1. What is a salary cap?  Why have one?
   
 
2. What is a soft cap?  What is the difference between a soft cap and a hard cap?  Which does the NBA have?
   
 
3. Why have a soft cap?
   
 
4. What is the Collective Bargaining Agreement?
   
 
5. How long has the current CBA been in effect?  When will it expire?
   
 
6. They came to an amicable agreement in 2005.  What happened in 1999?
   
   
7. What changes did they make in the 2005 CBA?
   
 
8. What percentage of revenues do the players receive?
   
 
9. Has there always been a salary cap?
   
   
10. How is the salary cap set each year?
    
 
11. What are the players' salary restrictions?
    
 
12. Are there exceptions to the maximum salary?
    
   

13. What is included in Basketball Related Income (BRI)?
    
 
14. Exactly what is included when computing total team salaries?
    
 
15. How does the escrow system work?  What is it for?
    
 
16. What is the "luxury tax?"  Why does it exist?  How is it determined?  Who pays it?  
    
    
17. Who gets the escrow and luxury tax money?
    
    
18. What is the luxury tax amnesty provision?
    
 
19. Are there exceptions to the salary cap?
    
 
20. How do exceptions count against the cap?  Does being under the cap always mean that a team has room to sign free agents?  Do teams ever lose their exceptions?
    
 
21. If a team has more than one exception available to sign a particular player, are there any rules regarding which one it has to use?
    
 
22. Can a team circumvent the salary cap by paying a player less but arranging for an affiliated company to also pay him, perhaps by way of an endorsement contract?
    
 
23. Do players and teams ever have under-the-table agreements?  What happens when the league finds out about them?  Is this what happened with the Timberwolves and Joe Smith?
    
 
24. How is "average salary" defined?
    
 
25. How long must a player be with one team before the Larry Bird exception can be used?
    
 
26. Why a three-year wait before gaining Bird rights?
    
 
27. Does the Larry Bird exception mean that free agents can be signed and not count against the cap?
    
 
28. I just saw that a team signed a player for more money than it has under the cap.  It was another team's free agent, so the Larry Bird exception wasn't used.  What gives?
    
 
29. Can a team sign all the free agents it wants (up to the cap limit) and THEN re-sign its own free agents using the Bird exception?
    
 
30. How much do free agents count against their team's salary cap?
    
 
31. Why do free agents continue to count against a team's cap?
    
 
32. When do free agents stop counting against the team's cap?
    
 
33. What does renouncing a player mean?
    
 
34. Can the renouncement be renounced?  In other words, can a team un-renounce a player and then sign him using a Bird exception?
    
 
35. Let's say a team arranges for all of its players to become free agents at the same time.  If they renounce everybody, do they then have a salary total of $0 and a full cap under which to work?
    
 
36. What is restricted free agency?
    
    
37. What is the "Gilbert Arenas" provision?
    
    
38. Haven't some restricted free agents gotten away anyway?  How did this happen?
    
    
39. What if a restricted free agent has no interest in staying with his original team?  Is there any way he can force the issue?
    
 
40. Does a team receive compensation when another team signs their free agent, like in some other sports?
    
   

41. First round draft picks operate under a different set of rules?
    
 
42. What if the team and player can't agree to a contract? What options does the player have?  How long does the team keep his draft rights?
    
 
43. Do draft picks count against the team's salary cap? If so, how much?
    
 
44. What if a team likes its first round pick and wants to sign him, but either feels he isn't worth the scale salary or doesn't want to commit to a long contract?
    
 
45. If a first round draft pick is renounced, is he still bound to the salary scale for a first round pick?
    
 
46. Is there a limit to the length of a contract or the raise a player can receive?
    
 
47. Are raises compounded? In other words, is each raise a percentage of the previous season's salary?
    
 
48. Are there restrictions based on a player's age?
    
    
49. What is the Over-36 Rule?
    
 
50. What are option clauses?  What kind of option clauses are there?
    
 
51. Can existing contracts be extended?
    
 
52. Can existing contracts be renegotiated?
    
 
53. How do retired players count against the cap?
    
    
54. What are waivers?
    
    
55. Do released players count against the cap?  What is set-off?
    
 
56. Do injured players count against the cap?
    
 
57. What about suspended players?  How do they count against the cap?  Can teams suspend players for any reason?
    
 
58. How do players who die count against the cap?
    
 
59. What is a contract buy-out?
    
 
60. How do buy-outs affect a team's salary cap?
    
 
61. Can incentives be built into a contract?  How do they count against the cap?
    
 
62. How about signing bonuses?  Are they allowed?  How do they count against the cap?
    
 
63. Are teams really competing on a level playing field?  Since the tax rate is different in the different states and Canada, don't the teams in a more "tax friendly" state have an advantage over the other teams?
    
