NBA Free Agency 2017: What is the salary cap?

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As we head into NBA free agency, here is a simple and brief a refresher on the NBA salary cap.

The old CBAFAQ website gives a lot of salary cap detail. I will keep it brief here. The overall purpose of the salary cap is to limit team’s abilities to spend more because they have more money. For example, big market teams in big cities have more money to spend than smaller market teams in smaller cities for a variety of reasons. To increase parity, the salary cap limits spending.

There are caveats. First, the NBA’s salary cap isn’t a hard cap. That means that even though the 2016-17 salary cap was $94 million, team’s can spend over the cap to keep players, via trades, and through cap exceptions. To penalize teams for going over the maximum, “soft” cap, the NBA instituted a luxury tax. This tax penalizes teams for overspending by charging them a specified amount.

So, when a team is over the hard cap, they can still sign free agents. The NBA does not want bad contracts to limit a team’s ability to compete. For a team over the cap, there are many tools that allow that team to sign a free agent. These tools, associated with a player’s Bird Rights (a team can re-sign their own free agents for more money and to longer contracts) in some cases, and associated with a specific dollar amount in others, enables a 2016 Brooklyn Nets team, for example, to sign players.

On the opposite end of the soft cap is the floor. Again, to increase parity, the NBA instituted a salary cap floor of 90 percnt of the soft cap. That means that teams must spend enough money on players to reach the floor. This incentivizes to rebuild both through the draft and through signing free agents. When teams do not meet the floor, they are also penalized and have to pay a specified amount of money to reach the floor.

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The purpose of the salary cap is to increase parity. There is a high correlation between money spent on a roster and wins. For teams like Portland, Philadelphia, or Milwaukee, it is difficult to compete against teams like Cleveland and Golden State, which have unlimited budgets. The salary cap incentivizes teams to play by the same rules and live within a 10 percent spending on their rosters.

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