Hoops Rumors Originals

The mid-level exception is the most common way for over-the-cap NBA teams to sign free agents from other clubs for more than the minimum salary. It ensures that each club heads into the offseason with a little spending flexibility, even if that team is deep into luxury tax territory.

Each team is eligible to use a specific type of mid-level exception depending on its proximity to the salary cap. The most lucrative kind of mid-level is available to teams that are over the cap but less than $6MM above the tax threshold. Still, clubs deep into the tax, and even those under the cap, have access to lesser versions of the MLE. Here’s a glance at how all three forms of the exception are structured:

For over-the-cap teams:

• Commonly called either the full mid-level exception, the non-taxpayer’s mid-level exception or simply the mid-level exception.
• Contract can cover up to four seasons.
• First-year salary is worth $8,406,000 in 2017/18.
• Once used, the team cannot surpass the “tax apron” ($6MM above tax line) for the remainder of the season.

For teams above the cap and the tax apron:

• Commonly called the taxpayer’s mid-level exception.
• Contract can cover up to three seasons.
• First-year salary is worth $5,192,000 in 2017/18.

For teams with cap room:

• Commonly called the room exception.
• Contract can cover no more than two seasons.
• First-year salary is worth $4,328,000 in 2017/18.

Each form of the mid-level allows for annual raises of up to 5% of the value of the first season’s salary. Back in June, we broke down the maximum total salaries that players signed using the mid-level exception could earn. Those numbers can be found right here.

While teams can use their entire mid-level exception to sign one player, as the Spurs did this year with Rudy Gay, clubs are also allowed to split the mid-level among multiple players, and that’s a common course of action. For instance, the Grizzlies have used their MLE to complete four separate signings, devoting parts of it to Ben McLemore, Ivan Rabb, Rade Zagorac, and Dillon Brooks.

Players drafted near the top of the second round often sign contracts for part of the mid-level because it allows teams to give them contracts for more years and more money than the minimum salary exception provides. For example, the Grizzlies used their mid-level to sign Ivan Rabb to a three-year contract that starts at $950,000. Without the MLE, Memphis would have been limited to a two-year deal starting at $815,615, and would have only had Early Bird rights on Rabb when his contract ended, rather than full Bird rights.

Some front offices prefer to leave all or part of their mid-level exception unused in the offseason so it’s still available near the end of the regular season — at that point, a contender could use its MLE to try to sign an impact veteran on the buyout market, while a rebuilding club could use it to lock up an intriguing developmental player to a long-term contract.

Unlike the bi-annual exception, the mid-level exception can be used every season. So whether or not a team uses its mid-level in 2017/18, each club will have the opportunity to use some form of the MLE when the new league year begins on July 1, 2018.

Under the old Collective Bargaining Agreement, the mid-level exception increased annually at a modest, fixed rate, which limited its value as the salary cap spiked. However, under the new CBA, the mid-level will increase at the same rate as the salary cap, ensuring that its value relative to cap room remains about the same from year to year. Based on the NBA’s current $101MM salary cap projection, the 2018/19 non-taxpayer MLE would start at $8,567,770.

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 2012, 2013, 2014, 2015, and 2016 by Luke Adams and Chuck Myron.

There are many NBA players technically on maximum salary contracts, but most of those players aren’t earning identical salaries this season, making the league’s “maximum salary” something of a misnomer. While each NBA player has a maximum salary that he can earn in a given season, that number varies from player to player, with a handful of factors playing a part in determining the exact figure.

The primary factor in determining a player’s maximum salary is his years of service. If a player has been in the NBA for six years or fewer, he can earn up to 25% of the salary cap in the first year of his deal. Players with seven to nine years of experience can earn up to 30%, while veterans with 10 or more years in the NBA are eligible for up to 35% of the cap. In 2017/18, the salary cap is $99,093,000, meaning the maximum salaries are as follows:

The figures above help explain why Otto Porter, who signed a maximum salary offer sheet in July, is earning a salary of $24,773,250 this season. But they don’t explain why his teammate John Wall, who has three more years of NBA experience than Porter and is also on a max contract, is earning just $18,063,850.