 
64. What roster size limits exist?  What is the Inactive List?  What is Injured Reserve?
    
 
65. What is a 10-day contract?
    
 
66. What is the NBA Developmental League (NBADL)?
    
   

67. What are the rules regarding trades?
    
    
68. What is the Traded Player exception?
    
    
69. What is a non-simultaneous trade?
    
   
70. How are minimum-salary players handled in trades?
    
    
71. How are draft picks handled in trades?
    
 
72. Can exceptions be combined when making trades?
    
 
73. What is "Base Year Compensation?"  How does base year compensation affect trades?  Why does it exist?
    
 
74. How does a base year player's salary count against the team's salary cap?
    
 
75. Whenever I read about prospective trades involving base year players, they say a third team must get involved.  Why?  Can't a base year player be traded in a two-team trade?
    
 
76. Can a free agent be signed and immediately traded?
    
 
77. Can a team sign a player using the sign-and-trade rule and then say, "Ha ha, we fooled you.  We're not trading you!"?
    
 
78. Why would teams or players want to do a sign-and-trade?
    
 
79. Sign-and-trade looks like a win-win proposition. But some players have signed smaller contracts as free agents, rather than do a sign-and-trade.  Why?
    
 
80. When can a team trade a free agent it signs?  Do they have to keep him forever?
    
 
81. Can a team trade the rights to a free agent, so the other team will inherit his Larry Bird rights?
    
 
82. Can cash be included as part of a trade package?
    
 
83. Can players be given a bonus when they are traded?
    
 
84. How do trade bonuses affect the salary cap and trades?
    
 
85. When can't a player be traded?  Can players be given "no-trade" clauses in their contracts?
    
 
86. I keep hearing about teams wanting to acquire "ending contracts" in trades.  What are they, and why are they so valuable?
    
 
87. Can teams find loopholes in the CBA and make trades that were never intended to be allowed?
    
   

88. What is the trading deadline?
    
 
89. What is the July Moratorium?
    
 
90. Are contracts always guaranteed?
    
 
91. What is tampering?
    
    
92. How much are players fined for technical fouls and ejections?  Where does the money go?
     
    
93. How does it work when the league expands?
    
 
94. How do I find out the salary for a specific player?
    
    
95. The league instituted a dress code for players.  Do they have the right to do that?
 
96. Are there other must-read web sites for the budding capologist?
    
 
97. What are the important CBA-related dates each season?
    
 
98. Can I get a copy of the actual Collective Bargaining Agreement?
    
 
99. I see reports in the newspaper or on the Internet that would be impossible if everything you say here is true.  Is this FAQ wrong?
    
    
100. What if this FAQ really is wrong?  How authoritative is this FAQ?
     
 
101. Can I e-mail you with other CBA-related questions?
     
 
102. Can this FAQ be reproduced or distributed?  Can I link my web page to it?
     
     
103. Can you translate this FAQ into (name of language)?  I'll even translate it for you!
     
     
104. How should this FAQ be cited?
     
     
105. Where can this FAQ be downloaded?
     

Copyright Notice

Index

Revision History

The evidence bears this out: For the 2001-02 NBA season, the correlation between team payroll and regular season wins was about 0.13.  In other words, there is nearly no correlation between salary and wins.  By comparison, MLB (with no salary cap) had a much stronger correlation of 0.43 for its 2002 season.

The CBA defines the salary cap, the procedures for determining how it is set, the minimum and maximum salaries, the rules for trades, the procedures for the NBA draft, and hundreds of other things that need to be defined in order for a league like the NBA to function.

Incidentally, the CBA is also what prevents the NBA from being in violation of antitrust laws. Many of the NBA's practices (salary cap, draft, etc.) would violate the Sherman act were the CBA not arrived at through collective bargaining.

• Certain types of collusion (Players Association may terminate).
  
  
• National TV revenue drops significantly in the next television agreement (league may terminate).
  
  
• Certain "force majeure" events (such as war or terrorism) make it impossible or economically impractical for the league to fulfill the agreement (league may terminate).
  
  
• Certain provisions of the CBA are struck down in court (either side may terminate).
  
  

There is also an escrow system that helps to limit the money the players receive to a specific percentage of revenue.  See question number 15 for details.

The "modern" NBA salary cap began in 1984-85, at $3.6 million. It made steady but gradual increases of around $1-2 million each season until 1994-95, when it was $15.964 million. Armed with a big TV contract from NBC, the salary cap jumped to $23.0 million in 1995-96, and increased to $26.9 million in 1997-98, the last season of the 1995 CBA (a 747% increase in 13 years).  The ABC/ESPN TV contract which took effect with the 2002-03 season provided $4.6 billion over six years, but less in 2002-03 than NBC paid in 2001-02.  As a result, the salary cap went down for the first time ever in 2002-03.

Season	Defined percentage of BRI	Actual salary cap
2005-06	49.5%*	$49.5 million ($37.125 million for the Charlotte Bobcats)
2006-07	51%	$53.135 million
2007-08	51%	$55.63 million
2008-09	51%	$58.68 million
2009-10	51%
2010-11	51%
2011-12	51%

* The league and Players Association agreed to use a figure of $49.5 million for the 2005-06 cap, rather than the calculated figure (which would have resulted in a salary cap of $50.9 million).

At the other end of the spectrum there is a minimum team salary, which is defined as 75% of the salary cap.  Any team that doesn't spend at least that much is surcharged at the end of the season, and that money is given to the players.  In practice, most teams' salaries will be higher than the salary cap amount.

