NBA Economic Terms. An essential dictionary to keep

The clear accounts: Dictionary of economic terms of the NBA. Take notes… 

NBA Economic Terms: Salary cap. Bird Rights. Cap Holds. Not everything is as simple as adding salaries and saying that one NBA franchise is going to have $ 30 million free or that another is going to be above the luxury tax. Many factors influence the financial flexibility of franchises and what they can and cannot offer to free agent players in the summer.

It is necessary to control certain economic aspects of the collective agreement that regulate these matters.

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With all of you, the basic dictionary of NBA economic terms:

Salary cap: The NBA limits the amount of money that teams can pay among all their players as a way to promote competitiveness, but it is a soft salary cap, which can be exceeded in a number of ways. In short, the salary cap is the amount of salaries from which exceptions can only be used to sign free agents. For the next season it is projected to be $ 109 million.

Luxury tax limit: Amount of salaries from which luxury tax begins to be paid and the rules become more restrictive with respect to signing and transferring players. For the next season it is projected to be $ 132 million. Franchises pay an extra for every dollar that is spent over that figure, and then that money is distributed among the teams that are below the luxury tax.

Unrestricted free agent: It is the player who ends his contract and has total freedom to choose his destiny. If you sign with a different team than you were, you can do so for a maximum of 4 years. If you renew with your franchise you can do so for a maximum of 5, although the team can only renew one designated player for that maximum of years each summer. This summer’s example: Kemba Walker.

Restricted free agent: It is that player who ends his contract, but whose previous franchise has the right of first refusal. This means they can match the contract you sign with another team and force you to stay. It happens mainly with those players who end their rookie contract. For an agent to be restricted, the franchise must extend the Qualifying Offer (see below). When a restricted free agent signs a contract with another franchise, the team with the right of first refusal has 48 hours to exercise it. Example from this summer: Kristaps Porzingis.

Apron: Considered an almost hard salary limit, it is an amount of salaries from which salary exceptions, sign and trades must be waived and the rules for transfers become much more restrictive. This figure is a few million over the luxury tax limit and few teams hover around this range each season.

Bird Rights: Bird rights accrue when a player goes three years without changing franchises as a free agent. Therefore, when a transfer occurs they are maintained or also when a player becomes a free agent but renews with the same team. This gives the franchise that has the rights the possibility of renewing the player for any amount up to its maximum even if it is above the salary limit. It also allows the percentages of increase of the contracts to be higher (up to an 8% annual increase). They are named after Larry Bird.

Buyout: A contract termination agreed by both parties. What differentiates it from a layoff or layoff is that the player forgives a portion of the remaining money in exchange for becoming a free agent. A franchise cannot re-sign a player with whom it has made a buyout until after one year or until their original contract has expired, whichever is longer. For example if the Memphis Grizzlies do it with CJ Miles, he could not re-sign with them until the summer of 2020.

Cap hold: Closely related to the two concepts of salary limit and bird rights. It is a “fictitious” quantity.

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That is temporarily placed in the salaries of a franchise when a player ends contract. The higher your contract, the higher this amount will be. It represents the rights the franchise has over that player, while avoiding the trap of signing players as free agents with free money until it runs out and then renewing previous players with bird rights. These cap holds do not disappear until the player signs a contract, either with that franchise or with another, or until the franchise waives its rights to the player. If the player renews, logically the cap hold is replaced by his new salary once he has signed his new contract, although in the case of players with small cap holds whose new contract involves a higher amount, that new salary can be agreed upon but not signed until it is done. other movements previously.

Early Bird Rights: Early Bird Rights are like the previous ones, but are obtained after two years. They do not allow reaching the maximum, but they do allow the player to be renewed with a percentage salary increase (up to 175% of his previous salary or 105% of the average salary of the NBA the previous year, whichever is higher) despite being above the salary limit. The maximum is 4 years, the minimum 2 years, and the annual increases can be up to 7.5%.

Salary space: It is the amount of money that separates a team from the salary limit once the salaries and cap holds that it has in its accounts have been added. It’s what they can offer free agents effectively. We have several online tools that allow us to save the trouble of picking up an Excel and doing the math ourselves. For example, The Capulator by Mark Deeks, or the NBA salary space calculator by The Chronicle From The Couch.

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Mid-level exception: An exception that allows you to sign free agents even if you do not have salary space, being above the salary limit. There are three types: for teams that have been below the salary cap at some point in the summer but have signed players in other ways and placed above ($ 4.7 million and two years maximum), for teams between the salary cap and luxury ($ 9.2 million and four years maximum), and for teams above luxury ($ 5.7 million and three years maximum).

Bi-annual exception (BAE): Salary exception that can only be used once every two years. It cannot be used if the Mid-level has already been used for teams that have been below the salary cap or above the luxury (it can be used with the Mid for those between the salary cap and luxury). Its value is $ 3.6 million for next season, and can be given a maximum of two years. If a team uses the BAE, it cannot go past the apron for the remainder of the season.

