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THE GM

Is NBA’s Trend Toward Analytics Hurting Some Minority Job Candidates?

By Gary Washburn Boston Globe Staff  - June 3, 2017 (Augmented)

There remains one general manager opening, in Milwaukee, and the two GM positions filled after the regular season went to white males: Travis Schlenk in Atlanta and John Hammond in Orlando.

For a league that’s primarily African-American, only three of the league’s 30 GMs are black: Dell Demps (New Orleans), Steve Mills (New York), and Masai Ujiri (Toronto, who is Nigerian). The league also has two African-America team presidents in Doc Rivers (Clippers) and Magic Johnson (Lakers), but the lack of minorities in NBA front office positions is becoming a concern for a league that prides itself on being diverse [Give credit where credit is due. Progress has been made. - DT].

Black basketball operations executives, 2022-23 NBA season

          Name                          Team                                Positon

  1. Landry Fields          Atlanta Hawks                      General Manager

  2. Marc Eversley         Chicago Bulls                       General Manager

  3. Calvin Booth           Denver Nuggets                   General Manager

  4. Nico Harrison         Dallas Mavericks                   President/General Manager

  5. Troy Weaver           Detroit Pistons                       General Manager

  6. Rafael Stone          Houston Rockets                   General Manager

  7. Trajan Langdon      New Orleans Pelicans           General Manager

  8. Scott Perry             New York Knicks                    General Manager

  9. Elton Brand            Philadelphia 76ers                 General Manager

  10. James Jones          Phoenix Suns                        General Manager

  11. Brian Wright           San Antonio Spurs                 General Manager

  12. Swin Cash              New Orleans Pelicans           Vice President of Basketball                                                           
                                                                                 Operations & Team Development

  13. Morgan Cato           Phoenix Suns                       Vice President of Basketball                                                                                                                                                                                       Operations & Assistant                                                                                                                                                                                               General Manager

  14. Koby Altman            Cleveland Cavaliers             President of Basketball

  15. Masai Ujiri               Toronto Raptors                    Vice Chairman & President of                                                                                                                                                                                     Basketball Operations

 

Commissioner Adam Silver was asked by the Globe about the league’s diversity plans and whether it may implement a version of the NFL’s “Rooney Rule,” which mandates that teams interview at least one minority candidate for open management and coaching positions.

“In terms of specifically a Rooney Rule, to be honest, I’m not sure how effectively that works in the NFL,” Silver said. “I do think we need to do more. I’m just not sure if it results in something that looks like a Rooney Rule or something more unique to the NBA.”

Silver said the league is working to train former players who have managerial aspirations on the salary cap and other business-related topics.

“Not to suggest that there aren’t many candidates out there who do have those skills, what we can do is we can use the league office, I can use the commissioner’s office, as a little bit of a bully pulpit and more needs to be done on those issues,” Silver said. “We’re very focused on it in the coaching ranks and the front office ranks and the general manager ranks as well, and it’s something that we have ongoing discussions with our owners in the league and other team personnel.

Sports Analytics is becoming an increasingly important topic. This is due to the success of metrics based sports management. Started by Bill James in baseball (https://en.wikipedia.org/wiki/Bill_James),  and extended into basketball by Dean Oliver (https://en.wikipedia.org/wiki/Dean_Oliver_(statistician) metrics has replaced the traditional “feel  & experience” approach of traditional sports management. African-Americans are largely relegated to the “specimen” role with the only notable exception being Shane Battier (https://www.nytimes.com/2009/02/15/magazine/15Battier-t.html): “I’m proud of the league’s track record in race relations but there’s more that needs to be done.”

Privately, many aspiring African-American coaches and GMs believe they are being tabbed as not being schooled in basketball analytics, so they are being passed over for opportunities. Many did not want to speak on the record for fear of jeopardizing their chances for an employment opportunity. The league has taken a dramatic turn over the past decade toward more analytical thinking. [Then] Celtics president of basketball operations Danny Ainge has filled his staff with analytical thinkers, including assistant GM Michael Zarren, who is considered one of the league’s bright minds. But some former players privately believe their basketball acumen from playing is being overlooked because they are not considered analytics freaks.

“That may be part of the problem,” Silver said. “Without weighing in on the balance between real-life basketball experience and analytics, I think these things are a bit cyclical. But there’s a trend right now toward the analytics folks and I think that’s one of the reasons I should have mentioned that in terms of a league training program, to make sure former players or others who are coming up through the basketball line also feel they have that competency in analytics.