 

Years in NBA**	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	2011-12
0	$398,762	$412,718	$427,163	$442,114	$457,588	$473,604	$490,180
1	$641,748	$664,209	$687,456	$711,517	$736,420	$762,195	$788,872
2	$719,373	$744,551	$770,610	$797,581	$825,497	$854,389	$884,293
3	$745,248	$771,331	$798,328	$826,269	$855,189	$885,120	$916,100
4	$771,123	$798,112	$826,046	$854,957	$884,881	$915,852	$947,907
5	$835,810	$865,063	$895,341	$926,678	$959,111	$992,680	$1,027,424
6	$900,498	$932,015	$964,636	$998,398	$1,033,342	$1,069,509	$1,106,941
7	$965,185	$998,967	$1,033,930	$1,070,118	$1,107,572	$1,146,337	$1,186,459
8	$1,029,873	$1,065,918	$1,103,225	$1,141,838	$1,181,803	$1,223,166	$1,265,976
9	$1,035,000	$1,071,225	$1,108,718	$1,147,533	$1,187,686	$1,229,255	$1,272,279
10+	$1,138,500	$1,178,348	$1,219,590	$1,262,275	$1,306,455	$1,352,181	$1,399,507

And here are the league-wide maximum salaries:
 

Years in NBA**	Defined maximum salary	2005-06	2006-07	2007-08	2008-09
0	$9,000,000 or 25% of cap*	$12,000,000	$12,455,000	$13,041,250	$13,758,000
1	$9,000,000 or 25% of cap*	$12,000,000	$12,455,000	$13,041,250	$13,758,000
2	$9,000,000 or 25% of cap*	$12,000,000	$12,455,000	$13,041,250	$13,758,000
3	$9,000,000 or 25% of cap*	$12,000,000	$12,455,000	$13,041,250	$13,758,000
4	$9,000,000 or 25% of cap*	$12,000,000	$12,455,000	$13,041,250	$13,758,000
5	$9,000,000 or 25% of cap*	$12,000,000	$12,455,000	$13,041,250	$13,758,000
6	$9,000,000 or 25% of cap*	$12,000,000	$12,455,000	$13,041,250	$13,758,000
7	$11,000,000 or 30% of cap*	$14,400,000	$14,946,000	$15,649,500	$16,509,600
8	$11,000,000 or 30% of cap*	$14,400,000	$14,946,000	$15,649,500	$16,509,600
9	$11,000,000 or 30% of cap*	$14,400,000	$14,946,000	$15,649,500	$16,509,600
10+	$14,000,000 or 35% of cap*	$16,800,000	$17,437,000	$18,257,750	$19,261,200

* whichever is greater.  They use a different cap calculation to determine the maximum salaries, which is based on 48.04% of projected BRI.  For example, even though the actual salary cap for 2005-06 is $49.5 million the 0-6 year maximum salary is $12 million, not $12.375 million.  Note that as with the salary cap itself, they appear to have used hard figures for 2005-06, rather than applying their formula.

** A player is credited with a year of service for each season in which he is on a team's active list or inactive list for at least one day during the regular season.

Players' maximum salaries are never less than 105% of their previous salary.  For example, a ten-year veteran who earned $20 million in 2006-07 has a maximum salary of $22.1 million in 2007-08, even though that is above the league-wide maximum.  A free agent does not need to remain with the same team in order to receive 105% of his previous salary, although the team that signs him is subject to the same salary cap restrictions as with any other free agent.

In addition, up to 30% of a player's compensation can be deferred.  Deferred compensation is included in team salary in the season in which it is earned, not the season in which it is paid.

When a player has been in the NBA for three or more seasons, and is playing under a one-year, ten-day or rest-of-season contract, the league actually reimburses the team for part of his salary - any amount above the minimum salary level for a two-year veteran.  For example, in 2005-06 the minimum salary for a two-year veteran is $719,373, so for a ten-year veteran, with a minimum salary of $1,138,500, the league would reimburse the team $419,127.  Only the two-year minimum salary is included in the team salary, not the player's full salary.  They do this so teams won't shy away from signing older veterans simply because they are more expensive when filling out their last few roster spots.

First round draft picks have a more restrictive salary scale, based on their draft position (see question number 38 for more information).

• Regular season gate receipts
  
  
• Broadcast rights
  
  
• Exhibition game proceeds
  
  
• Playoff gate receipts
  
  
• Novelty, program and concession sales (at the arena and in team-identified stores within proximity of an NBA arena)
  


• Parking
  
  
• Proceeds from team sponsorships
  
  
• Proceeds from team promotions
  
  
• Arena club revenues
  
  
• Proceeds from summer camps
  
  
• Proceeds from  non-NBA basketball tournaments
  
  
• Proceeds from mascot and dance team appearances
  
  
• Proceeds from beverage sale rights
  
  
• 40% of proceeds from arena signage
  
  
• 40% of proceeds from luxury suites
  
  
• 45% - 50% of proceeds from arena naming rights
  
  
• Proceeds from other premium seat licenses
  
  
• Proceeds received by NBA Properties, including international television, sponsorships, revenues from NBA Entertainment, the All-Star Game, the McDonald's Championship and other NBA special events.

