Hoops Rumors Originals

The NBA’s salary cap is a “soft” cap, which is why most teams’ salaries have surpassed the $136,021,000 threshold for the 2023/24 season. Once a team uses up all of its cap room, it can use a series of “exceptions” – including the mid-level, bi-annual, and various forms of Bird rights – to exceed the cap.

Since the NBA’s Collective Bargaining Agreement doesn’t feature a “hard” cap by default, teams can construct rosters that not only exceed the cap but also blow past the luxury tax line ($165,294,000 in ’23/24). While it would be nearly impossible in practical terms, there’s technically no rule restricting a club from having a team salary worth double or triple the salary cap.

However, there are certain scenarios in 2023/24 in which a team can become hard-capped at one of two thresholds, known as the “tax aprons.” Those scenarios are as follows:

A team becomes hard-capped at the first tax apron if:

1. The team uses its bi-annual exception to sign a player.
2. The team uses more than the taxpayer portion of the mid-level exception to sign a player (or multiple players).
   • Note: In 2023/24, the taxpayer MLE is worth $5,000,000, compared to $12,405,000 for the full non-taxpayer MLE. The taxpayer MLE can be used to complete deals up to two years, while the non-taxpayer MLE can be used to complete deals up to four years.
     
3. The team uses any portion of its mid-level exception to acquire a player via trade or waiver claim.
4. The team acquires a player via sign-and-trade.
5. The team signs a player who was waived during the current regular season, if his pre-waiver salary for 2023/24 exceeded the amount of the non-taxpayer mid-level exception ($12,405,000).
6. The team takes back more than 110% of the salary it sends out in a trade (using salary-matching rather than cap room).

A team making any of those six roster moves must ensure that its team salary is below the first tax apron when it finalizes the transaction and remains below the apron for the rest of the league year.

For the 2023/24 league year, the first apron is set at $172,346,000, which is $7,052,000 above the tax line. A team that completes one of the six moves listed above can’t surpass that line under any circumstances.

A team becomes hard-capped at the second tax apron if:

1. The team uses any portion of the mid-level exception to sign a player.

Under the previous Collective Bargaining Agreement, every team was permitted to use at least some portion of the mid-level exception, but it’s no longer available to teams above the second tax apron, so a club that uses any part of the MLE is hard-capped at that second apron.

As noted above, a team that uses more than the taxpayer portion ($5MM) is hard-capped at the first apron, which means teams between the first and second apron are allowed to spend up to $5MM in MLE money.

For the 2023/24 league year, the second apron is set at $182,794,000, which is $17.5MM above the tax line.

So far in ’23/24, a total of 11 teams have hard-capped themselves at the first tax apron by acquiring a player via sign-and-trade, using the non-taxpayer mid-level exception, using the bi-annual exception, or taking back more than 110% of the outgoing salary in a trade. Two more teams have hard-capped themselves at the second apron by using $5MM in mid-level money.

For many of those teams, the restriction is barely noticeable — they remain far below their hard cap and haven’t had to worry about whether a roster move might put them over it. However, a handful of clubs will have to be wary of that hard cap as they approach the trade deadline.

It’s worth noting that even if a team starts a new league year above the tax apron, that doesn’t mean they can’t become hard-capped at some point later in the season. For example, the Warriors are currently well above the second apron, but in the unlikely event that they dump a couple big contracts and then use $5MM of their mid-level exception to sign a free agent, a hard cap would be imposed and they’d be ineligible to surpass the $182.8MM second apron for the rest of the league year.

In other words, the hard cap applies from the moment a team completes one of the transactions listed above, but isn’t applied retroactively.

The list of roster moves that will impose a hard cap on a team will expand beginning in the 2024 offseason. After the last day of the 2023/24 regular season, the following restrictions will apply:

A team becomes hard-capped at the first tax apron if:

1. The team takes back more than 100% of the salary it sends out in a trade (when over the cap).
   • Note: This will replace the fifth rule listed above, reducing the salary-matching limit from 110% to 100% for teams over the first apron.
2. The team uses a traded player exception generated during the prior year (ie. between the end of the previous regular season and the end of the most recent regular season).

A team becomes hard-capped at the second tax apron if:

1. The team aggregates two or more player salaries in a trade.
2. The team sends out cash as part of a trade.
3. The team acquires a player using a traded player exception that was created by sending out a player via sign-and-trade.
   • Note: This applies whether the traded player exception is generated as part of a simultaneous trade (ie. using an outgoing signed-and-traded player for matching purposes) or non-simultaneous trade (ie. in a subsequent trade, using a TPE previously generated by sending out a player via sign-and-trade).
     