“I think ultimately where it will pan out is I think you need both. As I watched in the league it’s gone to all basketball experience and no analytics, and then you move to probably too much analytics, and right now as I look in the league we’re still striving to find that right balance. I think the way we can help ensure that those candidates get a fair hearing, those candidates who aren’t steeped, who didn’t go to MIT, is to ensure they have the type of analytics training that is necessary.”

STEM Topic 3: VOCABULARY

Collective Bargaining Agreement (CBA): A contractual agreement between the National Basketball Association (NBA) and the National Basketball Players Association (NBPA) that outlines the terms and conditions of player contracts, salary caps, trade rules, and other aspects of the league's operations.

Apron: A threshold set above the luxury tax threshold that imposes additional limitations on teams that exceed it. Base Year Compensation (BYC): A provision that applies to players in sign-and-trade deals, preventing teams from manipulating salaries for trade purposes.

Bi-annual exception: A smaller exception to sign players available to teams not exceeding the first apron.

Bird exception: An exception in the CBA that allows a team to exceed the salary cap to re-sign their own free agent.

Bird rights: The rights of a player that allow their team to use the Bird exception to re-sign them even if they exceed the salary cap.

Cap hold: A predetermined salary amount attributed to a free agent that counts against a team's salary cap until the player signs a new contract or the team renounces its rights to the player.

Deferred compensation: Payment that is delayed until a later date, typically in the context of a contract.

Derrick Rose Rule: This rule allows a player coming off their rookie contract to be eligible for a higher maximum salary if they meet certain performance criteria, such as being selected to the All-NBA team or winning MVP awards.

Designated Player: A player who is selected by an NBA team to receive a special contract extension, granting them certain benefits and terms beyond the standard contract restrictions.

Designated Veteran Player Extension (DVPE): An extension offered to a veteran player who meets certain criteria, as specified in the CBA.

Disabled Player Exception: A rule that allows a team to acquire a replacement player when a player is unable to play due to injury or disability.

Early Bird Exception: A lesser form of the Larry Bird exception that allows teams to re-sign their own free agents with certain limitations.

Free Agency: The period during which players who are not under contract with any team can negotiate and sign contracts with new teams. Players become free agents after their contracts expire or if they are released by their previous team.

Hard caps: Salary caps that forbid teams from going above the specified limit.

Incoming Salary Allowed: The maximum total salary of the players that a team can acquire in a trade without violating the salary cap.

Larry Bird Exception: An exception that allows teams to exceed the salary cap to re-sign their own free agents up to the maximum salary.

Loophole: A way of avoiding rules or regulations through technicalities or ambiguity.

Luxury Tax: A financial penalty imposed on teams that exceed the salary cap by a certain amount.

Mid-Level Exception (MLE): A way for NBA teams to sign free agents for more than the minimum salary, depending on the team's salary cap situation.

Minimum salary: The lowest amount of money that a player can be paid.

Non-Bird Exception: An exception that allows teams to re-sign a player to a contract at a specified percentage of their previous salary.

Non-guaranteed: A contract that does not guarantee payment for the full duration.

Non-taxpayers: Teams that do not exceed the luxury tax threshold and are not required to pay the luxury tax.

Offer sheet: A contract offer made by another team to a restricted free agent.

Options: Terms included in a contract that give either the player or the team the right to extend the contract for an additional season at a specified salary.

Outgoing Salary: The total salary of the players that a team is trading away.

Over-38 Rule: A provision in the salary cap regulations that prevents teams from using long-term contracts with older players to circumvent the salary cap. Poached: Stolen or taken away from one team by another.

Prorated: Calculated proportionally based on the amount of time.

Qualifying Offer: An offer made by a team to a restricted free agent that allows them to retain certain rights over the player.

Reinstatement: The act of allowing a player who has been banned or suspended to return to the league and resume playing.

Replacement player: A player who is acquired to replace a disabled player on a team's roster.

Restricted Free Agent: A player who is subject to certain restrictions imposed by their current team, which has the right to match any offers made by other teams to retain the player.

Right of First Refusal: The current team's right to match any offer made to a restricted free agent and retain their services.

Rookie contract: A contract that is signed by a player who is entering the NBA for the first time.

Roster: The list of players on a team.

Salary Cap: The limit to the total amount of money that NBA teams are allowed to pay their players.