• Salaries of all active and inactive players, including likely bonuses.
  
  
• Salaries paid or payable to waived players, minus any set-off amounts (see question number 55).
  
  
• Any salary still being paid to retired players (see question number 53).
  
  
• Amounts paid or expected to be paid in conjunction with certain grievances.
  


• Salaries in contracts that have been agreed to but not yet executed (i.e., verbal agreements or agreements pending physicals).  Note: During the July Moratorium (see question number 89), teams may not enter into verbal or written agreements.  Therefore any agreements that are stuck during the moratorium are still characterized as negotiations, and do not count as team salary.
  
  
• A percentage of the previous salary of unrenounced free agents (see question number 30).
  
  
• Salaries offered in offer sheets (see question number 36).
  
  
• The "scale" amount for the team's unsigned first-round draft pick(s) (see question number 43).  This amount begins applying to the team's team salary immediately upon selection in the draft.  However, this is not the same as his trade value (see question number 71).
  
  
• A roster charge if the team has fewer than 12 players (players under contract, free agents included in team salary, players given offer sheets, and first round draft picks).  The roster charge is equal to the rookie minimum salary for each player below 12.  The roster charge only applies during the offseason.
  


• The combined amount of any Mid-Level, Bi-Annual, Disabled Player (see question number 19) or Traded Player exceptions (see question number 69) available to the team (see question number 20), if the team is under the salary cap.  (Teams may renounce these exceptions, in which case they no longer are included in team salary.)
  

• Salaries of players selected in an expansion draft (see question number 93) and waived by the expansion team prior to the start of the season.
  
  
• Salaries of some players with long-term or career-ending injuries or illnesses (see question number 53).
  
  
• Salaries from summer contracts.
  
  
• 50% of salary not paid to players who were suspended by the league.  For example, if a player is signed for $10 million, but is suspended by the league for exactly half the season, then he loses $5 million.  His team's team salary includes the $5 million he actually received, plus 50% of the $5 million he lost due to the suspension ($2.5 million), for a total of $7.5 million.
  
  
• Salary not paid to players due to set-off (see question number 55).
  

• The designated percentage increases to 57.5% in any year in which BRI exceeds the 2004-05 BRI* by more than 30% ($3.948 billion).
  
  
• The designated percentage increases to 58% in any year in which BRI exceeds the 2004-05 BRI* by more than 60% ($4.859 billion).
  

* BRI was $3.037 billion in 2004-05.

In order to keep salaries & benefits at or below the designated percentage, money is withheld from players' paychecks and deposited into an escrow account.  At the end of each season they compare the league-wide salaries & benefits to the designated percentage of BRI to see if there was an overage.  If there was not an overage, then all of the money in escrow (i.e., the full value of their contracts) is given to the players.  But if there was an overage, then the overage amount is returned to the owners (which lowers salaries back to the designated percentage), and the players get the remainder (if any).  The amount withheld is a designated percentage of salaries:

	Example A	Example B	Example C
BRI:	$3.000 billion	$3.000 billion	$3.000 billion
Designated percentage of BRI:	57%	57%	57%
Designated percentage amount:	$1.710 billion	$1.710 billion	$1.710 billion
Salaries:	$1.600 billion	$1.710 billion	$1.810 billion
Benefits:	$100 million	$100 million	$100 million
Salary held in escrow (%):	10%	10%	10%
Amount held in escrow:	$160 million	$171 million	$181 million
Overage (amount salaries & benefits exceeded designated percentage):	$0	$100 million	$200 million
Returned to owners (overage amount):	$0	$100 million	$191 million
Given to players (remainder of escrow):	$160 million	$71 million	$0

In Example A, salaries & benefits are within the designated percentage, so the escrow money isn't needed and the players get to keep it all.  In Example B the escrow system successfully lowers salaries back down to the designated percentage, and the players get to keep what's left.  In Example C the escrow money isn't enough to lower salaries back down to the designated percentage.  The players can't lose more than 10% of their salary and benefits, so the owners are owed $191 million.  However only $181 million was deposited into escrow, so the players still owe $10 million, which represents 10% of benefits.  The additional $10 million is deducted from player salaries the following season.

Here is what actually happened in each season:

	2005-06	2006-07	2007-08
BRI:	$3.174 billion	$3.384 billion	$3.519 billion
Designated percentage of BRI:	57%	57%	57%
Designated percentage amount:	$1.809 billion	$1.929 billion	$2.006 billion
Salaries:	$1.890 billion	$1.971 billion	$2.054 billion
Benefits:	$70 million	$113 million	$115.0 million
Salary held in escrow (%):	10%	9%	9%
Amount held in escrow:	$189 million	$177 million	$184.9 million
Overage (amount salaries & benefits exceeded designated percentage):	$151 million	$155 million	$163.4 million
Retained by NBA (overage amount):	$151 million	$155 million	$163.4 million
Given to players (remainder of escrow):	$38 million	$22 million	$21.5 million

Question number 17 describes how the escrow money is distributed to the teams.

