The National Basketball Association (NBA) is one of the most lucrative sports leagues in the world, with players earning millions of dollars every year. However, not all player contracts are created equal. Some players earn significantly more than their peers due to various factors such as their skills, marketability, and team needs.
For instance, take the case of Stephen Curry, a two-time NBA MVP and three-time NBA champion who currently plays for the Golden State Warriors. In 2017, he signed a five-year contract worth $201 million – making him one of the highest-paid athletes in any sport. This is an example of how salary exceptions can affect NBA salaries, as Curry’s exceptional talent and value to his team warranted a higher salary than what would normally be allowed under league rules.
This article provides a comprehensive guide to understanding salary exceptions in NBA contracts for the 2019-2020 season. From explaining different types of exceptions to analyzing real-life examples of their impact on player salaries, this guide aims to provide readers with a deeper understanding of how NBA teams navigate complex financial considerations when signing players to contracts.
Understanding the Salary Cap
Imagine a team in the National Basketball Association (NBA) that wants to acquire three new players for their upcoming season. To do this, they need to understand and work within the confines of the NBA salary cap. The salary cap is a limit on how much teams can pay their players each season. In 2019-2020, the salary cap was $109.14 million per team.
There are several factors that determine the exact amount of money each team has available under the cap. One key factor is projected basketball-related income (BRI), which takes into account revenue from ticket sales, merchandise, and media deals. Another important consideration is whether or not a team chooses to use various exceptions to go over the cap in certain situations.
Exceptions allow teams to sign players even if doing so would put them over the salary cap. For example, there is a mid-level exception that gives teams roughly $9 million to spend on one or more players each year. There is also an exemption for injured players who will be out for at least a month during the regular season.
Despite these exceptions, most teams try to stay under the salary cap because going too far above it can result in financial penalties such as luxury taxes. These taxes penalize teams with incremental fines depending on how much they exceed the threshold.
It’s worth noting that different rules apply when signing rookies versus veteran free agents. Rookies have set salaries based on where they were drafted, while veterans negotiate individual contracts based on market value and other variables.
In summary, understanding the intricacies of the NBA salary cap requires knowledge of projected BRI, exceptions like mid-level and injury exemptions, and potential penalties for exceeding thresholds like luxury taxes. By working within these parameters, teams can build competitive rosters while staying financially responsible.
Here are some possible emotional responses you may experience regarding NBA salaries:
- Admiration: “Wow, NBA players make a lot of money!”
- Disbelief: “I can’t believe teams have to work within such strict financial limitations.”
- Envy: “I wish I could make that kind of money playing basketball.”
- Indignation: “It’s not fair that some players get paid so much while others struggle just to get by.”
| Exception | Amount Available |
|---|---|
| Mid-Level | $9.26 million |
| Bi-Annual | $3.62 million |
| Disabled Player | Varies based on player’s contract |
The table above shows the amounts available under various exceptions for teams looking to sign new players.
Moving forward, it is important to understand how these salary cap rules affect maximum contracts and supermax contracts in the NBA.
Max Contracts and Supermax Contracts
After gaining an understanding of the salary cap, it’s important to explore how NBA teams can exceed this limit in certain situations. For instance, a team may wish to retain one of its star players by offering them a higher salary than what the cap permits. In such cases, exceptions come into play.
Let’s take the example of LeBron James and his contract with the Los Angeles Lakers. At 34 years old, he signed a four-year deal worth $154 million in July 2018. This was possible because the Lakers used their “Larry Bird” exception which allows teams to sign their own veteran free agents for more than the salary cap would normally allow.
There are several other types of exceptions that NBA teams can use to offer contracts that exceed the salary cap:
- Mid-Level Exception: Teams can use this to sign a player for up to $9.2 million per year (in 2019-2020) even if they’re over the salary cap.
- Bi-Annual Exception: This lets teams who are over the cap but under the luxury tax threshold sign a player for up to $3.6 million per year.
- Disabled Player Exception: If a player is injured and will be out for at least one season, their team can apply for this exception which allows them to sign another player for up to half of their injured teammate’s salary or the mid-level exception amount – whichever is less.
- Trade Exception: When trading away a player whose salary is greater than what they receive in return, teams can create a trade exception worth the difference between these two values.
To illustrate how these exceptions work in practice, we’ve created a table below showing some examples from recent NBA seasons:
| Team | Exception Used | Player Signed | Salary |
|---|---|---|---|
| Golden State Warriors | Mid-Level Exception | DeMarcus Cousins | $5.3 million |
| Houston Rockets | Bi-Annual Exception | Austin Rivers | $3.2 million |
| Brooklyn Nets | Disabled Player Exception | Wilson Chandler | $2.6 million |
| Miami Heat | Trade Exception | Jimmy Butler (received) / Hassan Whiteside (traded) | $32.7 million |
As you can see, exceptions play a vital role in NBA team building by allowing them to retain or acquire key players despite salary cap limitations.
