We always hear in the news, especially during the offseason, about all the different facts, possibilities, and scenarios concerning NBA finances. This player could possibly be signed by these teams, this team only has so much cap room left, that team could still use it’s mid-level exception to sign Player X. But what do all these terms and phrases mean? Sounds like everyone could use a series of posts on NBA finances!
I’ll start with the basics of the Salary Cap. For the 2010-2011 season, the salary cap is set for $58,044,000 for each team. That means all their players’ salaries combined can’t go over that number. Except is just isn’t that simple – for the 2009-10 season, 21 of 30 teams had payrolls over the salary cap, but only 11 teams had to pay a luxury tax because they went over. Confused? Keep reading, it will all make sense soon. Hopefully.
Anyone who’s taken a college finance class knows that money speaks a different language. Well, the NBA’s financial scene is no different. To truly understand a team’s financial situation, you must know the terminology associated with the NBA. Here’s some salary cap terms and definitions to help you out, starting with the basics:
Salary Cap: The maximum dollar amount that a team can collectively pay it’s players for a given season. A team cannot exceed this limit unless they meet the requirements for certain exceptions (which I’ll get to in a minute). 2010-11 season salary cap: $58,044,000
Luxury-Tax Line: The maximum dollar amount above the salary cap that a team’s payroll can hit before they have to start paying the -
Luxury Tax: Once a team surpasses the luxury-tax line, they have to pay the league $1 for every $1 in salaries above the line. 2010-11 season luxury-tax line: $70,307,000
Soft Cap: The opposite of a hard cap, which is what most pro sports leagues use, the NBA allows significant exceptions that allow teams to exceed the salary cap. These exceptions usually make it easier for teams to re-sign their own players, which theoretically makes teams more competitive and fans more loyal and supportive. (Unless you’re the 2005-06 Knicks, who had a payroll of $124 million ($74.5 million above the salary cap) and finished the season with the second worst record in the league. If they really wanted to waste that money, couldn’t they just hand it out to the fans?)
Doesn’t that make a little more sense? What’s that, you need time to process all this new info? Okay, but hurry up, because NBA Finance Part II: Player Contracts is next.