• Any "unlikely bonuses" (see question number 61) that were actually earned are added to the team salary.
  
  
• Any "likely bonuses" (see question number 61) that were not earned are subtracted from the team salary.
  
  
• Any trade bonuses (see question number 83) for players received in trade after the last season game are added to the team salary.
  
  
• Any amounts from settlements of grievances are added to the team salary.
  
  
• For players who signed as free agents (i.e., not draft picks), and make less than the two-year minimum salary, the minimum salary for a two-year veteran is used in place of their actual salary.


• Teams were given a one-time opportunity to waive one player and exempt his salary from the luxury tax.  This is described in detail in question number 18.

Where does the tax money go?  This is described in question number 17.

• Some or all of the escrow money may be reserved for "league purposes."  This is likely to be a small percentage of the total escrow amount, but there is no cap on the amount that is used for league purposes -- the league could, at their discretion, use all of it.  For example, in 2006-07 the league used about $20.7 million of the escrow money for revenue assistance.
  
  
• Any remaining escrow money that is distributed to teams must go to all teams in equal shares.

Tax money:

• Teams under the tax level receive a full share (1/30) of the tax money.  (Note that if the league expands, the fraction changes.)
  
  
• Some or all of the remaining money may be reserved by the league for "league purposes."
  
  
• Any remaining tax money that is distributed to teams must go to all teams in equal shares.

There is one more limit to the maximum salary that can be given using the Larry Bird exception.  If the player was a first round draft pick and just completed the third year of his rookie scale contract, but his team did not exercise their option to extend the contract for the fourth season (see question number 41), then this exception cannot be used to give him a salary greater than he would have received had the team exercised their fourth year option.  In other words, teams can't decline the option in order to get around the salary scale and give the player more money.

Starting January 10 of each season, this exception begins to reduce in value.  See question number 20 for details.

EARLY BIRD EXCEPTION -- This is a weaker form of the Larry Bird exception, and is also a component of the Veteran Free Agent exception.  Players who qualify for this exception are called "Early Qualifying Veteran Free Agents" in the CBA.  A player qualifies for this exception after playing two seasons without being waived or changing teams as a free agent. Using this exception, a team may re-sign its own free agent for 175% of his salary the previous season or the average player salary, whichever is greater (see question number 24 for the definition of "average salary."  Also note that for 2005-06 they used a defined figure of $5 million).  Early Bird contracts must be for at least two seasons (which limits this exception's usefulness -- it's often better to take a lower salary for one more season and then have the full Bird exception available the next season) and no longer than five seasons.  A player can receive raises up to 10.5% of the salary in the first season of the contract using this exception.

If the player was a first round draft pick and just completed the second year of his rookie scale contract, but his team did not exercise their option to extend the contract for the third season (see question number 38), then this exception cannot be used to give him a salary greater than he would have received had the team exercised their third year option.  In other words, teams can't decline the option in order to get around the salary scale and give the player more money.

If the player is a restricted free agent with two years of service and receives an offer sheet from a new team, the player's prior team may use the Early Bird exception to match the offer sheet (see question number 36 for restricted free agency).

Starting January 10 of each season, this exception begins to reduce in value.  See question number 20 for details.

NON-BIRD EXCEPTION -- This is also a component of the Veteran Free Agent exception.  Players who qualify for this exception are called "Non-Qualifying Veteran Free Agents" in the CBA.  They are veteran free agents who are neither Qualifying Veteran Free Agents nor Early Qualifying Veteran Free Agents, either because they haven't met the criteria, or because they are Early Bird free agents following the second season of their rookie scale contract and whose team renounced the Early-Bird exception.  This exception allows a team to re-sign its own free agent to a salary starting at 120% of the player's salary in the previous season, 120% of the minimum salary, or the amount needed to tender a qualifying offer (if the player is a restricted free agent -- see question number 36), whichever is greater.  Raises are limited to 8% of the salary in the first year of the contract, and contracts are limited to five seasons when this exception is used.

Starting January 10 of each season, this exception begins to reduce in value.  See question number 20 for details.

MID-LEVEL SALARY EXCEPTION --  This exception allows a team to sign any free agent to a contract equal to the average salary, even if they are over the cap (see question number 24 for the definition of "average salary."  Also note that for 2005-06 they used a defined figure of $5 million).  This exception may be split and given to multiple players.  It may be used for contracts of up to five years in length, and raises are limited to 8% of the salary in the first year of the contract.  Signing a player to a multi-year contract does not affect a team's ability to use this exception every year.  For example, a team can sign a player to a five-year contract using this exception and still use the exception the following year to sign another player.  Also see question number 20 for more information on the availability and use of this exception.

If the player is a restricted free agent with one or two years of service and receives an offer sheet from a new team, the player's prior team may use the Mid-Level exception to match the offer sheet (see question number 36 for restricted free agency).

Here are the actual values of this exception for each season.  Note that since this exception is based on the average player salary, the actual value of this exception is not determined until the start of the free agent signing period.