Salary matching: The requirement that the salaries of players involved in a trade must be within a certain percentage of each other.

Scale: A system that determines the amount of money a player receives based on their draft position.

Set-off: The ability of a team to reduce the amount they owe a released player if the player signs with another team.

Sign-and-trade: A transaction where a player signs a new contract with their current team and is immediately traded to another team.

Soft salary cap: A salary cap that allows teams to exceed the specified limit but imposes financial penalties.

Stretch provision: A provision that allows a team to spread the remaining guaranteed salary of a waived player over an extended period, reducing the annual salary cap hit.

Subject to: Affected by or dependent on something.

Supermax Rule: A provision that allows teams to offer a designated veteran player a maximum contract extension with higher salary potential, provided they meet specific criteria, such as being named to the All-NBA team or winning MVP awards.

Taxpayer midlevel exception (MLE): An exception that allows teams over the luxury tax threshold to sign free agents for more than the minimum salary.

Taxpaying teams: Teams that exceed the luxury tax threshold and are required to pay the luxury tax.

Traded Player Exception: An exception that allows a team to engage in a trade even if it would result in the team exceeding the salary cap by a certain amount.

Trigger: The point at which a specific rule or limitation is activated or enforced.

Unrestricted Free Agent: A player who is not bound by any contractual obligations and is free to sign with any team.

Veteran contracts: Contracts signed by players who have been in the NBA for several years.

Waivers: A process by which a team releases a player and gives other teams the opportunity to claim the player before they become a free agent.

NBA Salary Cap*

https://en.wikipedia.org/wiki/NBA_salary_cap (ed.)

By Gary Washburn Boston Globe Staff  - June 3, 2017 (Augmented)

*NOTE: The 2023 revision to the CBA was just released in July, 2023. It is a 560 page plus document so the figures there in may not reflect all the revisions. (7/23) - DT

The Salary Cap is the limit to the total amount of money that NBA teams are allowed to pay their players. Like many professional sports leagues, the NBA has a salary cap to control costs and benefit comparative parity. The majority of leagues (NFL, NHL, MLS) have hard caps while the NBA has a soft salary cap. Hard salary caps forbid teams from going above the salary cap. Soft salary caps allow teams to go above the salary cap but will subject such teams to financial penalties.

Defined by the league's Collective Bargaining Agreement (CBA), the cap is set as a percentage of the league's revenue. The cap is subject to a complex set of rules and a host of exceptions. Under the CBA (ended 2022-2023), teams that spend above the cap can be subject to a Luxury Tax.

  • The Salary Cap for the 2023–24 season is set at $136,000, 000.

  • The Minimum Team Salary for the 2023-24 season is $122,400,000 (90% of the cap).

  • The Luxury Tax trigger for the 2023-24 season is $165,000,000.

  • The First Apron trigger is for the 2023-24 season is $172,000,000.

  • The Second Apron trigger is for the 2023-24 season is $182,000,000.

Luxury Tax

A Luxury Tax payment is required of teams whose payroll exceeds the luxury tax trigger level. They are punished by being forced to pay bracket-based amounts for each dollar spent over the trigger level.

While most NBA teams hold contracts valued in excess of the salary cap, some teams have payrolls at Luxury Tax levels. Luxury Tax revenues are normally redistributed evenly among non-tax-paying teams, so there is often a several-million-dollar incentive for owners to keep their payrolls below this level.

Under the current system, tax is assessed at different levels based on the amount that a team is over the Luxury Tax threshold. The scheme is not cumulative—each level of tax applies only to amounts over that level's threshold. For example, a team that is $8 million over the tax threshold will pay $1.50 for each of its first $5 million spent over the tax threshold and $1.75 per dollar for the remaining $3 million. "Repeat Offenders", defined as teams that paid tax in previous seasons, are subject to additional penalties. In the first season, repeat offenders from in all previous three seasons will pay a stiffer tax rate; thereafter, teams paying taxes in three out of four years will be subject to the higher repeater rate.

Once a team exceeds the Luxury tax threshold, it is required to pay a Luxury tax penalty to the league. The amount of the penalty depends on the team's total salary over the threshold and the number of times they have exceeded it in consecutive seasons.

 

First Apron

The first apron is a further threshold set above the luxury tax threshold, and it imposes additional limitations on teams that exceed it. The first apron hits when a team's payroll exceeds $172 million. At this point, the following restrictions are triggered:

  • Teams cannot acquire a player in a sign-and-trade if that player keeps them above the apron

  • Teams cannot sign a player waived during the regular season whose salary was over the $12.2 million midlevel exception (MLE).

