Issue #9 - The New CBA for Dummies
for people like me
Hey hey, this is another long-ish issue in the basketball drought that is known as the NBA offseason. I’m particularly excited about this issue because this topic was what originally me inspired to make this newsletter because I got frustrated talking to friends who (understandably) didn’t really understand the convoluted rules of the CBA. Hopefully, this can be a one-stop-shop for people to look at to understand how the NBA contract and cap rules work!
What is the CBA?
So what is the CBA? A CBA is short for a “collective bargaining agreement”. This is not unique to the NBA and is used by all sorts of different kinds of unions. In this particular situation, the NBA Players Association negotiates with the owners of NBA teams to come to a binding, legal agreement on how the NBA revenue is going to be split and how the teams and owners can use it.
This is an important tool for maintaining competitive parity in the league. Teams who can leverage the rules of the CBA have a significant advantage in team building in their hunt for championships.
If you want to read the entire CBA in its entirety, you can check that out here.
Glossary
Here are some terms that you should know the meaning of as they’re gonna be thrown around a lot in the new CBA! Feel free to scroll back and forth as you’re reading because these can get a bit confusing.
Examples here will be using the 2022-2023 season and the former CBA. The new CBA will change a couple things and mostly add on top of these for all intents and purposes.
Salary Cap: This is a number that is the basis of all spending limits in the NBA. I describe it so vaguely because it is not a hard cap but rather a soft one. This means that even though it is called a “cap”, NBA teams are allowed to spend more money than the limit. In the 2022-2023 season, this number is $123,655,000. This number is determined as a percentage of revenue that the NBA receives.
Minimum Team Salary: This is a number that represents the bare minimum that an NBA team will pay in salary to their players. If a team happens to be under this Salary Floor, they will pay the difference out to the players on their team. In the 2022-2023 season, the number is: $111,289,500. This number is 90% of the salary cap.
Tax Level: The Tax Level is a number that is higher than the Salary Cap and is set similarly as a proportion of revenue for the NBA. In the 2022-2023 season, this number is $150,267,000.
Luxury Tax: This a financial penalty that a team pays if they are above the Tax Level. The amount that they pay is as follows:
$0 -> $4,999,999 – $1.50 per $1 over the Tax Level
$5,000,000 -> $9,999,999 – $1.75 per $1 over the Tax Level
$10,000,000 -> $14,999,999 – $2.50 per $1 over the Tax Level
$15,000,000 -> $19,999,999 – $3.25 per $1 over the Tax Level
$20,000,000+ – $3.75 per $1 over the Tax Level. For every $5,000,000 in this tier, increase the penalty by 50 cents per $1.
If a team has paid the luxury tax in 3 of the previous 4 seasons, they will be subject to a repeater tax penalty. This penalty is an additional $1 per $1 spent over the Tax level at each level listed above.
Luxury Tax payments are paid to the league and subsequently shared amongst all of the non tax paying teams.
Apron: The Apron is a number that is higher than the Tax Level and is set similarly as a proportion of revenue for the NBA. In the 2022-2023 season, this number is $156,983,000.
Some noteworthy penalties while above the Apron include: losing access to the Bi-Annual Exception, having a smaller Mid-Level Exception and not being able to participate in Sign and Trade deals.
Exceptions: You can think of these as free sums of money that the League conditionally gives teams to acquire players. Though it’s not really that free since the team is still on the hook for any penalties that adding that extra salary will incur including a larger luxury tax bill. These exceptions are of varying amounts and lengths:
Bi-Annual exception - 3.32% of the salary cap
Mid-Level Exception
Cap Room - Teams below the Salary Cap receive an exception of 5.678% of the salary cap
Non-Taxpayer - Teams above the Salary Cap and below the Tax Level receive an exception of 9.12% of the salary cap
Taxpayer - Teams who are the Tax Level receive an exception of $5,000,000
Traded Player Exception (see below)
Bird Rights (see below)
Traded Player Exception: Frankly, the details are pretty confusing and long so I won’t get into the nitty gritty of the mechanics1. When a TPE is created, it will be reported in the trade which is all I really care about.
A TPE is a way for a team over the salary cap to absorb contracts into.
TPE’s cannot be combined.
This rule also places limits on how much salary a team can take in and send out when they are over the Salary Cap.
Hard Cap: If a team is “hard capped” by a certain number, this means they cannot spend any money greater than that number. A hard cap is triggered at the Apron on a team by:
Acquiring a player via a sign and trade
Using the Non-Taxpayer Mid-Level Exception
Using the Bi-Annual Exception
Bird Rights: This is a very special kind of exception that doesn’t exactly give a team “free money” but allows them to go over the salary cap to retain free agents who they own the Bird Rights to.
There are three variations of Bird Rights. They each allow a team to pay their free agents a specific amount if they are going to be over the salary cap:
Non-Bird Rights: Players who played 1 season with a team can be offered a new contract worth 120% more than their previous salary.
Early-Bird Rights: Players who have played 2 seasons with a team can be offered a new contract worth 175% of their previous salary.