2005-06	$5 million
2006-07	$5.215 million
2007-08	$5.356 million
2008-09	$5.585 million

BI-ANNUAL EXCEPTION -- This exception was previously named the "$1 Million exception" (perhaps "misnamed" is more appropriate, since it was only valued at $1 million in 1998-99).  It may be used to sign any free agent to a contract starting at the following amounts:
 

2005-06	$1.67 million
2006-07	$1.75 million
2007-08	$1.83 million
2008-09	$1.91 million
2009-10	$1.99 million
2010-11	$2.08 million
2011-12	$2.18 million

This exception may not be used two years in a row (and if the $1 Million exception was used in 2004-05, the Bi-Annual exception may not be used in 2005-06).  It may be split and given to more than one player, and can be used to sign players for up to two years, with raises limited to 8%.  Also see question number 20 for more information on the availability and use of this exception.

ROOKIE EXCEPTION -- Teams may sign their first round draft picks to rookie "scale" contracts even if they will be over the cap as a result (see question number 41).

MINIMUM PLAYER SALARY EXCEPTION -- Teams can offer players minimum salary contracts even if they are over the cap.  Contracts can be up to two years in length.  For two year contracts, the second season salary is the minimum salary for that season.  The contract may not contain a signing bonus.  This exception also allows minimum salary players to be acquired via trade.  There is no limit to the number of players that can be signed or acquired using this exception.

This exception begins to reduce in value after the first day of the season.  For example, if there are 180 days in the season, then this exception reduces in value by 1/180 of its initial value each day.  If a team signs a minimum salary player 90 days into the season, it can pay the player only half the minimum salary.

See question number 70 for more information on how minimum salary players are handled in trade.

TRADED PLAYER EXCEPTION -- This exception is used for trades, and cannot be used to sign free agents.  It allows teams to acquire more salary in a trade than they send away.  It also allows teams to take up to a year to complete some trades, banking a credit in the interim.  This exception is discussed in detail in question numbers 68 and 69.  Also see question number 20 for more information on the availability and use of this exception.

DISABLED PLAYER EXCEPTION -- This exception allows a team which is over the cap to acquire a replacement for a disabled player who will be out for the remainder of that season (if the player is disabled between July 1 and November 30) or the following season (if the player is disabled after November 30). This exception can also be granted in the event of a player's death.  This exception can only be used to acquire one player.  The maximum salary for the replacement player is 50% of the injured player's salary, or the average salary, whichever is less (see question number 24 for the definition of "average salary").  Approval from the league (based on a determination by an NBA-designated physician) is required for this exception to be used.  This exception can be used to sign a free agent, or to create room to accept a salary in trade.  When used for trade, the team may acquire a player whose salary (including any trade bonus) is up to 100% of this exception plus $100,000 (not 125%).  Also see question number 20 for more information on the availability and use of this exception.

If a player is disabled between July 1 and November 30, the team must acquire the replacement player within 45 days.  If the player is disabled between December 1 and June 30, then the team has until October 1 to sign a replacement.  If the disabled player comes back sooner than expected, then he may be activated immediately, and the replacement player is not affected.  However, if the disabled player comes back before the exception is used, then the exception is lost.

Teams sometimes have had difficulty getting the NBA to approve an injury exception. For example, Danny Manning tore an ACL toward the end of the 1997-98 season, yet the NBA did not approve the Suns for this exception.  More recently, the Magic did not receive this exception in 2003 for Grant Hill.  However, this exception was granted in the 1999 offseason to San Antonio, so they could replace Sean Elliott, who was disabled due to kidney problems.  This exception was also granted to Charlotte soon after Bobby Phills was killed.

Don't confuse this exception with the salary cap relief teams can apply for a year after losing a player to a career-ending injury or death (see question number 53).  This exception allows a team to acquire a replacement player.  The salary cap relief removes a contract from the books.

REINSTATEMENT -- If a player was banned from the league for a drug-related offense and later reinstated, his prior team may re-sign him for up to his previous salary.

Summary of Salary Cap Exceptions

Note:    The Traded Player exception is not listed because it cannot be used to sign free agents.

So it is not true that being under the cap necessarily means a team has room to sign free agents.  For example, assume the cap is $49.5 million, and a team has $43 million committed to salaries.  They also have a Mid-Level exception for $5 million and a Traded Player exception for $5.5 million.  Even though their salaries put them $6.5 million under the cap, their exceptions are added to their salaries, putting them at $53.5 million, or $4 million over the cap.  So they actually have no cap room to sign free agents, and must instead use their exceptions.

Teams have the option of renouncing their exceptions in order to claim the cap room.  So in the example above, if the team renounced their Traded Player and Mid-Level exceptions, then the $10.5 million is taken off their team salary, which then totals $43 million, leaving them with $6.5 million of cap room which can then be used to sign free agent(s).

Starting January 10 of each season, the Mid-Level, Bi-Annual, Larry Bird, Early-Bird and Non-Bird exceptions begin to reduce in value.  For example, if there are 180 days in the season, then these exceptions (if they are still unused) reduce by 1/180 of their initial value each day starting January 10.  If a team uses their $5 million Mid-Level exception on February 1, then the exception is actually worth $4,361,111.

