LeBron James highlights complexities of NBA salary cap

By Cian Nihill
lebron james(Photo: Keith Allison)

lebron james

The NBA salary cap is a jungle of exceptions and side rules that seasoned executives bungle with every year.

But the unprecedented courting of LeBron James, the most sought-after free agent in NBA history, meant the basketball world was forced to become accustomed to the complicated system this summer.

The key concept behind the salary cap is that teams can only spend a fixed sum on players’ salaries. The idea is that it helps the league stay competitive and allows owners to have a profitable franchise.

The contrast in the USA is Major League Baseball where no such cap exists—although a luxury tax system does—and teams can simply buy any player who is not under contract.

In England the contrast would be the Premier League.

The more financially-able clubs are able to lure the best players because they have all the money.

If England’s top flight were run like the NBA, Chelsea would have to keep their overall salary expenditure under a certain level, one considered attainable by all the clubs in the League.

The result? Clever trades, smart contract signings and player development become much more important than a rich owner.

Sadly, such a system is not feasible in football for a myriad of reasons including complexities when competing with foreign leagues for players and problems with promotions and relegations.

But it is possible in the NBA, which commands a virtual monopoly on professional basketball in North America and no such relegation of teams exists.

Followers of rugby will be familiar with the salary cap. What is called a ‘hard cap’ system—where the total salary expenditure cannot ever exceed a certain figure—exists in the Aviva Premiership and Super League.

The NBA, however, uses a ‘soft cap’ which allows teams go over the stated maximum in certain circumstances.

The cap itself is negotiated between the NBA Player’s Association and the owners of the teams—a collective bargaining agreement which sets down a whole host of rules and regulations.

Currently, the cap is calculated as a percentage of the league’s overall revenue from the previous season.

For 2010-2011 it was set at $58,044,000. Simple, right?

Not exactly, as it is how NBA teams arrange their individual salaries that causes confusion.

A team’s best player gets the ‘max contract’ because that is the highest amount he can sign for. Most franchises have an obvious big name who commands this, such as Kobe Bryant in LA or Kevin Durant in Oklahoma.

And a specific league rule encourages these players to stay with the same team for their whole careers, helping to build fan loyalty.

The rule is called the ‘Larry Bird Exception’ and states a team is allowed to break the salary cap to re-sign a ‘max contract’ player that has played three seasons without being traded or having their contract waived.

The sides competing for a championship will naturally be close to, or over, the cap. These teams usually have at least one major identifiable star and the rule allows teams to hold on to their best player.

So what about a big star stuck with a bad team?

While competitiveness is important for the NBA, the league also wants its top stars competing in the play-offs when television ratings are highest.

To help get names such as James to that audience, owners are permitted go over the salary cap and sign one ‘mid-level exception’ contract each season, which often leads to very good players coming to teams to help a contender. Teams can also split the contract between several free agents.

The Miami Heat shook up the basketball world this off-season when they managed to clear enough cap space to sign three max contract players in Dwayne Wade, Chris Bosh and LeBron James.

With three of the top ten players in the league on one team, the Heat now are one of the favourites for the league.

The problem is after paying the wages of three players of that calibre, they are struggling to raise the funds to fill the remaining nine jerseys.

This is where the ‘minimum salary’ exception comes into play.

The amount, which does not include a signing bonus and can be at most a two-year contract, depends on how long the player has been in the league and ranges from around $500,000 to £1.4m per year.

Veterans who have already made their cash but have not secured a championship ring are now queuing up to join the Heat for the minimum salary in the hope that they can add a title to their legacy.

So, with all these exceptions are teams not always over the salary cap anyway?

In reality, most are, and many of the contenders and big market teams such as LA and New York would traditionally be over the limit.

However, teams can only go over the cap when in accordance with these exceptions, meaning it is not simply a case of buying whatever players are wanted.

More importantly, there are two major incentives to staying under the cap.

Firstly, those that stay under can trade players without regard to salary. Teams over the cap cannot acquire more than 125% plus $100,000 of the salary that they have traded away.

And perhaps more influential in the thinking of many owners’ minds is the dreaded luxury tax.

At a certain point above the salary cap, there is what is known as the ‘tax line’. Teams over the line are forced to pay $1 to league for every dollar the team’s salaries are over the line. This revenue is then usually distributed between the teams not paying the tax.

Seeing as the majority of owners are businessmen at heart, staying well away from the tax line is probably the most financially prudent strategy and as a result, few teams dare venture past it.

The NBA salary cap system is awash with side rules and laws which make an already complicated system almost incomprehensible.

For the purists, two points for a basket inside the arc will do.

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