In summary, the NBA has several types of exceptions that teams can use to offer contracts above the league’s salary cap. These include the mid-level exception, bi-annual exception, disabled player exception and trade exception. By utilizing these tools effectively, teams can build competitive rosters while maintaining financial flexibility for future seasons.
With this understanding of salary exceptions in mind, let’s move on to explore Bird Rights and Early Bird Rights which provide additional avenues for teams to sign their own players without regard to the salary cap limit.
Bird Rights and Early Bird Rights
As we saw in the previous section, max and supermax contracts allow players to earn salaries that far exceed what other players are making. However, not all NBA players qualify for these types of contracts. In this section, we will discuss another important aspect of NBA salaries: Bird Rights and Early Bird Rights.
Consider a hypothetical example where Player A has been playing for Team X for three years. His current contract is set to expire at the end of the season, but he wants to stay with Team X. If Team X wants to keep him on their roster but they have already used up their salary cap space, they can still offer him a new contract using his Bird Rights or Early Bird Rights.
Bird rights and early bird rights are exceptions to the salary cap rules that allow teams to re-sign certain players without counting their full salary against the team’s overall salary cap. Here are some key differences between Bird Rights and Early Bird Rights:
- Qualification: To qualify for full Bird Rights, a player must play for a team continuously for three seasons without being waived or changing teams as a free agent; for Early Bird Rights, it’s two seasons.
- Contract length: Full Bird Rights allows teams to sign eligible players to contracts up to five years long while Early Bird Rights only allows contracts up to four years long.
- Salary increases: Both full and early bird rights allow teams to increase the player’s salary by 8% per year if re-signed by their original team. For signing with a new team, however, they can only receive annual raises of up to 5%.
To illustrate how these exceptions work in practice, let us take an example from last season (2019-2020). The Los Angeles Clippers wanted to re-sign reigning Finals MVP Kawhi Leonard after acquiring him as a free agent earlier that summer. Since Leonard had just played one season with them, they were only able to use his Early Bird Rights to offer a new contract. However, because he was eligible for the maximum salary under this exception, they were still able to give him a four-year deal worth $142 million.
In summary, Bird Rights and Early Bird Rights are important exceptions to NBA salary cap rules that allow teams to re-sign certain players without counting their full salaries against the team’s overall salary cap. These exceptions can provide financial benefits for both the player and the team while also helping maintain continuity within an organization.
| Type of Exception | Qualification | Contract Length | Salary Increases |
|---|---|---|---|
| Full Bird Rights | 3 seasons with same team without being waived or changing as free agent | Up to 5 years long | Annual increase up to 8% if re-signed by original team; 5% if signing with new team |
| Early Bird Rights | 2 seasons with same team without being waived or changing as free agent | Up to 4 years long | Annual increase up to 8% if re-signed by original team; 5% if signing with new team |
Exceptions to the Salary Cap
Continuing from the previous section, where we discussed Bird Rights and Early Bird Rights, let’s move on to Exceptions to the Salary Cap. Take the example of John Wall, who signed a contract extension with his team in 2017 for $170 million over four years. However, he suffered an injury that has kept him out of the game since December 2018. His current salary is about $38 million per year, which makes him one of the highest-paid players in the NBA.
To help teams deal with situations like this, there are certain exceptions to the salary cap that they can use.
Firstly, there is the Disabled Player Exception (DPE), which allows a team to sign another player if their injured player will be out for at least one full season. The amount of this exception is equal to either half of the injured player’s salary or the mid-level exception (MLE), whichever is less. This means that if John Wall’s team were to apply for DPE, they would have around $9 million extra money to spend on signing a new player.
Secondly, there is the Bi-Annual Exception (BAE), which allows teams to sign one or more players whose first-year salary cannot exceed $3.6 million. Teams can only use this exception once every two seasons and can only offer contracts up to two years long.
Thirdly, there is the Mid-Level Exception (MLE) which was mentioned earlier as being used in calculating DPEs. This exception gives teams an additional amount of money they can use for acquiring free agents each year without breaking salary cap rules. The MLE changes depending on whether a team pays luxury tax or not.
Lastly, there is also an exemption called Trade Exemption which allows them to trade away salaries without receiving equivalent salaries back in return by creating space below their cap limit using part of their unused cap space.
| Exception | Amount available | Requirements |
|---|---|---|
| Disabled Player Exception (DPE) | Up to $9.2 million or the player’s salary, whichever is lower. | Injured player expected to miss entire season |
| Bi-Annual Exception (BAE) | Up to $3.6 million | Can be used only once in every two seasons |
| Mid-Level Exception (MLE) | Up to $10.9 million | Changes depending on whether a team pays luxury tax or not |
| Trade Exemption | Varies based on situation | Created when teams trade away salaries without taking back equivalent salaries |
While these exceptions can help teams deal with unforeseen circumstances like injuries, they also have their own set of limitations and rules that must be followed.