The Disabled Player, Bi-Annual, Mid-Level and Traded Player exceptions may be lost entirely, or the team may never receive them to begin with.  This happens when their team salary is so low that when the exceptions are added to the team salary, the sum is still below the salary cap.  If the team salary is below this level when the exception arises, then the team doesn't get the exception.  If the team salary ever drops below this level during the year, then any exceptions they had are lost.

For example, with a $49.5 million salary cap, assume it's the offseason, and a team has $41 million committed to salaries, along with a Mid-Level exception for $5 million, a Traded Player exception for $2.5 million, and an unrenounced free agent whose free agent amount is $2 million.  Their salaries and exceptions total $50.5 million, or $1 million over the cap.  What if their free agent signs with another team?  The $2 million free agent amount comes off their cap, so their team salary drops to $48.5 million.  This total is below the cap so the team loses its Mid-Level and Traded Player exceptions.

There is logic behind this.  The whole idea behind an "exception" is that it is an exception to the rule which says a team has to be below the salary cap.  In other words, an exception is a mechanism which allows a team to function above the cap.  If a team isn't over the cap, then the concept of an exception is moot.  Therefore, if a team's team salary ever drops this far, its exceptions go away.   The effect is that a team may have either exceptions or cap room, but they can't have both.

Incidentally, players are no longer allowed to become player-coaches.  This is because it would be possible to circumvent the cap by signing a player as a player-coach, and paying him less as a player but overpaying him as a coach.

This is what happened in 2000 with Joe Smith and the Minnesota Timberwolves.  Smith left the Philadelphia 76ers in 1999 (following the lockout) to sign with the Minnesota Timberwolves for their $1.75 million Mid-Level exception.  They made an under-the-table agreement that Smith would play under three consecutive one-year contracts at below market value, and the Timberwolves would reward him by using their Bird rights to sign him to a huge contract beginning with the 2001-02 season.  Unfortunately, they reduced this agreement to writing, and the written agreement eventually found its way into the league's hands.

It had long been rumored that such under-the-table agreements existed, but this was the first time the league had hard evidence in the form of a signed contract.  The league responded by fining the team the maximum (at the time) $3.5 million, taking away their next five draft picks (two were later returned), and voiding Smith's then-current contract.  Owner Glen Taylor and GM Kevin McHale also agreed to leaves of absence (in lieu of suspensions, at which time the fifth draft pick was returned).  Most interestingly, the league also voided Smith's two previous, already-completed contracts.  This essentially stripped the Timberwolves of any Bird rights to Smith, preventing them from re-signing Smith for any salary above the minimum (they had already used their other exceptions).  Smith left Minnesota and signed with the Detroit Pistons, but returned to Minnesota in 2001.

This average salary figure is used when determining the salaries payable using the Early-Bird, Disabled Player and Mid-Level exceptions; when determining an unsigned free agent's effect on team salary, and when determining the maximum salary in an offer sheet to a restricted free agent with one or two years of service.  Here are the values in each season:

* For 2005-06 they used a defined figure of $5 million, rather than applying the formula.

Kind of free agent	Previous salary	Free agent amount
Any	Minimum salary	Portion of minimum salary not reimbursed by the league (see question number 11)
Larry Bird, except when coming off rookie scale contract	At least the average salary	150% of his previous salary*
Larry Bird, except when coming off rookie scale contract	Below the average salary	200% of his previous salary*
Larry Bird, following the fourth season of his rookie scale contract	At least the average salary	250% of his previous salary*
Larry Bird, following the fourth season of his rookie scale contract	Below the average salary	300% of his previous salary*
Larry Bird, following the third season of his rookie scale contract	Any	The maximum salary the team can pay the player using the Bird exception
Early Bird, following the second season of his rookie scale contract	Any	The maximum salary the team can pay the player using the Early Bird exception
Early Bird (all others)	Any	130% of his previous salary*
Non-Bird	Any	120% of his previous salary*

* Not to exceed the player's maximum salary, based on years of service (see question number 11).  If the difference in salary between the last two seasons of the player's contract exceeded $4 million, then the percentage is based on the average salary in the last two seasons of the contract.

A restricted free agent counts against his team's salary cap by the greatest of:

• His free agent amount (as defined in the table above)
  
  
• The amount of his qualifying offer (see question number 36)
  
  
• The first year salary from any offer sheet the player signs with another team (see question number 36)
  

Here's an example of how to use this chart:  Let's say a player who made $5 million during the previous season becomes an Early-Bird free agent, and is not coming off the second season of his rookie scale contract.  According to this chart, the player's free agent amount is 130% of his previous salary.  So $6.5 million is included in his team's team salary while he is a free agent.

See question number 41 for more information on rookie "scale" contracts, question number 33 for information on renouncing players, and question number 36 for information on restricted free agency.

• The player signs a new contract with the same team.  When this happens, the player's effect on his team's team salary is based on his new salary.
  
