Hoops Rumors Glossary

As Larry Coon explains in his invaluable CBA FAQ, the term “base year compensation” technically no longer shows up in the NBA’s Collective Bargaining Agreement, and hasn’t since 2011. A relic of past agreements, the base year compensation rule was intended to prevent teams from signing free agents to new contracts that were specifically intended to facilitate salary-matching in trades.

While the base year compensation rules have mostly been adjusted and/or removed from the CBA in recent years, there’s still one situation where they apply. Teams have to take them into account when completing sign-and-trade deals.

The BYC rules apply to a player who meets all of the following criteria in a sign-and-trade:

• He is a Bird or Early Bird free agent.
• His new salary is worth more than the minimum.
• He receives a raise greater than 20%.
• His team is at or above the cap immediately after the signing.

If the player meets those criteria and is included in a sign-and-trade deal, his outgoing salary for matching purposes is considered to be his previous salary or 50% of his new salary, whichever is greater. For the team he is being signed-and-traded to, his incoming figure for matching purposes is his full new salary.

Here are a couple specific examples to help make things a little clearer:

Let’s say the Suns want to sign-and-trade Deandre Ayton this offseason. He’s a Bird free agent, his new salary will be well above the minimum, and the Suns project to be an over-the-cap team. Having made $12,632,950 in 2018/19, Ayton figures to receive a raise significantly higher than 20% — if he signs a maximum salary contract, it’s projected to start at $30,500,000. So he meets the BYC criteria.

In a scenario where he signs a max deal as part of a sign-and-trade, Ayton’s salary for matching purposes from the Suns’ perspective would be $15,250,000, which is 50% of his new salary (that amount is greater than his previous salary). From his new team’s perspective, Ayton’s incoming figure would be his actual salary, $30,500,000.

Zach LaVine is another top free agent who would meet the BYC criteria if he’s signed-and-traded by the Bulls this offseason. If he gets a maximum salary contract – projected to be worth $36,600,000 for a player with his NBA experience – his outgoing salary for matching purposes would be $19,500,000, the amount he made in 2021/22 — that figure would be a little higher than 50% of his new salary ($18,300,000).

Often, a team acquiring a player via sign-and-trade doesn’t have the cap room to sign the player outright, or else there would be little need to negotiate a sign-and-trade. That means salary-matching is required, and is complicated by base year compensation rules.

In these examples, the Suns wouldn’t be able to take back more than $20,250,000 in salary in exchange for Ayton due to the league’s matching rules, while the Bulls wouldn’t be able to take back more than $24,500,000 for LaVine.

However, in order to take on $30,500,000 in incoming salary, Phoenix’s hypothetical trade partner would have to send out at least $24,320,000 in order to account for those salary-matching rules themselves. An over-the-cap team acquiring LaVine would have to send out at least $29,200,000 in order to match his incoming $36,600,000 salary.

The gap between the salary-matching figures from the two teams’ perspectives complicates sign-and-trade talks, requiring both clubs to include additional pieces to make the deal work. A third team could even be necessary to make the numbers line up.

The base year compensation concept doesn’t surface all that often, due to the specific criteria that must be met. However, it looms large over many sign-and-trade attempts, reducing the likelihood of teams finding a deal that can be legally completed. And it could affect a number of potential sign-and-trade candidates during the 2022 offseason.

Rival teams hoping to land players like Ayton, LaVine, Jalen Brunson, Mitchell Robinson, Miles Bridges, or Collin Sexton via sign-and-trade this summer would almost certainly have to navigate base year compensation complications to make it happen.

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 and salary information from Basketball Insiders was used in the creation of this post.

A previous version of this post was published in 2019.

Players eligible for restricted free agency don’t become restricted free agents by default. In order to make a player a restricted free agent, a team must extend a qualifying offer to him — a player who doesn’t receive one becomes an unrestricted free agent instead.

The qualifying offer, which is essentially just a one-year contract offer, varies in amount depending on a player’s service time and previous contract status.

If a player reaches free agency with three or fewer years of NBA service time under his belt, his qualifying offer is worth 125% of his prior salary, or his minimum salary plus $200K, whichever is greater.

For instance, after earning $1,782,621 this season, Hornets wing Cody Martin projects to have a minimum salary worth $1,876,674 in 2022/23. Adding $200K to that figure works out to $2,076,674, whereas 125% of his prior salary is $2,228,276. His qualifying offer will be worth the higher amount ($2,228,276).

