This is part three of our CBA Walkthrough series. If you are interested in reading our intro to the walkthrough and a short taste of the concept of exceptions, you can get started here. In that introductory post, we covered the basic principle of exceptions that teams are allowed to make to the salary cap system. You may recall that the NBA uses a slightly modified version of a salary cap that you might find in the MLB. In basketball, the soft cap format is used, which gives NBA clubs the ability to circumvent the cap for various reasons. One reason why the CBA allows teams to do this is to retain their own free agents. In the previous CBA walkthrough, we covered Bird Rights, otherwise known as the Larry Bird Exception. (If you're curious as to why it is named after Larry Legend, be sure to read the intro for a short history lesson.) Bird Rights are a form of an exception, In this post, the mission will be to dive deeper into this concept and explain the other types of exceptions that are specified in the CBA. The league would lose an element of excitement if the Bucks weren't allowed to resign Giannis because they made some sketchy signings in years past. To be clear, teams are penalized for low value signings when it comes to obtaining players outside of the organization. No one is allowed to spend endlessly. The luxury tax makes sure of that. But this Summer, Milwaukee will have the power to retain Khris Middleton, and Malcolm Brogdon regardless of how much money they command in free agency. The Bucks, along with several other teams are being rewarded for being the first team to believe in those players very early on in their respective careers. They will presumably run things back in 2019-2020 in a chase for that elusive NBA championship. The luxury tax will be an enemy, but not the cap itself.
Of course, this exception is just the tip of the iceberg within the rules of the bargaining agreement. General Managers have multiple other tools at their disposal when it comes to massaging the soft cap. How else will the 30 entities of the league bolster their squads to reach a higher win total next season? You may be surprised at how many avenues actually exist. It's time to begin uncovering each of them along with their advantages/disadvantages.
This one is pretty straightforward. All teams are permitted to sign newly drafted rookies to a rookie scale deal, regardless of how far over the cap they may be. These deals typically feature two guaranteed years, followed by two years where the team has the power to pick up the option or decline it. This is one reason why draft picks, especially first rounders are so valuable and are basically mandatory when sending out high profile players in a trade. They might be the biggest market inefficiency that exists in basketball, because they are extremely cost controlled assets. If you are lucky enough to land a rookie that can come in on day one and be a net positive on the court, they immediately become a bargain contract since they can be signed over the cap and they have a low cap hit through year four of their careers.
Ben Simmons has been a member of the Philadelphia 76ers for three years now, but he has vastly outperformed the perimeters of his rookie contract. Even though it is expensive by rookie scale standards at an average yearly salary of $6.6 million, he has doubled and tripled that value his two healthy seasons by producing at an All-Star level. Currently, the Miami Heat have a payroll of $143 million, which is $11 million over the tax and $50 million over the salary cap line. Although they signed their #13 pick Tyler Herro to a rookie contract worth $17 million over four years, it is well within the boundaries of the rules. However, this is where a downfall of a high draft pick comes into the picture. Since the Heat are deep into luxury tax territory, they are facing a penalty to add on even a relatively small $3.6 million onto their books for '19-'20. Tax teams have to be extra mindful of the pick they hold any given year because they could result in extra payments that could handicap the team from making roster moves to improve the roster. Each team has their own 1st and 2nd round pick, unless it is traded away in a transaction involving another team. If organizations aren't careful, these picks that often don't mean as much to a winning team can result in cash strapped teams unable to make a big free agent splash and get over the hypothetical hump. One key method teams use to add key free agents is the Mid-Level Exception.
If you follow free agency with any sort of regularity each Summer, you've most likely already heard this term used quite a bit. In the world of contract lingo, this is probably the most popular term other than 'salary cap' and 'luxury tax.' There is a predetermined amount of money teams can use to sign free agents and that amount goes up or down each year, depending on the salary cap. There are three levels of MLE that are reliant on whether or not a team has any cap or tax space:
1. Non-Taxpayer Mid-Level
Largest Mid-Level Exception with a reported value of $8.6 million in 2018-2019
Only available to teams below the luxury tax threshold
Maximum contract length of four years
2. Taxpayer Mid-Level
Handicapped Mid-Level Exception with a reported value of $5.3 million in 2018-2019
Becomes an option for teams over the luxury tax threshold
Maximum contract length of three years
3. Room Mid-Level
Smallest Mid-Level Exception with a reported value of $4.4 million in 2018-2019
Available to teams below the salary cap line
Maximum contract length of two years
Teams only have access to one of these three exceptions each year. Once one has been used, the others are not available until the following year. They also cannot be combined in any way. In addition to stiff tax penalties, the luxury tax also strips the Mid-Level of much of it's value for those that cross the line. As displayed above, the taxpayer mid-level is 61% less than non-taxpayer mid level. For those who are looking to resign players with limited bird rights, the mid-level is typically a good option.
The Room Mid-Level exception is not the flashiest method of signing players, but teams with an abundance of cap space could find it handy to bring in rotation level players.
This exception is an additional weapon that can be used to sign players worth just more than the league minimum. More on that in the following section. The total value comes in even lower than the room mid-level exception at $3.3 million for the 2018-2019 season. The main component of this exception that separates it from the others is the fact that it cannot be used every year, hence the name 'Bi-Annual.' The maximum contract length for a player under this type of signing is two years.
Minimum Salary Exception
There is a baseline salary for a NBA player that varies in value depending on how many years of service a player has at that point in time. This can range from $838,000 for a player with no years of experience, (aka a rookie) all the way up to a $2.4 million starting salary for an individual with 10+ years of experience. These numbers are based on the 2018-2019 season salary cap number. They will most likely increase for next season, since the salary cap number will be higher. We typically see older players sign these type of contracts when they are looking for a chance to join a title contender, but they don't have the room to sign that player to a deal of proper value. Otherwise, this is a avenue for teams to offer a deal to borderline NBA players looking for an opportunity to prove they belong in the league. Minimum deals are one year in length more often than not, but technically they can last up to five years.
The last couple exceptions are not used all that often. They have very specific conditions and it's rare that we see all of them met.
1. Disabled Player Exception
A team is granted this exception if a player on their roster suffers an injury that will keep them off the floor for an entire season. (The CBA specifies that it has to be at least until June 15th of the following year)
It is worth either half of the injured player's salary, or what the league has estimated to be the average salary
Teams must apply for this exception and be granted access
Can only be used during a limited time frame before expiring
If a player has previously been suspended for violating league drug use rules, or committed some other violation that merits being suspended for an extended period of time, they can be reintroduced to the league on either their previous salary, or the league average, whichever is less.
Can last up to four years with 5% raises each season
And these are the major details you should know concerning the exceptions portion of the CBA. They are quite literally exceptions to the general concept of a salary cap, but they are used frequently to shore up NBA rosters across the league. Competitive balance and cohesion wouldn't be what it is in the sport without this key principle.
*Specifics on each of these concepts are attributed to Larry Coon and his insightful CBA FAQ.*