Minimum of 12 players: A squad must always consist of a minimum of 12 players under contract. As long as it does not reach that minimum, as many cap holds are placed for the minimum contract ($ 897,198) as necessary until reaching 12. For example: let’s say that on July 1, the New York Knicks have 8 players under contract. In that case, four cap holds would be placed for the minimum that would occupy more than $ 3 million in total.

Offer Sheet: It is the contract proposal signed by a restricted free agent with a different franchise than the one that has its rights of first refusal. It does not become an official contract until the period to be able to match passes or until your original franchisee exercises the right of first refusal.

Moratorium period: During the first days of July, NBA economists make their last calculations on the accounts of the previous year, numbers that, among other things, mark the new salary limit for the league. In this period that begins on June 30 (for the first time this year), franchises and players can negotiate and even reach verbal agreements, but contracts cannot be signed or made official. This period ends on July 6.

Qualifying Offer: Offer for a one-year contract that must be extended to a free agent to become restricted if the necessary preconditions are met. Allows the player to be retained. The franchise can remove it from the table unilaterally until July 13, and the player can sign it and keep that year of contract at any time. Example: Kristaps Porzingis.

Sign and trade (S&T): It is an operation by which a franchise signs one of its free agents and immediately afterwards send him or her transferred to another franchise. The player must give their consent. This makes it easier for a free agent to get to a franchise with no salary space, or for the franchise that is going to lose it to receive something in return. Previously, players were more motivated to do so, since in this way they could achieve one more year of contract, five, instead of the four that could be signed as a free agent at most. At present, that advantage no longer exists, so the only motivation is that the team that interests the player is above the salary limit.

Stretch provision: Option added in the last agreement that allows a player to be cut and distribute the rest of his salary between twice the number of years that remain pending by adding one more. For example: let’s say the Dallas Mavericks use this provision with Courtney Lee. As he has $ 12.7 million more left during a season, by using the stretch provision that money would be distributed over the next three years, having an impact on each of them of $ 4.2 million. The commitment lengthens in time and the player becomes a free agent, but salary space is immediately won. This provision can be used until August 30 at the latest.

Frequent questions

If I have cap space, can I sign free agents from other teams using that money and then renew my own free agents?

No, to avoid this there are cap holds. If you want to use all salary space to sign free agents, you would have to give up the cap holds of your players who finish their contract, that is, give up your rights over them. Once you waive those rights, you cannot use the Bird Exception, for example, to renew them and go over the salary limit.

What is possible is to renounce only certain cap holds. Let’s say for example that I can have $ 30 million free but I have two cap holds that prevent me, one of $ 20 million (player A) and another of $ 10 million (player B). In this case I can waive the rights of player A, whose cap hold occupies $ 20 million, use that money on a free agent (player C), and keep the cap hold of $ 10 million to later renew player B.

I know there is a soft salary limit, a luxury tax and the apron, which would be like a team’s spending ceiling, but … is there a minimum salary that franchises have to reach?

Yes, NBA franchises are “required” to spend at least 90% of the salary cap on wages. For the 2019-20 season that would amount to nearly $ 95 million. But we say “forced” in quotation marks because if they do not reach that limit, the only penalty they have is that the money they lack to get there is distributed among the rest of the players in the squad. For example, the minimum spend two seasons ago was $ 89.1 million, and the Dallas Mavericks stayed at $ 85.1 million. That remaining $ 4 million was shared among the players, as a “tip.”

Usually it is the Players Union that decides how that money is distributed among the members of the squad, being common the use of a scale for disputed matches. Of course, if a player already charges the maximum, he would not receive his share.

Do draft picks have cap hold even though they haven’t signed their contract yet?

First-round elections occupy a cap hold equivalent to 120% of their salary, unless both parties send a letter to the NBA in which they certify that the player will not participate in the league in that season, at which time that cap hold is removed. That is common in first-round elections that remain playing in Europe, for example.

Second-round elections, however, do not have a cap hold.

If a restricted free agent reaches an agreement during the moratorium period, when does the 48-hour period begin?

Restricted free agent offer sheets can be signed during the moratorium period, but the clock does not start ticking until this period ends, on July 6. Therefore, if a free agent signs an offer sheet on July 2, the original franchise would still have until July 8 to decide whether to exercise the right of first refusal. To try to surprise (the player is supposed to want to leave), normally these offer sheets are not signed until July 6.

What happens if one of the parties does not comply with a verbal agreement reached during the moratorium period?

Nothing happens, actually. The NBA allows agreements to be reached but not to materialize before the moratorium period ends, with which either party can break that gentlemen’s agreement. The most recent and media case is that of DeAndre Jordan with the Dallas Mavericks. He reached a verbal agreement with them… and ended up renewing with the Clippers.

Can I use the stretch provision to cut a player and then sign him to a new contract?

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Not immediately. If a team uses the stretch provision with a player, they will not be able to re-sign it until the moment their original contract has ended.

Dictionary of NBA economic terms.

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