On the other hand, a player like Wizards forward Anthony Gill earned a $1,517,981 salary in 2021/22. Calculating 125% of that amount works out to $1,897,476, whereas his projected minimum salary ($1,811,516) plus $200K would be $2,011,516.

The precise value of Gill’s qualifying offer will depend on where exactly the ’21/22 salary cap ends up, since minimum salaries increase or decrease at the same rate as the cap, but it’s a safe bet his QO will be worth his minimum salary plus $200K.

For a player earning the minimum or something close to it, it’s not always immediately apparent which formula will render the higher qualifying offer. However, it’s more obvious for players earning well above the minimum, such as Nuggets guard Facundo Campazzo. He’ll be eligible for restricted free agency this offseason after earning $3.2MM in 2021/22, and his qualifying offer will be worth 125% of his previous salary: $4MM.

The qualifying offer for a former first-round pick coming off his rookie scale contract is determined by his draft position. The qualifying offer for a first overall pick is 130% of his fourth-year salary, while for a 30th overall pick it’s 150% of his previous salary — QOs for the rest of the first-rounders fall somewhere in between. The full first-round scale for the draft class of 2018, whose first-rounders will be hitting free agency this summer, can be found here, courtesy of RealGM.

Here are a pair of examples for this offseason: 2018’s first overall pick, Suns center Deandre Ayton, is coming off a fourth-year salary of $12,632,950, so he must be extended a qualifying offer of $16,422,835 (a 30% increase) to become a restricted free agent. Meanwhile, the 24th overall pick, Trail Blazers guard Anfernee Simons, will be eligible for a qualifying offer of $5,758,552, a 46.2% increase on this season’s $3,938,818 salary.

A wrinkle in the Collective Bargaining Agreement complicates matters for some RFAs-to-be, since a player’s previous usage can impact the amount of his qualifying offer. Certain players who meet – or fail to meet – the “starter criteria,” which we break down in a separate glossary entry, become eligible for higher or lower qualifying offers. Here’s how the starter criteria affects QOs:

• A top-14 pick who does not meet the starter criteria will receive a same qualifying offer equal to 120% of the amount applicable to the 15th overall pick.
  • Note: In 2022, the value of this QO will be $7,228,448.
• A player picked between 10th and 30th who meets the starter criteria will receive a qualifying offer equal to 120% of the amount applicable to the ninth overall pick.
  • Note: In 2022, the value of this QO will be $7,921,300.
• A second-round pick or undrafted player who meets the starter criteria will receive a qualifying offer equal to 100% of the amount applicable to the 21st overall pick.
  • Note: In 2022, the value of this QO will be $4,869,012.

Cavaliers guard Collin Sexton is one example of a player who falls into the first group, since he didn’t meet the starter criteria this year. The No. 8 overall pick in 2018, Sexton will be eligible this offseason for a QO worth $7,228,448 instead of $8,559,357.

Conversely, Hornets forward Miles Bridges (a former No. 12 overall pick) met the starter criteria and will now be eligible for a QO worth $7,921,300 instead of $7,459,974.

[RELATED: Potential 2022 RFAs Whose Qualifying Offers Will Be Impacted By Starter Criteria]

A qualifying offer is designed to give a player’s team the right of first refusal. Because the qualifying offer acts as the first formal contract offer a free agent receives, his team then receives the option to match any offer sheet the player signs with another club.

A player can also accept his qualifying offer, if he so chooses. He then plays the following season on a one-year contract worth the amount of the QO, and becomes an unrestricted free agent at season’s end, assuming he has at least four years of NBA experience. A player can go this route if he wants to hit unrestricted free agency as early as possible, or if he feels like the QO is the best offer he’ll receive. Accepting the qualifying offer also gives a player the right to veto trades for the season.

Nets guard Bruce Brown was the only noteworthy restricted free agent to accept his qualifying offer during the 2021 offseason. As a result, he’ll be an unrestricted free agent in 2022.

Finally, while the details outlined above apply to players on standard NBA contracts who are eligible for restricted free agency, a different set of rules applies to players coming off two-way contracts. For most of those players, the qualifying offer would be equivalent to a one-year, two-way salary, with $50K guaranteed.

A player who is coming off a two-year, two-way deal, has already been on two-way deals with his current team for at least two seasons, or has accumulated four years of NBA service would be eligible for a qualifying offer equivalent to a standard, minimum-salary NBA contract. The guarantee on that QO would have to match or exceed a two-way salary.