Full-Bird Rights: Players who have played 3 seasons with a team can be offered a new contract worth anything up to a max deal. Typically this is the most talked about scenario that affects big name players.
Bird Rights do carry over with the player if a player is traded to another team (i.e. Darius Bazely gets traded from OKC to PHX. PHX now owns Bazely’s Bird Rights).
Derrick Rose Rule: A player qualifies for the Derrick Rose Rule if they are DPOY or All-NBA Team member in either their fourth season or two of their second, third and fourth seasons. Winning MVP in any season besides their first season will also qualify them. This applies to escalator clauses in player’s contracts.
Max Deals: This is the limit that a player can be paid from a single team. This amount is:
25% of the cap: Any free agent is eligible for this.
30% of the cap: Any free agent with 7-9 years of experience is eligible for this. Free agents with 4-6 years of experience are also eligible if they meet the Derrick Rose Rule requirements.
35% of the cap: Any free agent with 10+ years of experience is eligible for this. Free agents with 7-9 years of experience are also eligible if they meet the Derrick Rose Rule requirements. However, a player can only sign this “supermax” deal with the team that drafted them.
Designated Rookie Player: A team can nominate a player coming off their rookie contract to be a “designated rookie player”. This allows them to sign a 5 year deal rather than being limited to a 4 year deal as is the norm for most rookies. A team can have at most two designated rookies on their team in the 2022-2023 season.
Stepien Rule: A team can only trade their own first round picks 7 years into the future. Along with this, they must pick in the first round at least once every 2 years. A team can trade their own FRP in back to back years if and only if they have the rights to another team’s FRP in that draft.
What is changing
Things I care about
Money
The Salary Cap will increase at most 10% a year.
Minimum Team Salary will continue to be 90% of the Salary Cap. If a team is under that limit, they will pay the difference b/w their current payroll and the MTS to the league. That payment will be subsequently divided up among all NBA players. More importantly, teams that fail to meet the MTS will not receive their share of luxury tax payments.
Player Acquisition
The new CBA introduces a couple of new ways in which a team can acquire a player:
A third two-way spot will be added. Players on a two-way contract are allowed to play with a G-League affiliate team and the NBA team with no limitations on the number of games played.
Teams can use non-traded player exceptions to acquire players.
A new Second Round Pick Exception will be created to sign a second round pick to a 3 or 4 year.
Contract Extensions + Rookie Designation
The new CBA simplifies the offering of extensions quite a bit for rookie-scale extensions. They removed the rookie designation thereby allowing teams to extend any number of their rookies to new five year deals. A key change alongside this is the ability to offer a five year deal without having to offer a max deal.
For non-rookies, the amount that a player can be extended by was bumped from 120% the final year of their contract to 140%.
Cap Management
The biggest change is the addition of a “Second Apron”.
The First Apron acts much the same as the existing Apron in the old CBA, however teams will no longer be able to sign players who were bought out and had a salary greater than the Non-Taxpayer Mid-Level Exception. This would have prevented the LA Clippers from signing players like Russell Westbrook who was bought out of his max contract by Utah.
The Second Apron is a number that will exist at $17,500,000 higher than the Tax Level. For the 2023-2024 season, that number will be $182,500,000. If a team crosses the Second Apron, they will be subject to the following penalties:
Unable to use the Taxpayer Mid-Level Exception.
Unable to sign and trade to acquire players
Unable to use Trade Exceptions to acquire players
Unable to send cash in trades
Unable to take in more salary than they send out in a trade
Unable to trade their First Round Pick 7 years in the future. This pick in the future is called a “frozen pick”. Due to the Stepien Rule, a team can send at most 3 of its FRP’s along with 3 pick swaps rather than 4 FRP’s and 3 picks swaps.
If a team is beyond the Second Apron in two years within a 4 year window, their frozen pick is sent to the end of the First Round regardless of their record. This would mean that a team would pick at #30 in the First Round of the draft even if they had the worst record in the league. The pick will be unfrozen if the team is under the Second Apron for 3 consecutive years after its freezing.
Things I don’t care about
Here are some important topics (and my not so deep thoughts about them) that are covered in the new CBA that I don’t really care about since it doesn’t really affect how the teams will manage their cap sheets:
Revenue (there’s more)
Luxury Tax amount (there’s more)
Exception Amounts (there’s more)
In Season Tourney (seems fun)
Performance Incentives for Awards (seems fine)
Investing in teams + sponsorships (seems sus)
Operational stuff (idc)
How does the Salary Cap, Tax Level and Apron work now?
If a team’s payroll is in the Red Zone, they will incur the penalties of the Second Apron, First Apron and pay the Luxury tax. I’ve only had the cap amounts for 160% listed here, but theoretically you could run this number up indefinitely.
If a team’s payroll is in the Orange Zone, they will incur the penalties of the First Apron and pay the Luxury tax.
If a team’s payroll is in the Yellow Zone, they will pay the Luxury tax.
So what does this mean for the Thunder? They sit right in the sweet spot in the Green Zone.
