Helena Frye
In the context of basketball, the term cap is typically used to refer to the salary cap, which is the limit on the total amount of money that a basketball team can pay their players. The salary cap is determined by the league's collective bargaining agreement (CBA) and is designed to control costs and benefit parity among teams. While some sports leagues have a hard cap that cannot be exceeded, the National Basketball Association (NBA) has a soft cap, which allows teams to go over the salary cap with certain exceptions and penalties.
| Characteristics | Values |
|---|---|
| Definition | A limit or “cap” on how much a team can spend on player salaries |
| Purpose | To control costs and benefit parity |
| Calculation | A percentage of the league's revenue from the previous season |
| Types | Hard cap, soft cap |
| Hard cap | Forbids teams from spending more than the salary cap |
| Soft cap | Allows teams to go over the salary cap but with reduced privileges in free agency |
| Examples | The NBA salary cap, NFL salary cap |
| Exceptions | Cap-room mid-level exception, taxpayer mid-level exception, non-taxpayer mid-level exception, bi-annual exception |
| Considerations | Base year compensation (BYC), luxury tax, supermax rule |
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What You'll Learn
The NBA's salary cap is a soft cap
The NBA salary cap is the limit to the total amount of money that National Basketball Association teams are allowed to pay their players. The NBA salary cap is a soft cap, which means that there are several significant exceptions that allow teams to exceed the salary cap to sign players. This is in contrast to a hard salary cap, which forbids teams from spending more than the amount set by the league.
The NBA's soft cap allows teams to go above the salary cap but subjects them to reduced privileges in free agency. Teams that go above the luxury tax cap are subject to the luxury tax, a tax on every dollar spent over the luxury tax cap. The NBA salary cap is designed to ensure a level playing field by limiting the maximum amount of money a team can spend on player salaries. It is calculated based on the expected basketball-related income for the coming season, which puts it at $140 million for the 2024-25 season.
There are several exceptions to the NBA's soft salary cap that allow teams to exceed the cap to sign players. One example is the mid-level exception (MLE), which allows teams to use a specified maximum amount to sign a player to a contract for up to four years. Another exception is the rookie minimum, which is the figure often given to second-round picks and undrafted players. The rookie minimum rises or falls by whatever percentage the salary cap changes in that season.
The NBA salary cap is subject to a complex system of rules and exceptions, and it is designed to control costs and benefit parity. It is defined by the league's collective bargaining agreement (CBA), which is negotiated between the league and the players' union. The CBA also sets the minimum team salary, which is set at 90% of the salary cap, ensuring that players are fairly compensated.
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Teams that go over the luxury tax cap
The National Basketball Association (NBA) has a soft salary cap, meaning that while a cap exists, there are several exceptions that allow teams to exceed it. For instance, teams can re-sign players already on the team to an amount up to the maximum salary allowed by the league, which is known as the "Larry Bird" exception.
The NBA also has a luxury tax provision, which is a surcharge put on the aggregate payroll of a team that exceeds a predetermined guideline level set by the league. This "tax" is designed to prevent teams in major markets with high incomes from signing the most talented players, thereby destroying the competitive balance necessary for the sport to maintain fan interest. The luxury tax threshold for the 2024-25 NBA season is $170,814,000, and teams generally prefer to stay under this threshold unless they are championship contenders.
The exact fees for going over the luxury tax threshold are determined annually using a complex formula. For example, for $0-5 million above the tax line, teams will pay $1.50 per dollar (up to $7.5 million), and for $5-10 million above the tax line, they will pay $1.75 per dollar (up to $8.75 million). The penalties are more severe for "repeat offenders," which are teams that have exceeded the luxury tax line in three out of the last four seasons.
In the 2023-24 season, only five teams were projected to exceed the luxury tax line. The Clippers and Warriors were the two teams in immediate danger of facing more severe punishments, but both were expected to make moves to avoid that outcome.
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Salary cap and base year compensation (BYC)
The NBA salary cap is the limit to the total amount of money that National Basketball Association (NBA) teams are allowed to pay their players. The NBA features a soft cap, meaning there are exceptions that allow teams to exceed the salary cap to sign players. This is done to allow teams to keep their own players, which, in theory, fosters fan support in each individual city. Soft salary caps allow teams to go above the salary cap, but they are subjected to reduced privileges in free agency.
