Hoops Rumors Glossary: Proration

The concept of proration is one used in variety of fields and professions, and isn’t specific to the NBA. The term, which shows up frequently in the league’s Collective Bargaining Agreement, refers to the practice of calculating a figure proportionately.

In the NBA, the most common examples of proration apply to players on non-guaranteed contracts who are waived before their salaries become guaranteed, or players who sign minimum-salary contracts partway through the season. In each instance, the player would receive a prorated portion of his salary based on the number of days he was under contract during the season.

For example, when Tyson Chandler signed with the Lakers on November 6, he received a minimum salary contract. For the 2018/19 season, the minimum salary for a player with Chandler’s experience is $2,393,887, though it would only count against his team’s cap for $1,512,601, as we explain here. However, since Chandler wasn’t with the Lakers since the start of the season, he wouldn’t be entitled to that full minimum salary from the team.

The NBA season is 177 days long and Chandler signed his contract on the 22nd day of the season, meaning his one-year contract will span 156 days. Due to proration, his minimum salary will be worth 156/177th of a full minimum salary. So instead of earning $2,393,887, he’ll make $2,109,867. And instead of counting for $1,512,601 on the Lakers’ books, the cap charge will be 156/177th of that amount: $1,333,140.

If the Lakers had signed Chandler using cap space or a cap exception like the disabled player exception, his salary wouldn’t have been prorated, but the minimum salary exception begins to prorate after the first day of the regular season.

The same principle of proration applies to a player like Ben Moore, who was on a non-guaranteed contract with the Pacers before being waived on November 3. Moore was released on the 19th day of the 2018/19 season, but the NBA also pays players for the two days they spend on waivers, so the young forward was credited with 21 days of service. That means, due to proration, he was entitled to 21/177th of his $1,349,383 salary — that amount worked out to $160,096.

While situations like Chandler’s and Moore’s are the most frequent examples of proration’s impact on NBA finances, there are many more instances where it pops up.

Here’s a quick breakdown of several of those other instances of proration:

• Mid-level and bi-annual exceptions: These exceptions begin to prorate on January 10, declining in value by 1/177th each day until the end of the regular season.
• Trade kickers: If a player with a trade kicker in his contract is traded during the season, the kicker only applies to his remaining salary. Let’s say a player has a 15% trade kicker and an $8MM salary in his contract year and is dealt halfway through the season. His 15% trade kicker would only apply to the $4MM left on his deal, giving him a $600K bonus.
• 10-day contracts: A 10-day salary is prorated based on a full-season salary. Most players on 10-day contracts would earn 10/177th of their minimum salary.
• Two-way contracts: Players on two-way contracts earn a prorated portion of their NBA and two-way salaries depending on how many days they spend in each league. Additionally, if a two-way player is signed during the season, he’ll only be eligible to be with the NBA team for a prorated portion of the typical 45-day limit. For instance, a player who signs a two-way contract at the season’s midway point would be entitled to 23 days at the NBA level.
• Signing bonuses: If a teams gives a player a signing bonus in a free agent contract, that bonus is prorated equally over the guaranteed seasons of the contract for cap purposes. For example, a $4MM signing bonus on a four-year contract would add $1MM to the player’s cap charge for each of the four seasons.
• Salary floor calculations: When calculating a team’s payroll in relation to the league’s minimum salary floor, we count the salary that a team actually pays to a player, rather than the player’s cap hit. For instance, if a team traded for a player on a $12MM contract halfway through the season and kept him the rest of the way, he would count for $6MM toward the salary floor, rather than $12MM.

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. Larry Coon’s Salary Cap FAQ was used in the creation of this post.