Welcome to NBA Salaries 101, wherein we have our overly eager student/interrogator/apprentice, cleverly named "Q."
Q: So, the Salary Cap... tell me about it...
That's not really a question. But whatever. If you break it down to its very essence, the Salary Cap is all about preventing big city teams from taking over the NBA. "Salary Cap" means exactly what it sounds like- a cap or a ceiling on how much money a team can give out per year. It's there so high revenue teams like the Knicks... okay, bad example. It's there so teams like the Lakers can't acquire all the high profile players and easily win championships. The idea is that every team should be able to spend the same amount of money- whoever spends money the smartest should put out the best team. Quality over quantity. That sort of thing.
Q: Yeah, yeah. It doesn't work, right? Didn't the Lakers get that Pau Gasol dude? Didn't they get Karl Malone and Gary Payton?
The Salary Cap can't prevent against stupid trades from occurring. More on trades later, but as long as salaries match up, you can trade All-Stars for rookies and scrubs. The Salary Cap can't prevent veterans from signing up cheap to play next to the beach (Miami) or under the spotlights (LA, NY). That's a whole 'nother problem. What the Salary Cap says it should do (prevent rich teams from "buying" talent), it does successfully. In 2006, there was a 0.16 correlation between team payroll and winning percentage. Compare that to the 0.43 correlation in (the lawless) MLB, and things don't look so bad.
Q: Define the Salary Cap's function in one sentence.
If a team is about to sign a free agent that would put their payroll above the salary cap, they can't.
Q: As in, can't can't? Or just, can't?
Err yeah. Now that you bring it up, there are a few exceptions...
Q: There's always an exception to prove the rule.
What the hell does that mean any way? People say it all the time
Q: It's a legal maxim, established in English law in the early 17th century. Written, as law was in those days, in Latin: "Exceptio probat regulam in casibus non exceptis," and is interpreted to mean ‘exception confirms the rule in the cases not excepted’. It has (slightly modified) examples in print going back to at least 1617: "Collins: Indefinites are equivalent to vniversalls especially where one exception being made, it is plaine that all others are thereby cut off, according to the rule Exceptio figit regulam in non exceptis." Normally with these meanings and origins the meaning is well-understood or self-evident and the interesting aspect is how, where and when the phrase originated. This one is a little different - it's the meaning that is generally not understood. To the untutored ear it might appear to mean 'if there's a rule and I can find a counter-example to it, then the rule must be true'. This is clearly nonsense. For example, if our rule were 'all birds can fly', the existence of a flightless bird like a penguin hardly proves that rule to be correct. In fact it proves just the opposite. So, and here the maxim 'a little learning is a dangerous thing' comes into play, it has been suggested that it's an alternative meaning of the word prove that is the source of the confusion. Prove can mean several things, including 'to establish as true' and 'to put to trial or to test'. The second option is what is used in 'proving ground', 'the proof of the pudding is in the eating', etc. It could be argued then that the phrase means 'it is the exception that tests whether the rule is true or not'. In our example the existence of a bird that can't fly would put the 'all birds can fly' rule to the test (and find it wanting). That's all very well and most people would be happy to stop there. Unfortunately, when we go back to the legal origin of the phrase we see that it doesn't mean that at all. It's the word exception rather than prove that is causing the confusion here. By exception we usually mean 'something unusual, not following a rule'. What it means here though is 'the act of leaving out or ignoring'. If we have a statement like 'entry is free of charge on Sundays', we can reasonably assume that, as a general rule, entry is charged for. So, from that statement, here's our rule: You usually have to pay to get in. The exception on Sunday is demonstrating that the rule exists. It isn't testing whether the incorrect rule 'you have to pay' is true or not, and it certainly isn't proving that incorrect rule to be true.1
Wow. Okay then. So, this actually wouldn't be a case of an exception that proves the rule?
Q: Right you are. I should have said, there's always an exception to the rule. What then, is it?
Glad we cleared that up. There are actually nine major exceptions to the Salary Cap Rule. This will be a difficult, arduous voyage through cavernous hills, and man-eating giraffe infested rainforests. Oh, and there will be birds. A lot of birds.
