NEW YORK >> Free agency in the NBA can be so complicated that even teams mess it up sometimes.
The Houston Rockets and Nene had to negotiate two deals because it turned out the first contract they agreed to wouldn’t have been legal in NBA circles.
All the talk about salary caps and luxury taxes is when the game of basketball becomes a business. It’s one of the reasons more and more front offices are being led by former stat analysts instead of former stat stuffers.
So now that free agent signings have commenced, here’s a look at the salary cap, how it’s determined, and how teams get around it:
Why are deals that were done days ago being announced today?
The NBA has a moratorium period during which teams and players can negotiate and agree to deals, but nothing can be completed until the moratorium ends, which is now the afternoon of July 6. The salary cap used to be computed during the moratorium and announced just before it ended, which was sometimes confusing to teams in trying to negotiate contracts without knowing exactly how much they could spend. The cap is now announced when free agency opens on July 1.
How is the salary cap determined?
It’s a formula based on the projected basketball-related income of that year. For the 2017-18 season, the cap has been set at $99.1 million. That’s the highest it’s ever been, though it didn’t take anywhere near the huge leap of a year ago following the extension of the league’s national TV deals. As a result, teams haven’t spent quite as extravagantly — or perhaps foolishly — as last July.
Are there penalties for exceeding the cap?
Yes, there are penalties. And they can be severe, depending on how much a team goes over the cap and how often. Teams pay a luxury tax this year if they exceed $119 million. It starts with $1.50 for every $1 they are over, and rises at various levels from there if they soar $5 million or more past the tax. But that starts at $2.50 for every $1 if a team is a “repeater,” having been a taxpayer for the previous three seasons.
Is $99.1 million the most each NBA team can spend in payroll next season?
No, teams can exceed the cap. Unlike the NFL, the NBA has what’s considered a “soft” cap, allowing teams to exceed the cap through the use of various spending exceptions. In some cases, the more a team spends, the bigger its tax break. Teams can use one of three mid-level exceptions this season: There is an $5.2 million exception granted to teams with payrolls exceeding $119 million, an $8.4 million exception for teams with payrolls under $119 million, but over the $99.1 million cap; there is a $4.3 million exception for teams with a payroll under $99.1 million.
Will teams that signed players to big free agent deals now have to make trades because of the luxury cap?
That’s a yes and no answer. Yes, if teams that are in danger of paying the luxury tax want to avoid penalties, they will have to make deals. The answer would be no if teams don’t mind paying the luxury tax. Before signings picked up momentum this afternoon, there were two teams with payrolls over the $119 million payroll that triggers the luxury tax — Cleveland and Portland. Once free agency ends, there likely will be several more. But teams have the upcoming season to adjust payrolls via trades, buyouts and other moves as the luxury tax won’t kick in until the end of the 2017-18 season since it is based on players’ salaries.
What does the cap have to do with player salaries?
Veteran players can get a percentage of the cap to determine the first year of their salaries in a contract. For a player who has been in the league 10 or more years, that can be 35 percent of that season’s salary cap. The cap doesn’t really impact contracts for rookies or minimum-salary players. Their salary levels are determined.
How did the Warriors sign Nick Young after giving Stephen Curry a $200 million deal and re-signing Kevin Durant?
The Warriors will be one of those teams over the cap once all their deals are completed. The reigning champs went on a spending spree with Curry’s big deal, re-signing Durant, Andre Iguodala, Shaun Livingston and everything else they’re doing. Their payroll will exceed $119 million, so they will use the $5.2 million mid-level exception available to them to slot in Young.
Are only legitimate championship contenders willing to pay the luxury tax?
Not necessarily. Portland, which is paying a combined $50 million next season to guards Damian Lillard and CJ McCollum, gave big deals during last summer’s spending spree to Evan Turner and Allen Crabbe. The Trail Blazers are looking at a payroll of more than $130 million next season for a team that didn’t even win a playoff game.
What’s the benefit of staying under the cap?
Besides being in position to sign players without using exceptions, it helps facilitate trades. A team over the cap acquiring a player has to send back salaries that match within a certain limit. But the Utah Jazz needed only deal a first-round pick to Minnesota to get Ricky Rubio late last month because they were under the cap.
What’s the benefit of staying under it this year?
To be ready for a potentially loaded 2018 class that could include the likes of LeBron James, Durant, MVP Russell Westbrook, Chris Paul, Paul George, Carmelo Anthony, Dwyane Wade, Isaiah Thomas and DeMarcus Cousins. That’s worth saving money for.