The reason Wall’s maximum salary is relatively modest compared to Porter’s is that those league-wide maximum salary figures only apply to the first year of a multiyear contract. When a player signs a maximum contract, he can receive annual raises of up to either 8% or 5%, depending on whether he signs with his previous team or a new team. So by the third or fourth year of his contract, he could be earning significantly more or less than the max for that season.

Because Wall signed his maximum salary contract several years ago and the cap has spiked since then (including a jump of nearly 35% in 2016), his annual raises couldn’t keep up with the cap growth. He’ll start over on a new max deal in 2019/20, at which point his salary will nearly double — he’ll go from $19,169,800 in the last year of his previous max contract to a projected $37,800,000 in the first year of his new pact.

Here are a couple more ways a player’s usual maximum salary can fluctuate:

• A free agent’s maximum salary is always at least 105% of his previous salary. For example, LeBron James is earning $33,285,709 this season, and can become a free agent in July. His new maximum salary is expected to be $35.35MM, based on a $101MM cap projection. But if the cap didn’t increase, James would still be eligible for a new max salary worth 105% of his 2017/18 figure, which would work out to $34,949,994.
• In certain situations, players eligible for new contracts can earn the maximum salary for the level above the one they’d typically fall into. For instance, a player receiving a designated rookie extension can earn up to 30% of the cap instead of 25% if he meets certain criteria. A veteran can become eligible to earn up to 35% of the cap instead of 30% if he meets the same criteria, which are related to MVP, Defensive Player, or All-NBA honors.

A player who signs a maximum salary contract can receive a trade kicker as part of his deal, but he can’t cash in on that bonus for any amount beyond his maximum salary in a given league year. For instance, Gordon Hayward‘s max salary contract with the Celtics features a 15% trade kicker, but if Hayward were traded this season, he wouldn’t be eligible to receive that bonus, since it would exceed his maximum salary.

Similarly, a maximum salary player whose team finishes the season below the minimum salary floor isn’t eligible to receive a share when the team distributes that money to its players, since his max salary for that year can’t be exceeded.

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 and 2014 by Luke Adams and Chuck Myron.

The Cavaliers have committed only about $76MM in guaranteed money to player salaries for 2018/19, but that doesn’t mean the team will begin the offseason with $25MM of room under the projected $101MM salary cap. In fact, the Cavs won’t open the new league year with any cap space at all. Each of Cleveland’s own free agents will be assigned a free agent amount – or “cap hold” – until the player signs a new contract or the Cavs 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 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 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 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 LeBron James, who is earning $33,285,709 this season, 150% of his previous salary would go far beyond the maximum salary threshold. James’ cap hold will be equivalent to the max for a player with 10+ years of NBA experience, which currently projects to be $35.35MM based on a $101MM salary cap.

One unusual case involves players on rookie contracts whose third- or fourth-year options are declined, such as Jahlil Okafor, who had his fourth-year option turned down by the Sixers. Because they declined that option, the 76ers wouldn’t be able to pay Okafor more than what he would have earned in the option year ($6,313,832). 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 — the rule applies even if the player is traded, so a team acquiring Okafor before this year’s deadline couldn’t get around it. Rather than coming in at 300% of this year’s salary, as would be the case with most players coming off rookie scale contracts, Okafor’s 2018 cap hold will equal the amount of his option: $6,313,832.

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. In 2018/19, incomplete roster charges will be worth $831,311, meaning a team with 12 of those charges would have just under $10MM on its cap, even before adding any players.

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 Cavaliers are still carrying cap holds on their books for James Jones, Deron Williams, Dahntay Jones, and multiple other players who haven’t signed new contracts since playing for Cleveland. 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.

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.