  • Salary matching in trades must be within 110 percent, rather than 125 percent for teams not above the apron

  • Teams above the first apron also have limitations on using the bi-annual exception, which is a smaller exception to sign players.

 

Second Apron

All of the penalties for the first level apply to the second level as well, which is triggered when a team's salary exceeds $182.5 million. For the 2023-24 season, team(s) lose access to the $5 million taxpayer midlevel exception (MLE).

At the end of the 2023-24 season, the following restrictions will be added to the second apron.

  • Teams cannot use a trade exception generated by aggregating the salaries of multiple players.

  • Teams cannot include cash in a trade.

  • Teams cannot use a trade exception generated in a prior year.

  • First-round picks seven years out are unable to be traded.

  • A team's first-round pick is moved to the end of the first round if they remain in the second apron for three out of five seasons
     

Luxury Tax Payment Schedule

Screen Shot 2023-07-13 at 2.45.42 PM.png

Exceptions
 

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

"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".

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.

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.

"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.

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.

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.

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.

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.

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.

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.

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).

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.

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).

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."

STEM Topic 03: PROBLEM SET
  1. If a team is a non-repeat offender and is $12 million over the salary cap, how much will it cost them in Luxury tax for the next additional dollar in player salary?

  2. If a player is disabled for the season due to serious injury, what will be the rule constraint assuming the team is over the cap but under the Luxury Tax threshold.

  3. Give three examples of players accepting buyout to go “ring chasing” (join a team with a chance to win the championship). What does the phenomenon of “ring chasing” say about contract length?

  4. Which of these players should you sign for a “supermax” contract?

    At Signing

  • HB                  27pts - 24yrs                         

  • CK                  26pts - 28yrs                         

  • LX                   25pts - 28yrs                         

  • KX                  21pts - 28yrs                         

  • KI                    35pts - 29yrs                         

  • TD                  27pts - 30yrs                         

  • SX                   23pts - 30yrs    
     

   5. Is salary translatable to wins? Using Sports Trac or https://www.basketball-reference.com check the Top five teams (wins-loses) and see if they

       include the four teams with the highest payroll.

​   6. ​If your team is only able to offer the Tax Payer MLE and a competing team was able to offer the full MLE what percentage of income would the

       player have to give-up if he remained with the team?

  7. If your team is $20 million over the cap and is a repeat offender, how much in Luxury Tax would you have to pay for each additional dollar paid          to a player?

  8.  Using the 2011, and 2012 drafts as a guide. If you had a draft pick in the top half (1-15) of the first round;

  • How likely is that player to be with the team two years later?

  • How likely is that player to be with the team five years later?

  • How likely is the player to be in the NBA after five years?

  • How likely is the player to be in the NBA after 10 years?

 

  9.  What do contract buyouts tell you about contract structure? How can a players be worth tens of millions and then suddenly be worth only a 

       million?

 

There are many reasons for a buyout market to appear. The most common cause is to create a win-win deal for both the player and the team. In this case, the team can reduce the cost of paying the player’s salary. On the contrary, the player can go looking for a new opportunity. Usually, there will be playoff candidates or lineups that suit them better.

 

Based on the CBA, the team will have to guarantee the player’s base salary for the remainder of the season. This event takes place on January 10 of each year. That means the players ranked on this date will receive their base salary. It will happen even if their owner exempts or removes them from the team.

 

Therefore, to successfully buy a player’s contract, the parties involved need to discuss to agree on the purchase amount. The team that buys the player’s contract will have to pay a salary lower than the base salary.

 

THE NBA BUYOUT MARKET (2022)

 

  • Andre Drummond signed a maximum contract for the Cleveland Cavaliers at $28.8M per season. They transferred him to the Lakers where he was paid for a salary of $794,536 for the rest of the season.

 

  • Blake Griffin, a six-time All-Star, had his $36.8M contract with the Detroit Pistons and accepted an acquisition. Griffin refunded $13.3M to the Pistons. The Nets will pay Blake Griffin’s $1,229,676.

 

  • Lamarcus Aldridge was coming to the end of his $24M contract with the San Antonio Spurs. He decided to refund $7.25M to facilitate a buyout. $878,340 is the salary that the Nets will pay to of Aldridge for the remainder of the season.

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