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 and salary information from Basketball Insiders was used in the creation of this post. Earlier versions of this post were published in previous years.

The Bulls have approximately $98MM in guaranteed money committed to player salaries for 2022/23. However, even though next season’s salary cap is expected to come in at $122MM, Chicago won’t begin the 2022 offseason with tens of millions in cap room to spend.

In fact, the Bulls technically won’t open the new league year with any cap space at all. Each of Chicago’s own free agents will be assigned a free agent amount – or “cap hold” – until the player signs a new contract or the Bulls renounce his rights.

The general purpose of a cap hold is to prevent teams from using room under the cap to sign free agents before using Bird rights to re-sign their own free agents. If a team wants to take advantage of its cap space, it can renounce the rights to its own free agents, eliminating those cap holds. However, doing so means the team will no longer hold any form of Bird rights for those players — if the team wants to re-sign those free agents, it would have to use its cap room or another kind of cap exception.

The following criteria are used for determining the amount of a free agent’s cap hold:

• First-round pick coming off rookie contract: 300% of the player’s previous salary if prior salary was below league average; 250% of previous salary if prior salary was above league average.
• Bird player: 190% of previous salary (if below league average) or 150% (if above average).
• Early Bird player: 130% of previous salary.
• Non-Bird player: 120% of previous salary.
• Minimum-salary player: Two-year veteran’s minimum salary, unless the free agent only has one year of experience, in which case it’s the one-year veteran’s minimum.
• Two-way player: One-year veteran’s minimum salary.

A cap hold for a restricted free agent can vary based on his contract status. A restricted free agent’s cap hold is either his free agent amount as determined by the criteria mentioned above or the amount of his qualifying offer, whichever is greater.

No cap hold can exceed the maximum salary for which a player can sign. For instance, the cap hold for a Bird player with a salary above the league average is generally 150% of his previous salary, as noted above. But for someone like Wizards star Bradley Beal, who earned $33,724,200 this season, 150% of his previous salary would be north of $50MM, well beyond the projected maximum salary threshold.

Beal’s cap hold – assuming he turns down his 2022/23 player option – will be equivalent to the maximum salary for a player with 10+ years of NBA experience. If we assume a cap of $122MM, that figure works out to $42.7MM.

One unusual case involves players on rookie contracts whose third- or fourth-year options are declined. The amount of their declined option becomes their cap hold, and if the player’s team wants to re-sign him, his starting salary can’t exceed that amount.

For instance, the Suns declined Jalen Smith‘s 2022/23 fourth-year option last fall before trading him to the Pacers during the season. As a result, the Pacers won’t be able to offer Smith a starting salary this offseason worth more than $4,670,160, the amount of that option. That figure will also be his cap hold.

That rule is in place so a team can’t circumvent the rookie scale and decline its option in an effort to give the player a higher salary. It applies even if the player is traded, as in the case of Smith, but only to the team the player is part of at season’s end. So, theoretically, the Suns could now offer Smith a starting salary greater than $4,670,160 this offseason despite being the team that initially turned down his option.

If a team holds the rights to fewer than 12 players, cap holds worth the rookie minimum salary are assigned to fill out the roster. So, even if a front office chooses to renounce its rights to all of its free agents and doesn’t have any players under contract, the team wouldn’t be able to fully clear its cap. An incomplete roster charge in 2022/23 projects to be worth $1,004,159, meaning a team without any guaranteed salary or any other cap holds would have closer to $110MM in cap room than $122MM.

A player who has been selected in the draft but has not yet officially signed his rookie contract only has a cap hold if he was a first-round selection. A cap hold for a first-round pick is equivalent to 120% of his rookie scale amount, based on his draft position. An unsigned second-round pick doesn’t have a cap hold.

Cap holds aren’t removed from a team’s books until the player signs a new contract or has his rights renounced by the club. For example, the Warriors are still carrying cap holds on their books for retired players David West and Matt Barnes, who never signed new contracts since playing for Golden State.

Keeping those cap holds allows teams some degree of cushion to help them remain above the cap and take advantage of the mid-level exception and trade exceptions, among other advantages afforded capped-out teams. If and when the Warriors want to maximize their cap room, they’ll renounce West and Barnes, but they’ve been over the cap and haven’t required any added flexibility since those players became free agents in 2017.

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 and the Basketball Insiders salary pages were used in the creation of this post.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron.