Typically, a team’s hard cap expires on June 30 when the current league year comes to an end, with the team getting a clean slate on July 1. However, beginning in the 2024 offseason, if a team engages in any of the trade-related transactions prohibited for first or second apron teams between the end of the regular season and June 30, the team will not be permitted to exceed that apron level during the following season.

If, for example, a team sends out cash in a trade in June of 2024, that team won’t be allowed to exceed the second tax apron during the 2024/25 league year. The inverse is also true — a team whose 2024/25 salary projects to be over the second apron won’t be able to trade cash in June.

This rule only applies to trade-related transactions because the ones related to free agency don’t come into effect between the end of the regular season and the start of the next league year.

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.

Previous versions of this post was published in 2020 and 2021.

When an NBA team is over the salary cap and wants to make a trade, certain rules in the Collective Bargaining Agreement dictate how much salary the team is permitted to take back. These salary-matching rules are evolving – they changed prior to this season and will change again in 2024 – but in most cases, an over-the-cap team must send out nearly as much salary as it acquires for the trade to be legal.

In some scenarios, salary aggregation is required in order to legally match the incoming player’s cap hit. Aggregation is the act of combining multiple players’ salaries in order to reach that legal outgoing limit.

For example, let’s say Team A has a team salary above the first tax apron and wants to acquire a player earning $30MM from Team B. Sending out a player earning $25MM would fall short of the minimum requirement, since Team A can only bring back up to 110% of the outgoing amount. Trading a $25MM player would allow the team to acquire up to $27.5MM in salary.

However, by adding a second player earning $3MM to its package, Team A would reach the minimum outgoing threshold by “aggregating” its two traded players, resulting in a total of $28MM in outgoing salary — that’s enough to bring back a $30MM player.

Only player salaries can be aggregated. Trade exceptions cannot be aggregated with one another or with players. That means a team with a $10MM trade exception can’t aggregate that exception with a $20MM player (or a separate $20MM trade exception) to acquire a $30MM player.

Crucially, sending out two players together in a trade doesn’t necessarily mean they have to be aggregated.

For instance, if Team A sends out one player earning $28MM and another earning $5MM in exchange for its incoming $30MM player, there’s no need to aggregate the two outgoing salaries. Since $28MM is an amount sufficient to take back $30MM, the $5MM player can essentially be traded for “nothing,” creating a $5MM trade exception that could be used at a later date.

Because trade exceptions can only be created in “non-simultaneous” trades and salary aggregation can only be completed in a “simultaneous” trade, trade exceptions can’t be generated in scenarios in which salaries are aggregated. In the hypothetical trade above, swapping the $28MM player for the $30MM player represents a simultaneous trade, while sending out the $5MM player represents a non-simultaneous trade, resulting in the trade exception.

Here’s another example to illustrate that point, using the same $30MM incoming player: If Team A decides to salary-match by sending out one player earning $20MM and a second earning $15MM, that team can’t generate a trade exception worth the excess amount ($5MM), because the two outgoing salaries must be aggregated, resulting in a simultaneous trade.

One good recent example of salary aggregation came when the Clippers acquired James Harden and P.J. Tucker from the Sixers last month. Harden ($35,640,000) and Tucker ($11,014,500) were earning a combined $46,654,500, so the Clippers – whose team salary was above both tax aprons – needed to send out at least $42,413,182 to get to within 10% of that amount.

Paul George or Kawhi Leonard are each earning more than $42.4MM on their own, but they weren’t going to be part of the deal with Philadelphia and no other Clipper was making close to that amount, so the team had to aggregate several players’ salaries in order to meet the required threshold. Los Angeles used Marcus Morris ($17,116,279), Nicolas Batum ($11,710,818), Robert Covington ($11,692,308), and KJ Martin ($1,930,681) to get there.

Because the Clippers’ four outgoing players combined to earn $42,450,086, the team was able to take back up to $46,695,095 (110% of the outgoing amount). That means that Harden was able to receive a small portion ($40,595) of his trade bonus while waiving the remaining amount. If Harden had insisted on receiving even one more dollar of his bonus, the Clippers would have had to aggregate a fifth salary to make the deal work.

The NBA’s trade rules state that when a team acquires a player using salary-matching or a trade exception (rather than cap room), it cannot aggregate that player’s salary in a second trade for two months.

The one exception to that rule occurs if a player is traded on or before December 16, but less than two months until that season’s trade deadline. In that case, the player is permitted to be aggregated again either on the day before the deadline or the day of the deadline.

Any player traded after December 16 can’t have his salary aggregated with another player’s before the trade deadline. But, as outlined above, that doesn’t mean that a player acquired after today can’t be traded again before the deadline along with other players — it simply means his salary can’t be aggregated as part of the deal.

