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Welcome back to the show. Today, we are delving into the complexities of the NBA's salary cap and everything associated with it. Many offseason podcasts and discussions assume listeners have a solid understanding of the NBA’s payroll rules, but terms like "second apron" can be bewildering without context. Let's unravel these terms and provide a comprehensive guide to understanding the NBA salary cap.
The salary cap is essentially the maximum amount of money a team can spend on player salaries in a given season. For the 2023-2024 NBA season, this cap is set at approximately $140 million. This figure is derived from the Basketball Related Income (BRI) of the previous season, which includes revenue from TV deals, gate sales, merchandise, and other basketball-related activities. The BRI is split roughly 50-50 between players and owners, resulting in the salary cap.
However, while $140 million might seem sufficient to assemble a competitive team, there are various mechanisms and exceptions in place that allow teams to exceed this cap, leading to the creation of multiple thresholds within the salary cap structure.
Contrary to what some might think, there’s also a minimum amount that teams must spend, known as the salary floor. For the current season, this floor is set at $126 million. This ensures that all teams are competitive to some degree and prevents owners from underspending just to save money. This concept is crucial for maintaining a level of parity within the league, contrasting with other sports leagues like Major League Baseball (MLB), which lacks a salary cap or floor, leading to significant disparities in team spending.
Moving beyond the basic salary cap, we encounter the luxury tax line, which for this season is set at $170 million. Teams that exceed the salary cap but stay below the luxury tax line do not incur any additional penalties. However, once a team surpasses the luxury tax line, they start paying a penalty. The luxury tax is a progressive system where the penalty increases with the amount by which a team exceeds the tax line. Furthermore, teams that frequently exceed the tax line face an even higher penalty, known as the "repeat offender tax." This system is designed to discourage teams from consistently outspending others and to promote a more balanced financial competition across the league.
The first apron is set at $178 million. When a team’s payroll exceeds this threshold, it faces additional restrictions. One of the key limitations is that such teams cannot sign players who were waived by other teams if those players earned more than $12 million. This rule aims to prevent wealthier teams from easily acquiring high-caliber players towards the end of the season, thus maintaining competitive balance.
Another restriction is the prohibition on sign-and-trade deals. A sign-and-trade involves signing a player to a new contract and immediately trading him to another team. This mechanism allows teams to circumvent salary cap restrictions. For example, the deal that sent Klay Thompson to the Mavericks was a sign-and-trade. By being over the first apron, teams lose the flexibility to engage in such transactions, thereby limiting their ability to make roster adjustments.
The second apron is a more stringent threshold, set at $188 million. Teams that exceed this level face severe limitations on their ability to improve their roster. They cannot make trades that result in a net increase in salary, meaning they cannot trade for players who earn more than the ones they are giving up. Additionally, these teams are restricted from trading multiple players for a single higher-salaried player, even if the combined salaries match.
Moreover, the second apron affects future draft picks. If a team is above the second apron for two out of four seasons, its draft pick seven years in the future is moved to the last pick of the first round. This rule is intended to penalize teams that consistently overspend, ensuring they face long-term consequences.
The Phoenix Suns provide an interesting case study. As of now, they are projected to pay $158 million in luxury tax, more than the salary cap itself. This expenditure is driven by their acquisition of high-salary players in an effort to compete for a championship. However, this financial strategy also means they face significant restrictions under the second apron, limiting their flexibility in making future roster adjustments.