Players and teams have to meet certain criteria to earn Bird rights and Early Bird rights, but Non-Bird rights are practically a given.

They apply to a player who has spent a single season or less with his team, as long as he finishes the season on an NBA roster and as long as he’s on a standard contract and not a hardship (10-day) deal. Even a player who signs a rest-of-season contract right before the regular season finale and spends just a single day with his club would have Non-Bird rights in the offseason.

Teams can also claim Non-Bird rights on Early Bird free agents if they renounce them. The primary motivator to do so would be to allow the team to sign the free agent to a one-year contract, a move that’s not permitted via Early Bird rights.

Teams are eligible to sign their own free agents using the Non-Bird exception for a salary starting at 120% of the player’s previous salary, 120% of the minimum salary, or the amount of a qualifying offer (if the player is a restricted free agent), whichever is greatest. Contracts can be for up to four years, with 5% annual raises.

The cap hold for a Non-Bird player is 120% of his previous salary, unless the previous salary was the minimum. In that case, the cap hold is equivalent to the two-year veteran’s minimum salary. If a Non-Bird free agent only has one year of NBA experience, his cap hold is equivalent to the one-year veteran’s minimum salary.

The salary limitations that apply to Non-Bird rights are more severe than those pertaining to Bird rights or Early Bird rights, so in many cases, the Non-Bird exception may not be enough to retain a well-regarded free agent. For instance, the Nets held Jeff Green‘s Non-Bird rights last summer, but couldn’t have used them to match or exceed the offer the veteran wing received from the Nuggets.

Because Green had been on a minimum-salary contract in 2020/21, Brooklyn’s ability to offer a raise using the Non-Bird exception was extremely limited — the Nets would have only been able to offer 120% of the veteran’s minimum using his Non-Bird rights, whereas the Nuggets’ two-year, $9MM offer easily topped that. If they’d badly wanted to retain Green, the over-the-cap Nets would have had to use another exception, such as the mid-level, to make a competitive offer.

The Lakers will be in a similar situation this offseason with Malik Monk, who will only have Non-Bird rights. If they want to retain Monk, the Lakers would have to use cap room (which almost certainly won’t be an option) or their mid-level exception to make their best offer, since they’ll be limited to a starting salary in the $2.5MM range via the Non-Bird exception.

Holding Non-Bird rights on a free agent didn’t really help the Nets with Green and it won’t help the Lakers with Monk, but there are cases in which the exception proves useful.

For instance, the Nuggets only had Non-Bird rights on JaMychal Green last offseason, but because his ’20/21 salary was $7,199,760, Denver was able to offer a starting salary worth any amount up to $8,639,712 (120% of his previous salary). That gave the club plenty of flexibility to re-sign Green without using cap room or another exception — he received a two-year, $16.4MM contract.

A deal completed by the Clippers last offseason provides an example of a team using Non-Bird rights on a minimum-salary player. Nicolas Batum, whose minimum salary would have been $2,641,691 in 2021/22, was eligible to sign for up to 120% of that amount via the Non-Bird exception. As such, his salary this season with Los Angeles was $3,170,029, the maximum he could’ve received using his Non-Bird rights.

Finally, it’s worth noting that a player who re-signs with his previous team on a one-year deal (or a two-year deal that includes a second-year option) and will have Early Bird or Bird rights at the end of that contract would surrender those rights if he consents to a trade. In that scenario, he’d only finish the season with Non-Bird rights.

This happened to Solomon Hill this year, when he agreed to a trade that sent him from Atlanta to New York. Hill would have had Early Bird rights if he had finished the season with the Hawks, but allowing the trade meant he would instead only have Non-Bird rights during the 2022 offseason. That wasn’t a concern for the Knicks, who forfeited their Non-Bird rights to Hill anyway by waiving the injured forward shortly after acquiring him.

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.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron.

Bird rights offer teams the chance to sign their own free agents without regard to the salary cap, but they don’t apply to every player. Other salary cap exceptions are available for teams to keep players who don’t qualify for Bird rights. One such exception is the Early Bird, which applies to players formally known as Early Qualifying Veteran Free Agents.

While the Bird exception is for players who have spent three seasons with one club without changing teams as a free agent, Early Bird rights are earned after just two such seasons. Virtually all of the same rules that apply to Bird rights apply to Early Bird rights, with the requirements condensed to two years rather than three. Players still see their Bird clocks restart by changing teams via free agency, being claimed in an expansion draft, or having their rights renounced.