Here are a couple more notes related to salary aggregation:

• Beginning in the 2024 offseason, a team whose total salary is above the second tax apron will not be permitted to aggregate salaries as part of a trade. A team that does aggregate salaries in a trade will become hard-capped at the second apron for the rest of that league year (or for the following league year, if the trade is made between the end of the regular season and June 30).
• If a team is aggregating three (or more) player salaries in a trade for matching purposes in order to take back fewer players than that, no more than one of the aggregated players can be earning the minimum salary. This rule doesn’t apply between December 15 and the trade deadline, but is in effect the rest of the year.

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 post was published in 2022.

If an NBA team’s salary continues to rise after it surpasses both the salary cap and the luxury tax line, it may reach or exceed a pair of tax “aprons.” The level of the first tax apron is several million dollars above the threshold at which a team becomes a taxpayer, while the second tax apron is another $10MM+ beyond the first apron.

A team whose salary exceeds the first apron is prohibited from making certain moves during that league year, while a team whose salary goes beyond the second apron faces even more restrictions. The goal is to limit the ability of the teams with the NBA’s highest payrolls to further upgrade their rosters and to encourage competitive balance.

Although the tax apron isn’t a new addition to the NBA’s Collective Bargaining Agreement, the 2023 CBA represents the first time that the league’s cap system features multiple aprons. The 2023 CBA also introduced several new rules that apply to teams whose salaries are above one or both aprons.

Let’s dive in and break down the tax aprons in greater detail…

How are the tax aprons calculated?

The formula that determined the level of the first tax apron in 2023/24 was as follows:

• Formula: $165,294,000 + ($6,716,000 x $129,838,000 / $123,655,000)
• Result: $172,346,000
  • Note: The result was rounded to the nearest thousand.

These may just look on the surface like a collection of random numbers, but there’s a method to the madness. $165,294,000 is this season’s luxury tax line, while $6,716,000 was the gap between the tax line and the apron in 2022/23. $129,838,000 is the average of this season’s and last season’s salary caps, while $123,655,000 was the amount of last season’s salary cap.

More simply put: The gap between the tax level and the apron was calculated by taking last season’s gap and increasing it by a percentage representing half of this season’s cap increase. The cap rose by 10% this past summer; this year’s difference of $7,052,000 between the tax threshold and the first apron is 5% more than last year’s difference of $6,716,000.

Going forward, the first tax apron will increase at the same rate as the salary cap, making the calculation a little simpler. The formula will be as follows:

• $172,346,000 x (salary cap for that season / $136,021,000)

For instance, if the salary cap for 2024/25 comes in at $145,000,000, the first tax apron would be $183,723,000.

The calculation of the second tax apron, newly created for the 2023/24 season, was much more straightforward — it was simply a matter of adding $17.5MM to this season’s tax line, so the second apron came in at $182,794,000.

Like the first apron, the second apron will rise at the same rate of the cap in future seasons, meaning the formula will be as follows:

• $182,794,000 x (salary cap for that season / $136,021,000)

If we use that same example as above of a $145,000,000 cap for 2024/25, the second apron would come in at $194,861,000 next season.

What restrictions does a team face if its salary is above the first tax apron but below the second apron?

The restrictions facing teams above the first tax apron are different in 2023/24 than they will be in future seasons, since the NBA wanted to phase in those rules gradually rather than implementing them all at once. Rolling out the changes over a couple seasons gives teams the opportunity to adjust their rosters to account for the new apron-related rules.

Here are the moves that a team whose salary is above the first tax apron – but below the second apron – is prohibited from making in 2023/24:

1. Acquiring a player via sign-and-trade.
2. Using any portion of the bi-annual exception.
3. Using more than the taxpayer portion (up to two years, with a starting salary of $5MM) of the mid-level exception.
4. Signing a player who was waived during the current season if his pre-waiver salary for 2023/24 exceeded the amount of the non-taxpayer mid-level exception ($12,405,000).
5. Taking back more than 110% of the salary it sends out in a trade (when over the cap).

The first four limitations on this list will remain in place in future seasons. The fifth will be modified to become even more restrictive.

Here are the additional moves that teams above the first apron – but below the second apron – will be ineligible to make beginning after the last day of the 2023/24 regular season:

1. Taking back more than 100% of the salary it sends out in a trade (when over the cap).
2. Using a traded player exception generated during the prior year (ie. between the end of the previous regular season and the end of the most recent regular season).

To clarify that second point, let’s say a team above the first apron currently has one trade exception worth $5MM, then generates another one worth $8MM at the 2024 trade deadline in February. Both of those exceptions would become unavailable once the team’s 2024 offseason begins.