I would consider sitting in this area to be a pretty healthy cap sheet and are subject to these extra rules:
They are only able to facilitate trades using TPE’s.
Access to the Non-Taxpayer Mid Level Exception. Using this will hard cap a team at the First Apron.
A team can also be in the very slim Pink Zone. There are no penalties besides not having access to any exceptions. Generally, I think very few teams will be in this zone because teams will likely adhere to Minimum Team Salary rule to collect their share of Luxury Tax payments which is just a few percent underneath the Salary Cap.
What does this mean for OKC?
Small Stuff
OKC has been a huge proponent of using their G-League team, the Oklahoma City Blue. With the addition of another two-way slot on NBA teams, we basically gain an extra roster spot. On top of that, there is no longer any playing time limit for Two-Way player.
The Second Round Pick Exception will be pretty huge for OKC, not only because we will be able to utilize it to help sign some of our beloved second round picks like Aaron Wiggins and Jaylin Williams, but also makes the value of second round picks we have accumulated increase drastically. Second Round picks were previously not seen as particularly valuable, but now that there is a new avenue to help teams above the salary cap retain players drafted with second round picks - teams will be more interested in using them. The Thunder are a team with no shortage of second round picks, and as a result benefit quite a bit from their increased market value.
Rookie-Scale Extensions
And now for what is arguably the most important change in the new CBA for OKC: the removal of the Designated Rookies rule. This allows OKC to offer all of its players on rookie deals to a 5 year max deal like Josh Giddey, Jalen Williams and Chet Holmgren with no issues.
This is tremendously important for OKC as it gives them more financial flexibility to incentivize their best players to stay in OKC. In the world of the old CBA, we would have been forced to choose 1 of these 3 who would get the coveted 5 year max (since Shai already has one) and hope that the other two would be content with a lesser 4 year deal.
Second Apron Boogeyman
This brings me to the next logical question: how will the Thunder pay for 4 max contracts with the Second Apron?
I’m of the opinion that OKC will simply pay SGA, Giddey, Williams and Holmgren when the time comes. Here are some reasons why I think OKC will be able to and how the New CBA makes it easier to do that:
When it comes to paying the Luxury Tax itself, OKC has been committed to retaining talent at any price post-2014 if there is a chance to contend. OKC has been one of the highest contributors to the Luxury Tax in the years that we have attempted to be contenders. I think the current group has a significantly higher ceiling than any team OKC has had since the Durant+Westbrook days.
Even though we are subject to the same restrictions as other teams, tougher restrictions on excessive spending make it harder for other teams to poach our talent because other teams are also trying to navigate the Second Apron. Less competition is better for all teams, including the Thunder, to retain their talent because they maintain their rookie’s Bird Rights.
The removal of Rookie Designations and the ability to give 5 year Rookie Extensions to any rookie gives OKC increased financial capability to keep them here. I think there’s a high likelihood that not all of the Core Four will receive max contracts, though I think they will be really close. The Fifth year of control on a player’s contract was a huge reason why teams were willing to offer Max Deals to non-All Star level players.
The Second Apron penalties apply when a team is at the Second Apron for the second time in four years. Presti (along with most GM’s) will be smart about when they think they can dip their toes past the Apron to go “all in” one year and move salary around in the following year to try and limit.
On the specific penalties:
OKC has never been a big free agency destination and has rarely made big, blockbuster trades sending out a ton of value to acquire players. As a result I don’t think the limitations around utilizing exceptions and salary in vs out will matter too much.
Not being able to trade a teams’s draft pick 7 years in the future will sting a bit, but OKC owns 35 picks (15 FRP, 20 SRP2) of which only 1 is OKC’s 7 years in the future.
Having a team’s Frozen First Round draft pick pushed to the end of the First Round will hurt any potential rebuild in the future, especially if the Thunder have not been able to win a ring in the years leading up to it! There’s not really much of a silver lining here unfortunately 😢.
A lot of this sounds like coping, and to a degree it is! However, I think despite these penalties, the new CBA ends up giving OKC more financial flexibility than in the past and will allow them to be more competitive.
Conclusion
And with that, I conclude my tl;dr of the New CBA changes. This was pretty fun to write and I learned a lot about some of the mechanics of the CBA while doing so. Admittedly, I’m a little nervous to publish this because the NBA CBA and Salary Cap rules are pretty complicated! Hopefully I didn’t misinterpret anything and if I did (or need to clarify) - please feel free to reach out to me however you know to reach me. I’d also love to hear any thoughts, comments, concerns or feedback about this issue!
I plan to do some post-Summer League content as well as doing a long term team building piece later in the Summer to fill the void of the NBA Offseason as well. If you have other ideas of interesting topics, let me know!
You can find me at most places on the internet as @ankitpancakes. Here are some links to some of those places: Twitter, Threads, Bluesky, Reddit.
Helpful Links
Here’s a list of SUPER helpful links that helped me understand what’s going on. The link will contain the publisher and what general topic I used it for!
And many more!
HoopsRumors and CBAFAQ do a good job breaking down the details of TPE mechanics.
As of July 11, 2023.