As is the case with Bird rights, a player’s clock stops when he’s released by a team and clears waivers, but it would pick up where it left off if he re-signs with that same team down the road without joining another club in the interim. For instance, Gary Payton II will have Early Bird rights this offseason because – even though he was waived last fall – he has finished two consecutive seasons with the Warriors and didn’t join another team between his stints in Golden State.

The crucial difference between Bird rights and Early Bird rights involves the limitations on contract offers. Bird players can receive maximum-salary deals for up to five years, while the most a team can offer an Early Bird free agent without using cap space is 175% of his previous salary (up to the max) or 105% of the league-average salary in the previous season, whichever is greater.

These offers are also capped at four years rather than five, and the new contracts must run for at least two years — the second year can be non-guaranteed, but can’t be a team or player option.

Besides Payton, some notable free agents who will have Early Bird rights during the 2022 offseason include Bobby Portis (Bucks), Nicolas Batum (Clippers), and JaMychal Green (Nuggets).

In some instances, teams can benefit from having Early Bird rights instead of full Bird rights if they’re trying to preserve cap space. The cap hold for an Early Bird player is 130% of his previous salary, significantly less than most Bird players, whose cap holds range from 150-300% of their previous salaries.

However, having a player’s Early Bird rights instead of his full Bird rights puts a team at a disadvantage in other cases. For instance, when Christian Wood reached free agency in 2020, his Early Bird rights only allowed the Pistons to offer a starting salary of up to about $10.05MM, a figure the Rockets topped in their three-year, $41MM offer.

In order to match or exceed that number, Detroit would have had to use cap room — having Wood’s full Bird rights would’ve allowed the Pistons to make a far more substantial offer without requiring cap space.

Meanwhile, some players with limited NBA experience are subject to a special wrinkle involving Early Bird rights, called the Gilbert Arenas Provision, which applies to players who have only been in the league for one or two years. We cover the Arenas Provision in a separate glossary entry, so you can read up on the details there. It would apply this offseason to a player like Bucks wing Jordan Nwora, though he seems unlikely to get a huge contract offer.

Finally, one more distinction between Bird rights and Early Bird rights applies to waivers. Players who are claimed off waivers retain their Early Bird rights, just as they would if they were traded. Those who had Bird rights instead see those reduced to Early Bird rights if they’re claimed off waivers. This rule stems from a 2012 settlement between the league and the union in which J.J. Hickson was given a special exception and retained his full Bird rights for the summer of 2012 even though he had been claimed off waivers that March.

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.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron.

The Bird exception, named after Larry Bird, is a rule included in the NBA’s Collective Bargaining Agreement that allows teams to go over the salary cap to re-sign their own players. A player who qualifies for the Bird exception, formally referred to as a Qualifying Veteran Free Agent, is said to have “Bird rights.”

The most basic way for a player to earn Bird rights is to play for the same team for at least three seasons, either on a long-term deal or on separate one- or two-year contracts. Still, there are other criteria. A player retains his Bird rights in the following scenarios:

1. He changes teams via trade. For instance, the Pistons will hold Marvin Bagley III‘s Bird rights when he reaches free agency this offseason, despite just acquiring him in February. His Bird clock didn’t reset when he was traded from Sacramento to Detroit.
2. He finishes a third season with a team after having only signed for a partial season with the club in the first year. The Warriors signed Juan Toscano-Anderson midway through the 2019/20 season, adding him to their roster in February 2020. When his contract expires this offseason, Toscano-Anderson will have Bird rights despite not spending three full seasons with Golden State, because that half-season in ’19/20 started his Bird clock.
3. He signed for a full season in year one or two but the team waived him, he cleared waivers, and didn’t sign with another team before re-signing with the club and remaining under contract through a third season. This one’s a little confusing, but let’s use Toscano-Anderson as a case study once more. After he finished the 2019/20 season with the Warriors, Toscano-Anderson was waived by the team in December 2020. Because the Warriors re-signed him shortly after cutting him and he didn’t join a new team in the interim, the swingman’s Bird clock picked up where it left off once he was back under contract, so he’ll have full Bird rights this summer.

A player sees the clock on his Bird rights reset to zero in the following scenarios:

1. He changes teams via free agency.
2. He is waived and is not claimed on waivers (except as in scenario No. 3 above).
3. His rights are renounced by his team. However, as in scenario No. 3 above, a player’s Bird clock picks up where it left off if he re-signs with that team renounced without having signed with another NBA team. For example, Taj Gibson had Early Bird rights last offseason, then had those rights renounced by the Knicks as the team attempted to gain extra cap room. Since Gibson eventually signed a new deal with New York, he remains on track to secure full Bird rights this summer — that wouldn’t have been the case if he had signed with a new team.
4. He is selected in an expansion draft.

