an NBA team. The amount the original team gets to set off is limited to one-half the difference between the player's new salary and a pro-rated share of the minimum salary for a one-year veteran (if the player is a rookie, then the rookie minimum is used instead).

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Stretch Provision

Under the CBA, players and teams could alter the schedule of payments to waived players by mutual agreement. Today, when a team waives a player, it can spread the remaining guaranteed salary (and its accompanying cap hit) over twice the remaining length of the contract, plus one year. According to Coon, "if a team has an underperforming player with one season remaining at $12 million, the team can waive him and stretch his salary across three seasons at $4 million per season."