  
• The player signs with a different team. As soon as this happens, the player becomes the new team's problem, and his salary no longer counts against his old team.
  
  
• The team renounces the player.  (See question number 33)
  
  

33.  What does renouncing a player mean?

As detailed in question number 30, free agents continue to be included in team salary.  By renouncing a player, a team gives up its right to use the Larry Bird, Early Bird, or Non-Bird exceptions (see question number 19) to re-sign that player.  A renounced player no longer counts toward team salary, so teams use renouncement to gain additional cap room.  After renouncing a player, the team is still permitted to re-sign that player, but they must either have enough cap room to fit the salary, or sign the player using the Minimum Salary exception.  The exception to this is in the case of an Early Bird free agent who is coming off the second season of his rookie scale contract.  Such players, when renounced, are treated as Non-Bird free agents. After renouncing a player, a team can still trade the player in a sign-and-trade agreement (see question number 76).

Note: In the previous CBA renouncing a veteran free agent amounted to relinquising the team's Bird rights only through the remainder of the season (until the following July 1). This allowed a team to renounce a free agent, sign him to a one-year contract, and then re-sign him to a larger contract using the Bird exception the following summer. The current CBA removed this time limitation; now when the player is renounced, his Bird clock starts over.

See question number 36 for more information on restricted free agency.

Restricted free agency exists only on a limited basis.  It is allowed following the fourth year of rookie "scale" contracts for first-round draft picks (see question number 41).  It is also allowed for all veteran free agents who have been in the league three or fewer seasons.  However, a first round draft pick becomes an unrestricted free agent following his second or third season if his team does not exercise its option to extend the player's rookie scale contract for the next season.  All other free agency is limited to unrestricted free agency.

In order to make their free agent a restricted free agent, a team must submit a qualifying offer to the player by June 30.  The amount of the qualifying offer for players on rookie "scale" contracts is based on the player's draft position (see question number 41).  The qualifying offer for all other players must be for 125% of the player's previous salary, or the player's minimum salary (see question number 11) plus $175,000, whichever is greater.  The qualifying offer must be for one season.  A player can elect to accept his qualifying offer (the qualifying offer must be accepted by March 1) and play the following season under its terms.  This is sometimes done in order to become an unrestricted free agent the following summer (see question number 38).

If the player is coming off the fourth year of his rookie scale contract, then in addition to a qualifying offer, his team can also submit a maximum qualifying offer.  A maximum qualifying offer is for six seasons at the maximum salary with 10.5% annual raises.  It can contain no options, ETOs or bonuses of any kind, and must be fully guaranteed.   When a team submits a maximum qualifying offer (in essence "stepping up" with a maximum contract offer before the player even hits the market), it places a more stringent requirement on other teams' offer sheets (see below).

When another team wants to sign a restricted free agent, it signs the player to an offer sheet, the principal terms of which the original team is given seven days to match.  The offer sheet must be for at least two seasons (not including option years).  If the player's prior team also submitted a maximum qualifying offer, then the offer sheet must be for at least three seasons (not including option years).  If the player's original team exercises its right of first refusal by matching the principal terms of the offer sheet, the player is then under contract to his original team.  If the player's original team does not exercise its right of first refusal within seven days, the offer sheet becomes an official contract with the new team.

To summarize, a restricted free agent essentially has four options:

• He can accept his prior team's qualifying offer, play for one season, and become a free agent again the following summer.
  
  
• He can accept his prior team's maximum qualifying offer (if applicable, and if one has been submitted) and play under a long-term contract at the maximum salary.
  
  
• He can sign an offer sheet with another team, which his prior team is given the opportunity to match.
  
  
• He can negotiate a new contract with his prior team that is independent of the qualifying offer or maximum qualifying offer.

There are additional restrictions placed on offer sheets for players with one or two years in the league.  These restrictions are described in question number 37.

There can be no compensation given to a team in return for their not matching an offer to a restricted free agent.  For example, Houston could not sign Golden State's restricted free agent, then send Golden State a draft pick in exchange for their not matching the offer and retaining the player.

If the team matches an offer sheet, they cannot trade the player in a sign-and-trade arrangement (see question number 76).

A team can withdraw its qualifying offer to a restricted free agent, in which case the player becomes unrestricted.  This happened with Toronto and Keon Clark in 2002.  The qualifying offer cannot be withdrawn after July 23 without the player's approval.

A signed offer sheet can be rescinded within the seven day waiting period if all three parties (the player and the two teams) agree.

• If the player is a Non-Bird free agent and the team already used their Mid-Level exception to sign another player.
  
  
• If the player is a Non-Bird or Early Bird free agent with three years in the league (this rule applies only to players with one or two years in the league).
  
  
• If a team has two Non-Bird free agents with one or two years in the league.  They can use the Mid-Level exception to keep one of them, but would lose the other.
  

For one, the team can simply decide not to match the offer sheet.  If this happens, the offer sheet becomes an official contract with the new team seven days.

With the previous CBA, it was sometimes possible to sign a restricted free agent with one or two years experience to an offer sheet that the player's original team could not match.  This loophole was closed in the current CBA, as described in question number 37.