If a player who would have been in line for Bird rights at the end of the season is waived and claimed off waivers, he would retain only Early Bird rights.

Meanwhile, a player with Bird rights who re-signs with his previous team on a one-year contract (or a one-year deal with a second-year option) would lose his Bird rights if he’s traded. As such, he receives the ability to veto trades so he can avoid that scenario.

[RELATED: Players who had the ability to veto trades in 2021/22]

The Bird exception was designed to allow teams to keep their best players, even when those teams don’t have the cap room necessary to do so.

When a player earns Bird rights, he’s eligible to re-sign with his team for up to five years and for any price up to his maximum salary (with 8% annual raises) when he becomes a free agent, no matter how much cap space the team has — or doesn’t have. The maximum salary varies from player to player depending on how long he has been in the league, but regardless of the precise amount, a team can exceed the salary cap to re-sign a player with Bird rights.

A team with a Bird free agent is assigned a “free agent amount” – also called a cap hold – worth either 190% of his previous salary (for a player with a below-average salary) or 150% of his previous salary (for an above-average salary), up to the maximum salary amount. For players coming off rookie scale contracts, the amounts of those cap holds are 300% and 250%, respectively.

The Hornets, for instance, will have a cap hold worth $16,264,479 for Miles Bridges on their 2022/23 books — 300% of his $5,421,493 salary for ’21/22. Charlotte could renounce Bridges and generate an extra $16MM+ in cap flexibility, but the Hornets would then lose the ability to re-sign him using Bird rights, which would force them to use either cap room or a different cap exception to re-sign him. As such, we can count on Charlotte keeping Bridges’ cap hold on the books until his free agency is resolved.

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.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron.

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 DeMarcus Cousins signed with the Nuggets on February 25, he received a minimum-salary contract. For the 2021/22 season, the minimum salary for a player with Cousins’ years of NBA service (10+) is $2,641,691, though such a deal would only count against his team’s cap for $1,669,178, as we explain here. However, since Cousins wasn’t with the Nuggets since the start of the season, he wasn’t entitled to that full minimum salary from the team.

The ’21/22 NBA season is 174 days long and Cousins signed his contract on the 130th day of the season, meaning his “one-year” contract will span 45 days. Due to proration, his minimum salary will be worth 45/174th of a full minimum salary. So instead of earning $2,641,691, he’ll make $683,196. And instead of counting for $1,669,178 on the Nuggets’ books, Cousins’ cap charge is 45/174th of that amount: $431,684.

If the Nuggets had signed Cousins using cap space or a cap exception, his salary wouldn’t necessarily have been prorated, but the minimum salary exception begins to prorate after the first day of the regular season.

The same principle of proration applied to an earlier deal that Cousins signed this season, with the Bucks. Cousins finalized a non-guaranteed minimum-salary contract with Milwaukee on November 30, the 43rd day of the regular season. That deal was initially worth $2,004,041 (132/174ths of $2,641,691), but Cousins was waived on January 6 before it became fully guaranteed.

Cousins was officially under contract with the Bucks for 38 days, and the NBA also pays players for the two days they spend on waivers, so the veteran center was credited with 40 days of service. That means, due to proration, he was entitled to 40/174th of a minimum salary — that amount worked out to $607,285.

Situations like Cousins’ in Denver and Milwaukee are the most frequent examples of proration’s impact on NBA finances, but 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 1/174th 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 earn 10/174th of their minimum salary.
• 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 that team’s 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.

A previous version of this glossary entry was published in 2018.

Although some NBA teams can become hard-capped during a given league year if they use specific exceptions or make certain transactions, the league doesn’t have a set hard cap for all teams. In addition to its soft cap though, the league does have a luxury tax threshold, which serves to discourage excessive spending. When a team’s total salary ends up over that line at season’s end, the NBA charges a tax for every extra dollar the club spends.

The formula to determine the luxury tax line is a complicated one, related to the NBA’s projected basketball related income (BRI) and projected benefits. Generally though, it comes in around 20-22% above the salary cap line. For instance, in 2021/22, the league’s salary cap is set at $112,414,000, while the luxury tax threshold is at $136,606,000. So any team whose total ’21/22 salary exceeds $136,606,000 on the last day of the regular season is subject to a tax bill.

