The NBA salary cap system is unusually complex. The content of the NBA Labor-Management Agreement (CBA), which is renewed every 7 years or 5 years, is complex in itself. In the summer of 2023, the NBA agreed to a new CBA for the first time in seven years. And what catches the most attention is the newly added upper limit, the ‘Second Tax Appron Line’. Let’s talk together about the four caps that will exist in the NBA salary cap system starting from the 2023-2024 season.
*This article was published in the September 2023 issue of Rookie.
Salary cap cap and exception provisions
The NBA operates a soft cap system. It is a system that contrasts with the hard cap, in which it is absolutely impossible for the entire team’s annual salary to exceed the salary cap upper limit. In the soft cap system, each team is allowed to exceed the salary cap limit, but will be penalized accordingly.
The NBA salary cap ceiling for the 2023-2024 season is $136.02 million. It has nearly doubled compared to $70 million in the 2015-2016 season, seven years ago. This is because the league’s rebound in popularity and the resulting benefits from large broadcasting rights contracts were reflected in the league’s salary cap upper limit.
As mentioned earlier, each team does not receive strong sanctions, such as loss of draft selection rights, even if the salary cap exceeds the upper limit. In fact, as of August 16, 27 of the 30 NBA teams have team salaries exceeding the cap.
However, teams that exceed the salary cap limit have restrictions on recruiting players. The point is that it is impossible to recruit external free agents through general methods.
Therefore, teams looking to recruit free agents often take steps to secure as much free space as possible based on the salary cap upper limit. For example, let’s assume there is Team A with a team annual salary of $100 million. At this time, the reserve that this team has secured based on the 2023-2024 salary cap upper limit is $36.02 million. Therefore, the first year’s annual salary that Team A can offer to a player to recruit an external free agent cannot exceed $36.02 million.
Therefore, teams that have already exceeded the salary cap ceiling or will exceed the salary cap ceiling when recruiting free agents sign players through a method guaranteed within the CBA system.
One of the representative methods is sign and trade. For example, let’s assume that Team A, mentioned above, recruits big free agent B, who will receive an annual salary of $40 million in the first year. However, Team A’s salary cap margin is $36.02 million, which is less than B’s desired first year salary.
In this case, it is possible to negotiate with B’s original team and recruit B through a sign-and-trade. Miami in 2019 is a representative example.
At the time, Miami did not have enough salary cap space to recruit free agents. However, Jimmy Butler wanted to go to Miami, so Miami pursued a sign-and-trade and completed a four-way trade with Butler’s home team Chicago, Portland, and the Clippers. It was a deal that shone brightly for CEO Pat Riley, who had put together a complicated deal.
In the case of Golden State, Kevin Durant’s transfer to Brooklyn was changed to a sign-and-trade format in the summer of 2019, signing D’Angelo Russell while the salary cap was well over the upper limit. Golden State traded Russell for Andrew Wiggins the following season, and Wiggins played a significant role in Golden State winning the 2022 finals.
What is an exception clause?
There is another way for a team that has exceeded the salary cap limit to recruit an outside free agent. This is the use of exception clauses.
The NBA has two free agent signing exceptions. These are bi-annual exceptions and mid-level exceptions.
Bi-Annual exception contracts, as the name suggests, are exceptions that can be used every two years. As of the 2023-2024 season, the first year’s salary of the bi-annual exception contract is approximately $4.51 million. This $4.51 million can be split between two or more players (the bi-annual exception clause can be used for multiple players), and if a player is signed through the bi-annual exception, the maximum contract term is limited to two years. do.
Another exception is the mid-level exception.
The mid-level exception, which is the NBA’s representative exception contract clause, is largely divided into non-tax payer mid-level exception (used by a team that has not crossed the first tax apron) and tax payer mid-level exception (used by a team that has crossed the first tax apron). This use is divided into: As of the 2023-2024 season, teams that have not passed the first tax apron can sign a mid-level exception contract worth $12.4 million. On the other hand, teams that have passed the first tax apron line can only use mid-level exception contracts worth $5 million, which is less than half that amount.
The contract period also varies. The maximum contract term for a non-tax payer mid-level exception contract is 4 years, while the maximum contract term for a tax payer mid-level exception contract is 3 years. The first tax apron line that separates the non-tax payer from the tax payer will be explained later.
Luxury tax line and calculation method
The line located after the salary cap is the luxury tax line. Teams that exceed the luxury tax line must pay luxury tax to the secretariat according to the extent of the excess.
As of the 2023-2024 season, the NBA luxury tax line is $165.29 million, which is $29.27 million higher than the salary cap ceiling ($136.02 million).
Therefore, not all teams have to pay the luxury tax just because they exceed the salary cap limit. For example, let’s assume that Team C’s annual salary is $150 million. Team C exceeds the salary cap limit but does not exceed the luxury tax line, so there is no need to pay luxury tax to the office.
Many NBA teams have no qualms about going over the salary cap, but their attitude is different when it comes to going over the luxury tax line. This is because they have to ‘double spend’ by paying luxury tax on top of the team salary.
In fact, among the 30 teams, the number of teams that exceeded the salary cap upper limit is close to 27, while the number of teams that exceeded the luxury tax line is only 12 teams in total. That’s less than half of the entire league.
