Guide to Free Agency, the Salary Cap & Trades

✧ The salary cap is a limit to the amount of money that NBA teams are allowed to pay their players. Unlike the NFL, which has a hard salary cap, the NBA has a soft salary cap, which means that teams can go over the cap, but teams that do so have reduced privileges in free agency. They also have to pay a luxury tax, which is a tax on every dollar spent above the salary cap.

The NBA had a salary cap in the mid-1940s, but after only one season, it was removed. Until the 1984-85 NBA Season, teams operated without a salary cap. Once the season began, the salary cap was brought back to level the playing field. Each team was limited to $3.6 million.

To make sure players get their share of basketball-related income, teams have to spend 90% of the salary cap each year.

The max amount a player can sign for depends on the number of years they have played and their team's salary cap total:

A player with 6 or less years of experience - $25.5 million, or 25% of the salary cap (whichever is greater)
A player with 7-9 years of experience - $30.6 million, or 30% of the cap
A player with 10+ years of experience - $35.7 million, or 35% of the cap
However, there is an exception - a player is allowed to sign a contract for 105% of his original contract (all the money in the previous contract plus 5%), even if it’s higher than the salary cap.

✧ Because the NBA has a soft salary cap, there are a number of scenarios during which a team can sign players even if their income exceeds the salary cap. The exceptions are:

Mid-level exception -> click here to find out more

Bi-annual exception -> click here to find out more

Rookie exception -> click here to find out more

Two-way contracts -> click here to find out more

Larry Bird exception -> click here to find out more

Minimum salary exception -> click here to find out more

Traded player exception -> click here to find out more

Disabled player exception -> click here to find out more

✧ First round draft picks are given salaries according to their position in the draft - the first pick earns more than the second, the second more than the third, and so on. Each players' contract lasts 2 years, and there is also a team option for the third and fourth season. Second round picks aren't given a scale, so they can get paid anything from the minimum to the maximum contract amount.

✧ Free Agency is a period in the offseason during which players who have completed their contract decide which team they want to sign with. It begins on July 1 at 12:01am. Players can unofficially agree contracts, but they can’t sign them until July 7, because of a moratorium period–during this time, the NBA calculates its salary cap and luxury tax for the next season. Free agents can get signed until February 7 of the next year, which is the day of the trade deadline. There are two types of free agents:

Unrestricted free agentsUnrestricted free agents are players whose contracts have expired. They are free to sign with any team, and they have full control in choosing which team they sign with.

Restricted free agentsA player is a restricted free agent when his contract has expired, and his team offers him a one year, guaranteed contract (also known as a qualifying offer). Restricted free agents are either former first-round draft picks who have completed the fourth year of their rookie contract, or players who have played in the NBA for three years or less. If the player fits with the former, then his team can offer him a maximum qualifying offer: a contract for the next five seasons.

Once a player hits restricted free agency, other teams can make him offers for at least two years (albeit under specific limitations). When and if they sign a contract offer sheet with another team, their original team has the right to match any offer and keep their players. This is "right of first refusal", and they only have three days to do it, or they lose their player.

✧ Trades need at least two teams, so technically, the max number of teams in a trade is every team in the league (although this is pretty unlikely). Each team in a trade must give something away and takes something back. The things it can give out and take back are:

A future draft pick -> click here to find out more

A player signed to a contract
The draft rights to an NBA prospect
$75,000 or more
Teams below the cap can make trades however they like, as long as they don't end up $100,000 above the salary cap.

✧ Use this section to define any new terms that you're unsure of.

Free agency
Free agent
Free agency moratorium
Salary cap
Stepien Rule