The NBA’s luxury tax system is set up so that the penalties become more punitive if teams go further beyond the tax line. Here’s what those penalties look like:

• $0-5MM above tax line: $1.50 per dollar (up to $7.5MM).
• $5-10MM above tax line: $1.75 per dollar (up to $8.75MM).
• $10-15MM above tax line: $2.50 per dollar (up to $12.5MM).
• $15-20MM above tax line: $3.25 per dollar (up to $16.25MM).
• For every additional $5MM above tax line beyond $20MM, rates increase by $0.50 per dollar.
  • Note: This would mean $3.75 per dollar for amounts between $20-25MM, $4.25 for $25-30MM, etc.

For example, if a team is over the tax by $12MM, its tax bill would be $21.25MM: $7.5MM for the first $5MM over the tax, $8.75MM for the $5-10MM bracket, then $5MM for the final increment in the $10-15MM bracket.

While these are the rates that apply to most taxpayers – including the Clippers, Nets, Bucks, Lakers, Jazz, and Sixers this season – a team can become subject to a more punitive “repeater” penalty if it paid the tax in three of the previous four seasons.

This scenario currently applies to Golden State — the Warriors were a taxpaying club in 2018, 2019, and 2021, which means they’ll be a repeat offender this season. The Thunder, who were taxpayers in 2018, 2019, and 2020, would also be subject to the repeater tax this season, but they’re far, far below the tax line.

Here are the penalties that apply to repeat taxpayers:

• $0-5MM above tax line: $2.50 per dollar (up to $12.5MM).
• $5-10MM above tax line: $2.75 per dollar (up to $13.75MM).
• $10-15MM above tax line: $3.50 per dollar (up to $17.5MM).
• $15-20MM above tax line: $4.25 per dollar (up to $21.25MM).
• For every additional $5MM above tax line beyond $20MM, rates increase by $0.50 per dollar
  • Note: This would mean $4.75 per dollar for amounts between $20-25MM, $5.25 for $25-30MM, etc.

If the hypothetical team we described in our first example, over the tax by $12MM, was a repeat taxpayer, its bill would increase to $33.25MM.

Generally speaking, luxury tax penalties are calculated by determining a team’s total cap hits at the end of the regular season. So a team that starts the year above the tax line could get under it before the end of the season by completing trades or buyouts. The Celtics did just that this season, slipping below the luxury tax threshold at the trade deadline by completing a series of deals that reduced their overall team salary.

It’s also worth noting that team salary for tax purposes is calculated slightly differently than it is for cap purposes. Here are a few of the adjustments made at season’s end before a team’s tax bill is calculated:

• Cap holds and exceptions are ignored.
• “Likely” bonuses that weren’t earned are removed from team salary; “unlikely” bonuses that were earned are added to team salary.
• If a player with a trade bonus is acquired after the final regular season game, that trade bonus is added to team salary.
• If a player with 0-1 years of NBA experience signed a minimum-salary free agent contract, the minimum-salary cap charge for a two-year veteran is used in place of that player’s cap charge.
  • Note: This only applies to free agents, not drafted players. For example, Clippers rookie Brandon Boston Jr. (second-round pick) and Lakers rookie Austin Reaves (UDFA) are each earning $925,258 in 2021/22. Boston will count for $925,258 for tax purposes, while Reaves will count for $1,669,178.

So let’s say that five teams finish the season owing a total of $50MM in taxes. Where does that money go? Currently, the NBA splits it 50/50 — half of it is used for “league purposes,” while the other half is distributed to non-taxpaying teams in equal shares. In that scenario, the 25 non-taxpaying teams would receive $1MM apiece.

As cap expert Larry Coon explains in his CBA FAQ, “league purposes” essentially covers any purpose the NBA deems appropriate, including giving the money back to teams. In recent years, the NBA has used that money as a funding source for its revenue sharing program. Coon also notes that the CBA technically allows up to 50% of tax money to be distributed to non-taxpaying teams, but there’s no obligation for that to happen — in other words, the NBA could decide to use 100% of the tax money for “league purposes.”

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.

Earlier versions of this post were published in 2012, 2018, and 2020.

The NBA’s rookie scale, which determines how much first-round picks earn during their first four NBA seasons, also dictates how much the qualifying offers will be worth for those players once they’re eligible for restricted free agency after year four. However, the value of those qualifying offers can fluctuate depending on whether or not a player has met the “starter criteria.”