In addition, the NBA is choosing a progressive and punitive system for paying luxury tax.
First, if we compare the progressive tax system, it can be seen as similar to the progressive tax on electricity bills. Rather than simply paying the luxury tax to the extent of exceeding the luxury tax line, it is stipulated that the amount exceeding the luxury tax line is divided into sections and that the luxury tax is paid by applying a different multiplier for each section, such as 1.5 times, 1.75 times, and 2.5 times. Progressive luxury tax calculation
method
More than $1 to less than $5 million: Excess × 1.5 times
More than $5 million to less than $10 million: Excess × 1.75 times More than $10
million to less than $15 million: Excess × 2.5 times
More than $150 million to $20 million Less than a dollar: Excess amount × 2.75 times
$20 million or more: Excess amount × 3.5 times + $5 million additional Additional 0.5 times applied for each excess
For example, let’s assume that team D’s annual salary is $180 million.
In this case, how much luxury tax does Team D have to pay? The total amount exceeding the luxury tax line is $14.71 million. The calculation starts from here. The first $5 million is multiplied by 1.5 times, and the subsequent $5 million is multiplied by 1.75 times. And the remaining $4.71 million can be multiplied by 2.5 times. And add this. Then, the amount comes to $28,025,000.
Calculation of team D’s luxury tax with a team annual salary of $180 million.
Amount exceeding the luxury tax line: $14.71 million. Luxury tax메이저사이트
calculation formula
: (5 million The $1,000
penalty imposes a higher luxury tax on teams that previously paid the luxury tax. Teams that have paid the luxury tax for three or more seasons out of the previous four seasons (excluding the previous season) have a much higher multiplier for the luxury tax excess for each section. The calculation method is as follows.
How to calculate progressive luxury tax for teams subject to punitive measures
More than $1 to less than $5 million: Excess × 2.5 times
More than $5 million to less than $10 million: Excess × 2.75 times More than $10
million to less than $15 million: Excess × 3.5 times
More than $150 million to $20 million Less than a dollar: Excess amount × 4.25 times
$20 million or more: Excess amount × 4.75 times + $5 million additional
First Tax Apron and Second Tax Apron
Here, the NBA has a first tax apron line and a second tax apron line that are higher than the luxury tax line.
The tax apron line serves to narrow the range of maneuver available to clubs that pay luxury tax when their team salary exceeds a certain level. In other words, even rich clubs that can spend enormous amounts of money on team salaries and luxury taxes are bound to face significant restrictions on recruiting players due to the existence of the tax apron line.
The first tex apron line was created through CBA in 2017, and the 2nd tex apron line was established through CBA in 2023. As of the 2023-2024 season, the first tex apron line is set at $172.34 million, and the second tex apron line is set at $182.79 million.
First of all, the first tax apron line is generally set at the luxury tax line plus $7 million.
Teams that cross the first tex apron line will be subject to the following sanctions.
First, players cannot be recruited through a Bi-Annual Exception contract, which can be used every two years. The salary scale and offer period of the mid-level exception contracts available here are shortened. As of the 2023-2024 season, teams that have not crossed the first tax apron can offer a mid-level exception contract worth $12.4 million (non-tax pay mid-level exception), but teams that have crossed the first tax apron line can only use mid-level exception contracts (tax payer mid-level exceptions) worth less than half that amount, which is $5 million. The contract period also varies. While the maximum contract period for a non-tax pay mid-level exception contract used by a team that has not crossed the first tax apron line is 4 years, the maximum contract period for a tax pay mid-level exception contract used by a team that has crossed the first tax apron line is 4 years. The maximum contract period is 3 years. Teams that have not passed the first tax apron are granted an exception contract of a larger size and longer duration.
In addition, teams that have crossed the first tex apron line cannot recruit outside free agents through sign-and-trade. At this point, this includes Golden State, Clippers, Phoenix, and Milwaukee. These teams are unable to supply players through sign-and-trade.
Here is not the end. A second tex apron also remains. The second tax apron line is set at $10.45 million plus the first tax apron line. As of the 2023-2024 season, it is $182.79 million. A team that crosses the second tax apron will receive more sanctions than a team that crosses the first tax apron.
First of all, mid-level exception contracts cannot be used at all. In addition, trades that combine the salaries of two or more players are not possible. (Only one player can be sent out in one trade.)
In addition, it is not possible to recruit outside free agent players through sign-and-trade (1) In addition, sending internal free agent players to other teams through sign-and-trade is prohibited.
Teams that have passed the second tax apron are also prohibited from trading using cash. The trade itself, transferring cash to another team, is completely impossible. Here, only first-round picks within the next seven years can be traded.
So far, we have looked at the four lines that exist in the NBA (salary cap ceiling, luxury tax line, first tax apron, and second tax apron).
The NBA, which adopts a soft cap system, does not prevent clubs from making bold investments, but places restrictions on the moves that clubs can make through four lines. Through this, we are reducing the power gap between each team and providing opportunities for various teams to become strong teams. As long as the four lines exist in the NBA, there will continue to be many teams lifting new championship trophies.