The salary cap is calculated as a percentage of the league's revenue from the previous season. Under the CBA ratified in July 2017, the cap will continue to vary in future seasons based on league revenues. For the 2024–25 season, the cap is set at $140.588 million.
The term "base year compensation" (BYC) does not show up in the NBA's current CBA, but there are still situations where it is relevant. BYC is a rule that applies to most players who are signed and traded. It intends 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. A BYC player's trade value as outgoing salary is 50% of his new salary or his previous salary, whichever is greater. BYC applies only to players who re-sign with their previous team and receive a raise greater than 20%. It also applies only when (and as long as) the team is over the salary cap.
The NBA has a complex system of rules and exceptions regarding the salary cap. For example, the cap-room mid-level exception is given to teams that were far below the cap to spend cap space on free agents. It can be used to sign contracts no longer than two years, and the projected amount for this exception in the 2022-23 season is $5,329,000. The taxpayer mid-level exception can be used by any team operating above the salary cap, and it offers a lower salary without triggering a hard cap.
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Teams below the second apron
The NBA salary cap is the limit to the total amount of money that National Basketball Association (NBA) teams are allowed to pay their players. The NBA has a soft salary cap, meaning that teams can go above the salary cap but will be subjected to reduced privileges in free agency.
The second apron is a new, additional threshold above the first apron or tax apron, which is a limit to how far teams can spend above the salary cap and luxury tax line without having to pay added penalties. Teams that exceed the second apron face restrictions on trades, free agency, and draft picks. They are also prohibited from combining multiple players' salaries into trades.
The second apron is a reaction to the high-spending teams of the 2010s. Teams that enter the second apron are punished via a new set of harsh penalties, which affect their ability to conduct certain kinds of transactions and maintain a competitive team. Teams that spend above the second apron threshold in multiple years accrue additional penalties that affect future draft picks.
Teams that go above the luxury tax cap are subject to the luxury tax, a tax on every dollar spent over the luxury tax cap. The NBA had a salary cap in the mid-1940s, but it was abolished after one season. The league operated without a cap until the 1984–85 season when a cap was instituted to level the playing field among teams and ensure competitive balance.
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The 2017 CBA's subtle change
The 2017 CBA (Collective Bargaining Agreement) made a subtle change to the determination of maximum salaries. The agreement, ratified in July 2017, changed the way in which maximum salaries were calculated. Previously, under the 2011 CBA, the salary cap was based on players receiving 44.74% of the league's basketball-related income (BRI), while the calculation of maximum salaries used a lower figure of 42.14% of BRI. This discrepancy was eliminated in the 2017 CBA, with the same 44.74% of BRI used for both cap and maximum salary calculations.
The 2017 CBA also introduced a change that may come to be known as "The Jaylen Brown Rule". Under the old collective bargaining agreement, most veterans could only sign extensions that increased their salary by 20% in the first season of a new deal. This 20% limitation prevented the Celtics from extending Brown, a max-caliber player, at his maximum salary. This restriction would have virtually guaranteed that Brown would become an unrestricted free agent in 2024.
The 2017 CBA also changed the way luxury tax brackets are calculated. Under the old system, if a team spent between $1 and $4,999,999 above the tax line, they would owe an additional $1.50 in luxury taxes for each dollar spent. This figure rose to $1.75 for spending between $5 million and $10 million. These brackets will now increase annually by the same amount that the salary cap does. For example, if the cap rises by 5%, these brackets will also increase by 5%. This change makes it harder for teams to reach the highest tax brackets and will lower their tax payments relatively.
The 2017 CBA also added league licensing revenue to the definition of BRI, which is projected to boost the salary cap by a minimum of $2 million. The CBA also changed the way in which first-round draft picks are assigned salaries, with the first overall pick receiving more than the second, and so on. Each contract is for two years, with a team option for a third and fourth year, and built-in raises to compensate for increases in average salary.
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Frequently asked questions
In basketball, "cap" refers to a limit or “cap” on how much a team can spend on player salaries.
A salary cap is a set amount of money that limits what teams can spend on player salaries.
The salary cap is determined by the league and the player’s association and is typically calculated as a percentage of the league's revenue from the previous season.
Yes, there are typically two types of salary caps: hard caps and soft caps. Hard caps forbid teams from spending more than the salary cap, while soft caps allow teams to go over the cap but with reduced privileges or other penalties.