Here’s how the starter criteria works:

A player who is eligible for restricted free agency is considered to have met the starter criteria if he plays at least 2,000 minutes or starts 41 games in the season before he reaches free agency.

A player can also meet the criteria if he averages either of those marks in the two seasons prior to his restricted free agency. Due to the fact that only 72 games were played in the 2020/21 season, these requirements have been slightly adjusted, but will return to normal next season.

A player’s ability or inability to meet the starter criteria impacts the value of the qualifying offer he receives as a restricted free agent, as follows:

• A top-14 pick who does not meet the starter criteria will receive a qualifying offer equal to the amount the 15th overall pick would receive if he signed for 120% of the rookie scale.
  • Note: For the summer of 2022, the value of this QO will be $7,228,448.
  • Example: Cavaliers guard Collin Sexton (2018’s No. 8 overall pick) won’t meet the starter criteria this season. As a result, he’ll be eligible for a QO worth $7,228,448 instead of $8,559,357.
    
• A player picked between 10th and 30th who meets the criteria will receive a qualifying offer equal to the amount the ninth overall pick would receive if he signed for 120% of the rookie scale.
  • Note: For the summer of 2022, the value of this QO will be $7,921,300.
  • Example: Hornets forward Miles Bridges (2018’s No. 12 overall pick) has met the starter criteria this season. As a result, he’ll be eligible for a QO worth $7,921,300 instead of $7,459,974.
• A second-round pick or undrafted player who meets the criteria will receive a qualifying offer equal to the amount the 21st overall pick would receive if he signed for 100% of the rookie scale.
  • Note: For the summer of 2022, the value of this QO will be $4,869,012.
    
  • Example: Thunder wing Luguentz Dort (an undrafted free agent) has met the starter criteria this season. As a result, he’ll be eligible for a QO worth $4,869,012 instead of $2,228,276 if Oklahoma City declines his team option to make him a restricted free agent.
    
• For all other RFAs, the standard criteria determine the amounts of their qualifying offers.

Extending a qualifying offer to a player who is eligible for restricted free agency officially makes that player an RFA, ensuring that his team has the right of first refusal if he signs an offer sheet with another club. It also gives the player the option of signing that one-year QO.

Generally, the value of a restricted free agent’s qualifying offer isn’t hugely important, since very few RFAs accept those offers outright. There are exceptions though.

In 2020, for instance, Kris Dunn met the starter criteria, which ensured that his qualifying offer would have been worth $7,091,457 instead of $4,642,800. The Bulls opted not to extend that $7MM+ QO, making him an unrestricted free agent, and he ended up signing a two-year, $10MM contract with Atlanta. If Dunn hadn’t met the starter criteria, it’s possible Chicago would’ve been more comfortable issuing a $4.6MM qualifying offer, which would’ve significantly changed the way Dunn’s free agency played out.

We’ll revisit the starter criteria at season’s end to see which of 2022’s potential restricted free agents will have their qualifying offers impacted by meeting – or failing to meet – the starter criteria.

So far, of this year’s RFAs-to-be, Bridges, Dort (team option), Deandre Ayton, Mohamed Bamba, and Jae’Sean Tate (team option) have met the starter criteria. There are a few players who could still get there, led by Anfernee Simons, who has made 26 starts and logged 1,555 minutes.

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 RealGM was used in the creation of this post. Earlier versions of this post were published in 2019 and 2020.

Once the NBA trade deadline passes, the league’s buyout season unofficially begins. 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 released 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 Spurs guard Goran Dragic and Pacers big man Tristan Thompson agree to buyouts. Those two veterans each surrendered in the neighborhood of $800K to their respective teams in order to reach free agency.

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. It’s even more frequent if the player was traded at the deadline for salary-matching purposes to a team that doesn’t view him as part of its plans.

Dragic and Thompson each fit this bill. The Spurs and Pacers probably aren’t going to make the playoffs this season and are more focused on developing their young players. Buyouts for those two veterans will give them a chance to join teams with loftier short-term aspirations.

For the player, the motivating factor is generally the desire to play for a winning team rather than a chance to earn more money. In their buyouts, Dragic and Thompson gave up roughly the amount of money they’ll make on new prorated minimum-salary contracts, so they likely won’t come out ahead financially — they’ll just get a chance to play in the postseason before returning to free agency in the summer.

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.

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