In summary, there are several exceptions available for NBA teams that allow them to sign players even if it means going over the salary cap limit. These exceptions include DPE, BAE, MLE and Trade Exceptions which we discussed above. However, while these exemptions provide some relief from strict salary caps, they come with certain regulations and restrictions.
Moving forward into our next section about Luxury Tax and Its Impact on Salaries…
Luxury Tax and Its Impact on Salaries
Moving on from the exceptions to the salary cap, it is essential to understand how the luxury tax impacts NBA salaries. As a quick example, in 2019-2020, Golden State Warriors were hit with an $11.3 million luxury tax bill for having a payroll of over $130 million.
Luxury tax is not something that teams want to pay as it can significantly impact their financial stability and future flexibility. Here are some ways in which luxury taxes affect NBA salaries:
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Luxury Tax Penalties: Teams that exceed the salary cap by more than a certain amount have to pay an additional dollar-for-dollar penalty called “luxury tax.”
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Repeat Offenders Pay Higher Taxes: Teams that go over the threshold multiple times within a few years must pay even higher penalties.
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Financial Losses for Owners: If team owners continue paying luxury taxes year after year, they may face significant financial losses.
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Salary Cap Holds Back Spending: The fear of crossing into luxury tax territory often compels teams to limit player spending below what might be considered reasonable market value.
Let’s take a closer look at how this works through an illustrative table outlining team expenses for various scenarios:
| Team Payroll | Salary Cap | Luxury Tax Threshold | Paying no Luxury Tax | Crossing Luxury Tax |
|---|---|---|---|---|
| $100m | $109m | N/A | None | None |
| $120m | $109m | N/A | $11m | None |
| $140m+ | $109m | $132m | Overpay + penalty | Cut players |
As seen above, once a team crosses over the luxury tax threshold ($132 million in 2019-20), it has three options – either stop signing new players and stay put; keep adding players but incur heavy financial penalties; or cut players to avoid the tax altogether.
In conclusion, luxury taxes have a significant impact on NBA salaries. The fear of crossing over into paying it compels teams to limit player spending below what might be considered reasonable market value. In the subsequent section about “Salary Buyouts and Stretch Provisions” we will analyze how these measures help teams stay under the salary cap while still signing top talent.
Salary Buyouts and Stretch Provisions
However, it’s not the only exception to consider when examining player contracts for the 2019-2020 season.
Let’s take a hypothetical example of an NBA team with a player who is underperforming and has a contract that extends beyond this current season. The team may want to get rid of that player but still pay them without having their salary count against the team’s salary cap. In this case, they could use what is called a “salary buyout.”
A salary buyout involves negotiating with the player to terminate their contract early while agreeing on a reduced payment amount. This allows the team to free up cap space while also giving the player an opportunity to sign with another team and potentially earn more money overall.
However, there are some restrictions on using salary buyouts. For instance, bought-out players cannot re-sign with their former teams until after one full league year has passed since their original contract was terminated . Additionally, bought-out contracts must be fully guaranteed at the time of negotiation.
Another option teams have is using stretch provisions to spread out payments over several years instead of paying everything upfront. By stretching out payments, teams can lower their annual cap hit and provide themselves with more financial flexibility down the road.
Stretching provision works by taking the remaining balance owed on a player’s contract and distributing it evenly across twice its length plus one additional year. For instance, if a player had $10 million left on his contract for two more years, his team could stretch those payments out over five years instead ($2 million per year).
It’s important to note that just like with salary buyouts, there are rules regarding which contracts can be stretched and how much they can be stretched by . Moreover, any money saved from stretching or buying out contracts does not disappear; it still counts against the team’s salary cap, just over a longer period.
To summarize, luxury tax is not the only exception that can impact NBA salaries. Teams also have options like salary buyouts and stretch provisions to help them manage their finances and free up cap space. However, these methods come with specific rules and restrictions that teams must abide by .
| Player Name | Contract Amount | Guaranteed Money | Buyout Amount |
|---|---|---|---|
| John Doe | $20 million | $16 million | $10 million |
| Jane Williams | $15 million | $12 million | $8 million |
| Mike Johnson | $18 million | $14 million | $11million |
This table shows three hypothetical players’ contract details, including their total amount owed, guaranteed money (money they will receive no matter what), and potential buyout amounts if bought out early. Seeing these figures visually demonstrates how much flexibility teams can gain through using salary buyouts or stretching provisions while also showing the importance of ensuring contracts are structured correctly from the outset.