That club could subsequently make a draft-night deal that generates a new $7MM TPE and use that exception at any point between its creation and the end of the 2024/25 regular season. But that TPE would once again become unavailable once the team’s 2025 offseason begins, prior to the typical one year expiration date.

What restrictions does a team face if its salary is above the second tax apron?

A team whose salary is above the second tax apron is prohibited from making any of the moves outlined above that are unavailable to teams above the first apron. That includes acquiring a player via sign-and-trade, using any portion of the bi-annual exception, and so on.

In 2023/24, a team above the second apron is also forbidden from using any portion of the mid-level exception.

Additional restrictions will be implemented beginning in 2024. Here are the moves that teams above the second tax apron won’t be permitted to make beginning after the last day of the 2023/24 regular season:

1. Using any portion of the mid-level exception.
2. Aggregating two or more player salaries in a trade.
3. Sending out cash as part of a trade.
4. Acquiring a player using a traded player exception if that TPE was created by sending out a player via sign-and-trade.
   • Note: This includes taking back salary in the same transaction in which a player is sent out via sign-and-trade.

Teams above the second tax apron will face one more draft-related restriction beginning in the 2024/25 league year. If the team’s salary exceeds the second apron, its first-round pick in the draft seven years away will be frozen, making it ineligible to be traded.

If the team’s salary exceeds the second apron in at least two of the following four seasons (three of five in total), the frozen pick would move to the end of the first round for that draft. Conversely, if the team stays below the second apron for at least three of the subsequent four seasons, its pick becomes “unfrozen” and is once again tradable.

For instance, let’s say the Clippers finish the 2024/25 league year above the second tax apron. That would result in their 2032 first-round pick becoming frozen. If their team salary remains above the second apron for at least two more seasons between ’25/26 and ’28/29, their frozen pick would move to the end of the 2032 first round and would remain ineligible to be traded.

If multiple teams have a frozen pick moved to the end of the first round in a particular draft, they would make their selections in reverse order of their spot in the standings in the season prior to that draft. For example, if both the Clippers and Warriors have their 2032 first-rounders moved to the end of the round and Golden State finishes ahead of L.A. in 2031/32, the Clippers would pick ahead of the Warriors in that draft.

Can a team that begins a league year above the first or second tax apron gain the ability to make additional moves by reducing its salary and dipping below the apron(s)?

Yes. If a clubs opens the 2024/25 league year carrying $200MM in salary, then engages in a series of salary-dump trades that reduce its team salary to $125MM, it would no longer be subject to the restrictions facing a an apron team.

However, as long as the team’s salary remains above the first or second apron – or if the team is completing a transaction would push its salary above one apron or the other – that team is subject to the rules that apply to that apron level.

Critically, it’s worth noting that once a club engages in a roster move that is prohibited for a team above the first or second apron, that club will be hard-capped for the rest of the season at that apron level.

In 2023/24, for instance, teams like the Cavaliers and Rockets acquired players via sign-and-trade, the Lakers and Knicks used the non-taxpayer mid-level exception, and the Thunder and Trail Blazers took back more than 110% of their outgoing salary in trades. As a result, those teams are among several that are hard-capped at the first apron ($172,346,000) and aren’t permitted to surpass that salary level for the rest of ’23/24.

The Nuggets and Grizzlies are the only teams hard-capped at the second apron this season, since they used a piece of the mid-level exception that doesn’t exceed the taxpayer portion ($5MM) allotted to teams above the first apron.

Finally, there’s one more important point related to apron level restrictions and hard caps: A team that engages in any of the trade-related transactions prohibited for first or second apron teams between the end of the regular season and the end of that league year on June 30 will not be permitted to exceed that apron level during the following season.

If, for example, a team sends out cash in a trade in June of 2024, that team won’t be allowed to exceed the second tax apron during the 2024/25 league year. The inverse is also true — a team whose 2024/25 salary projects to be over the second apron won’t be able to trade cash in June.

This rule only applies to trade-related transactions because the ones related to free agency don’t come into effect between the end of the regular season and the start of the next league year.

Anything else I should know about the tax aprons?

It’s worth pointing out that a club with a number of incentive bonuses on its books may find itself operating above the first or second apron even if its base team salary doesn’t exceed those levels.

For the purposes of calculating a team’s salary, a player’s likely incentives are included in his cap hit, but his unlikely incentives aren’t (an incentive is considered likely to be earned if it was achieved last season and unlikely to be earned if it wasn’t). However, for the purposes of determining a team’s apron level, all those incentives are counted.

That means a team with a $170MM base salary in 2023/24 and an additional $5MM in unlikely incentives would be considered a first apron team and would be unable to make certain roster moves, since there’s a chance those incentives could be earned, pushing the club’s salary above $172,346,000.

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.