Q: Blue Birds?
No. Larry Birds! First up:
- The Larry Bird Exception- A team can re-sign one of its own players for any amount desired (up to the max. player salary) no matter the salary circumstances. The caveat: said player must have played three straight seasons without being released (ie without ever becoming a free agent). So the player could conceivably be traded 72 times among 4 teams during the same 3 year contract and would qualify under the LBE. LBE contracts can be a maximum of 6 years long. Called the Larry Bird Exception because the NBA loves the Celtics. (It was a close call between naming it after Larry Bird or Rick Fox).
- The Early Bird Exception- A retarded cousin of the Larry Bird Exception, wherein a player need only play 2 years without becoming a free agent and the team can only sign him to a max. 5 year deal. A player's consent MUST be given to a trade if he will be a LB Free agent or EB Free agent at the end of a one year deal not including options (see: Jannero Pargo this year or more ignominiously, Devean George).
- The Non Bird Exception- A player that loses his LB rights or EB rights becomes a Non-Bird. This exception is basically for all veterans that aren't Larry Birds or Early Birds, and a team can re-sign them for up to 6 years at 120% his old salary or 120% the league minimum (the higher one).
The Mid-Level Exception- Finally, the one you probably care about. A team can sign any free agent using the exception, which is defined as a league average salary that doesn't count against the cap. Theoretically, you can break up the MLE among multiple free agents. This is why you hear phrases like "Seattle sucks so much they offered him their full midlevel exception, and he signed for the minimum in Charlotte!" New Orleans acquired Mo-Pete through the MLE last summer in a four year deal.
The Million Dollar Exception- Technically worth 1.91 million in '08-'09 but The 1.91 Million Dollar Exception just isn't as catchy. This is how teams get good veterans on the cheap (see: the Karl Malone Saga in L.A. filed under the They Got What They Deserved label). A team gets one of these every 2 years, and the contract can only be 2 years long.
- The Minimum Exception- Teams get as many as these as they want. Designed to let teams acquire as many players as want through trade, contracts through the ME can only be 2 years long. Ryan Bowen is an example of such a signee (he only signed for one year).
- The Reinstatement Exception- A team can re-sign previously banned players for whatever he was previously earning. I can't fathom how any team could possibly use this. Oh, wait.
- The Rookie Exception- It would suck big-time if a team was so over the cap that it couldn't even pay its drafted players. The Rookie Exception, also known as the The Mercy Rule for the Knickerbockers of New York, allows scaled rookie contracts regardless of cap situation.
- The Disabled Player Exception- Teams can obtain replacements for players who suffered season-ending injury while being over the cap. This seems like it should be pretty straightforward, except it really isn't. Some teams are granted the DPE for injury, while others, inexplicably aren't. The Hornets actually received the exception after the death of Bobby Phills (R.I.P.)
Q: Sheesh. Is that it?
Q: As the common saying goes, only three things are certain in life: Death, David West yelling "And One!," and taxes. Pray address the third.
As not mentioned earlier, the salary cap in 2008 was 55.63 million dollars. What you'll notice immediately is that numerous teams spent more than that in '07-'08, including the Hornets (who spent 62.42 million dollars). What you'll also notice is that most of these teams didn't pay any luxury taxes for being over the cap. Why? The threshold for paying luxury taxes isn't the same as the salary cap itself. If you exceed a payroll of $55.63 million by using legal exceptions, the league won't come after you.
If you exceed the league defined number 67.87 million dollars, that's where you run into trouble. $67.87 Million is the luxury tax threshold. Cross that, and you pay double on every dollar you exceed it by. Last year, the Knicks exceeded it somewhere in the 20 Million dollar range (22.05 I believe), and this year they exceeded it by 28 MIL if I'm not mistaken. So last year, they paid 44.1 million in luxury tax, and this year they should pay 56 million.
Q. Thanks for all the help. By the way, I'm Quentin Richardson.
Oh. Q... Richardson. Cool. What happened to your jump shot?