Once the NBA trade deadline passes, the league’s buyout season begins. And as a result of the decision to move this season’s trade deadline up by two weeks, the 2018 buyout period will last longer than usual. So what exactly are buyouts, and how do they work? Today’s Hoops Rumors glossary entry will examine those questions. Let’s dive in…
What is a buyout?
While the term “buyout” is often applied colloquially when any veteran is waived after the trade deadline, it applies specifically to a player who gives up a portion of his salary to accommodate his release. Rather than waiving a player outright, a team will negotiate the terms of the player’s release. Then, once the player clears waivers, his guaranteed salary with his previous team will be reduced or eliminated altogether.
So far this season, we’ve seen players like Greg Monroe, Joe Johnson, Brandan Wright, and Marco Belinelli agree to buyouts. Those players reportedly surrendered between $300K and $1.5MM in salary to their respective teams in order to reach free agency and sign with a new team closer to contention.
What’s the motivation for a buyout?
The most common form of buyout involves a veteran player on a non-contending team being granted his release during the final year of his contract to join a playoff club down the stretch. It typically happens after the trade deadline because by that point there’s no other way for a player to change teams.
Those players listed above all fit this bill — Monroe went from the Suns to the Celtics; Belinelli went from the Hawks to the Sixers; and Johnson and Wright are joining the Rockets after being bought out by the Kings and Grizzlies, respectively.
For the player, the motivating factor is the desire to play for a winning team. For example, the situation in Phoenix offered Monroe – who was battling Tyson Chandler and Alex Len for minutes on a lottery-bound Suns team – little upside beyond collecting a pay check and enjoying the warm weather. In Boston, he’ll have a legit chance to compete for a title. He’ll also end up earning more money, since he signed a $5MM deal with the Celtics after giving up just $1.5MM to get out of Phoenix, though most players don’t come out that far ahead financially.
As for the team, there’s little downside to letting a veteran go, since the player is usually in the final year of his contract and the club completing the buyout is rarely in contention for a playoff spot. Buying out that veteran can save the team some money, earn some goodwill with a player and an agent, and open up minutes for a younger player to take over.
What happens if a team and player reach a buyout agreement, then the player is claimed off waivers?
Waiver claims are rare in the NBA, particularly for players earning more than the minimum salary. If a team doesn’t have the cap room available to fit a waived player’s salary, that team needs a trade exception or disabled player exception big enough to accommodate that player’s salary. Otherwise, it can’t place a claim.
Those rules make it virtually impossible for any NBA team to claim a player like Monroe, who had been earning approximately $17.9MM in Phoenix. No other teams currently have that much cap room, or that big an exception. Although Monroe agreed to give up $1.5MM as part of his buyout with the Suns, that amount isn’t removed from his cap charge until after he clears waivers, so any team wanting to claim him needed to be able to accommodate his original $17.9MM salary — not that adjusting that number to $16.4MM would have changed the equation for any teams anyway.
The rarity of NBA waiver claims is the reason why a player who receives a buyout often reaches an agreement with a new team even before he has cleared waivers. The odds of a waiver claim are so low that it sometimes doesn’t make sense for a player to wait until he’s officially a free agent to start negotiating.
In the unlikely event that a bought-out player is claimed on waivers, the buyout agreement between him and his previous team is no longer necessary — since his new team is taking on his original contract, his old team will no longer owe him a single cent or carry his old cap hit. That’s essentially the most efficient possible form of buyout for that team.
How do the cap hits work when a team and player agree to a buyout?
The equation for a player in the final year of his contract is pretty simple — the amount he agrees to give up in the buyout is simply subtracted from his overall cap hit. In Monroe’s case, agreeing to surrender $1.5MM reduced his cap charge for the Suns from $17.88MM to $16.38MM.
For a player who isn’t in the final year of his contract, the calculations are a little more complicated, and depend on when exactly the buyout is completed.
For instance, Jamal Crawford agreed to a buyout with the Hawks back in July. At the time, he had $17,246,988 in guaranteed money left on his contract – $14,246,988 for 2017/18 and a partial guarantee of $3MM for 2018/19. Crawford agreed to give up $4MM, which was about 23.2% of his overall guarantee. That meant reducing each season’s cap hit by 23.2%, which left Atlanta with charges of $10,942,762 for this season and $2,304,226 for next season.
That prorated formula applied in Crawford’s case because he hadn’t been paid any of his salary for 2017/18. However, the NBA doesn’t use that same formula for a player who is bought out later in the league year.
In 2015/16, for example, Andrea Bargnani agreed to a buyout with the Nets after the trade deadline. At the time, he had a cap hit of $1,362,897 for ’15/16, with a $1,551,659 player option for 2016/17. Bargnani gave up his full ’16/17 option salary as part of his buyout, resulting in respective cap charges of $1,039,298 and $323,599.
Is there a deadline for buyouts to get done?
There’s technically no deadline, but March 1 is the date to watch. Players bought out and/or waived after that date aren’t eligible to play in the postseason for a new team.
That March 1 cut-off can cause some confusion — a player doesn’t necessarily have to be signed to his new team by then in order to be playoff-eligible. For instance, a player who is waived by one team on February 25 and then signs with a different team on March 10 would be postseason-eligible for his new club. A player who has been out of the NBA all season (Boris Diaw, for example) would also retain his postseason eligibility if he were to sign with a team in March or April.
Are there restrictions for where a player who receives a buyout can sign?
If a player agrees to reduce his guaranteed salary as part of his buyout, he can’t re-sign with the team that waived him for a full year, or until his contract would have ended, whichever is later. So if the Knicks were to buy out Joakim Noah this season, they wouldn’t be eligible to re-add him to their roster until 2020, when his contract would have ended.
A player who is bought out or waived after being traded can’t re-sign with the team that traded him away until the one-year anniversary of the deal, or until the July 1 after his contract ends, whichever comes first. For example, the Jazz sent Johnson to the Kings, who subsequently bought him out. Iso Joe would be ineligible to re-sign with Utah until July 1.
There’s one exception to this rule — if a player is traded twice during the same league year and then is bought out or waived, he can return to the first team that traded him. For example, the Bucks traded Rashad Vaughn to the Nets, who flipped him to the Pelicans, who then waived him. Vaughn isn’t eligible to sign with Brooklyn, but he could return to Milwaukee.
Who are some of the remaining buyout candidates for 2018?
We’re keeping tabs on the buyout market right here, with a list of potential candidates that we’ll continue to update through March 1.
Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA’s Collective Bargaining Agreement. Information from Larry Coon’s Salary Cap FAQ and ESPN’s Bobby Marks was used in the creation of this post.