WEBVTT 00:00:00.000 --> 00:00:03.419 Welcome back to the Deep Dive. Today we are shifting 00:00:03.419 --> 00:00:05.879 gears a little bit. Just a bit. Usually we're 00:00:05.879 --> 00:00:07.280 right there on the court. You know, we're looking 00:00:07.280 --> 00:00:09.419 at the pick and rolls, the buzzer beaters, all 00:00:09.419 --> 00:00:11.599 the defensive rotations. The fun stuff. The fun 00:00:11.599 --> 00:00:15.029 stuff, exactly. But today... We're going behind 00:00:15.029 --> 00:00:16.969 the scenes? No, we're going way behind the scenes. 00:00:17.050 --> 00:00:19.850 We're going into the literal engine room of the 00:00:19.850 --> 00:00:22.250 NBA. Right into the spreadsheet. We are talking 00:00:22.250 --> 00:00:24.690 about the game behind the game. We are stepping 00:00:24.690 --> 00:00:28.890 into the war room, the front office, the place 00:00:28.890 --> 00:00:31.809 where championships are actually built, break 00:00:31.809 --> 00:00:36.310 in, and, well, paid for. Long before a single 00:00:36.310 --> 00:00:38.950 ball is even tipped. Exactly. It really is the 00:00:38.950 --> 00:00:41.369 invisible hand of the league. I mean, you can 00:00:41.369 --> 00:00:43.049 have the best transition offense in the world. 00:00:43.090 --> 00:00:45.609 You can have the most athletic wings. But if 00:00:45.609 --> 00:00:48.590 you lose the game on that spreadsheet. It's over. 00:00:48.829 --> 00:00:51.070 Your dynasty is over before it even really begins. 00:00:51.329 --> 00:00:53.890 It's so true. We are talking, of course, about 00:00:53.890 --> 00:00:57.070 NBA salary cap. And I know I can almost hear 00:00:57.070 --> 00:01:00.850 some of you groaning already. Eyes glaze over. 00:01:01.009 --> 00:01:04.640 For some, the phrase salary cap. Sounds like 00:01:04.640 --> 00:01:06.700 homework. It sounds like, you know, doing your 00:01:06.700 --> 00:01:09.239 taxes or staring at a legal document until your 00:01:09.239 --> 00:01:11.719 eyes cross. It can be that. But I promise you, 00:01:11.760 --> 00:01:13.540 if you stick with us, you're going to realize 00:01:13.540 --> 00:01:15.980 that this is actually a high stakes strategy 00:01:15.980 --> 00:01:19.459 game. Yeah. It is 4D chess played with hundreds 00:01:19.459 --> 00:01:22.159 of millions of dollars. And massive egos. And 00:01:22.159 --> 00:01:24.719 massive egos and incredibly complex, sometimes 00:01:24.719 --> 00:01:28.180 baffling rules. It really is. It's the set of 00:01:28.180 --> 00:01:32.000 rules that dictates the face of franchises. It 00:01:32.000 --> 00:01:35.480 explains the why. You know, why did your favorite 00:01:35.480 --> 00:01:38.299 team suddenly trade their best player for, what, 00:01:38.359 --> 00:01:40.420 a bunch of picks that seem like nothing? Right. 00:01:40.500 --> 00:01:43.079 Or why does a billionaire owner, a literal billionaire, 00:01:43.340 --> 00:01:45.840 claim they can't afford to sign one more player? 00:01:46.040 --> 00:01:48.739 Exactly. Why do teams tank? It all comes back 00:01:48.739 --> 00:01:51.120 to this. It is the ecosystem that moves players 00:01:51.120 --> 00:01:53.900 around like chess pieces on a global board. And 00:01:53.900 --> 00:01:56.540 our mission today is simple. We're going to decode 00:01:56.540 --> 00:01:58.560 the jargon. We'll try our best. We're going to 00:01:58.560 --> 00:02:01.319 take terms like the apron, bird rights, the poison 00:02:01.319 --> 00:02:03.819 pill, and the supermax, and we're going to translate 00:02:03.819 --> 00:02:05.959 them into something you can actually use. Right. 00:02:06.019 --> 00:02:07.840 We want you to be able to win that argument at 00:02:07.840 --> 00:02:09.699 the bar. Or at least understand what is happening 00:02:09.699 --> 00:02:12.539 on Twitter when it just explodes into chaos during 00:02:12.539 --> 00:02:14.680 free agency. We're going to turn the collective 00:02:14.680 --> 00:02:17.699 bargaining agreement, or CBA, which is basically 00:02:17.699 --> 00:02:21.360 a massive, hundreds of pages long legal contract, 00:02:21.659 --> 00:02:24.379 into a playbook that actually makes sense. Okay, 00:02:24.419 --> 00:02:25.979 so let's set the scene. Let's start with the 00:02:25.979 --> 00:02:28.680 foundational number. Based on the sources we 00:02:28.680 --> 00:02:32.800 have for the 2024 -25 season, the salary cap 00:02:32.800 --> 00:02:38.639 is set at roughly, what, $140 .588 million. That's 00:02:38.639 --> 00:02:40.599 the number. That is the magic number. That is 00:02:40.599 --> 00:02:43.020 the line in the sand. Right. But, and this is 00:02:43.020 --> 00:02:45.780 maybe the first massive plot twist of the day, 00:02:45.939 --> 00:02:48.659 it's not actually a hard limit. Not at all. And 00:02:48.659 --> 00:02:50.180 that is the most important distinction to make 00:02:50.180 --> 00:02:52.639 right out of the gate. This is the aha. Moment 00:02:52.639 --> 00:02:54.280 for a lot of people, isn't it? Especially if 00:02:54.280 --> 00:02:56.539 you follow other sports like the NFL or the NHL. 00:02:56.539 --> 00:02:58.039 Oh, absolutely. If you look at the NFL or the 00:02:58.039 --> 00:03:00.419 NHL, they operate under what we call hard caps. 00:03:00.759 --> 00:03:04.120 That means there is a rigid line, a brick wall, 00:03:04.240 --> 00:03:08.020 no wiggle room, none. If the cap is $200 million 00:03:08.020 --> 00:03:11.680 and your payroll is $200 million and one single 00:03:11.680 --> 00:03:15.939 penny, the league rejects the contract. That's 00:03:15.939 --> 00:03:18.360 it. You cannot operate. There are no excuses, 00:03:18.620 --> 00:03:21.280 no loopholes, no rich owners just writing a bigger 00:03:21.280 --> 00:03:24.780 check. No. If you hit the cap, you stop spending. 00:03:24.900 --> 00:03:26.539 You have to start cutting players. You have to 00:03:26.539 --> 00:03:28.520 trade them for less money. Which is why we see 00:03:28.520 --> 00:03:30.639 that constant roster churn in football. I mean, 00:03:30.659 --> 00:03:32.340 you win the Super Bowl, and then you have to 00:03:32.340 --> 00:03:34.319 immediately cut five of your starters because 00:03:34.319 --> 00:03:37.039 you just can't pay them. Exactly. It forces parity 00:03:37.039 --> 00:03:40.219 through, what did you call it? Through brutality. 00:03:40.460 --> 00:03:42.039 Through brutality. That's a perfect way to put 00:03:42.039 --> 00:03:45.780 it. But the NBA has a soft cap. A soft cap. Which 00:03:45.780 --> 00:03:47.879 sounds infinitely more comfortable, doesn't it? 00:03:47.900 --> 00:03:50.319 Like a soft pillow. It is certainly more flexible, 00:03:50.460 --> 00:03:52.840 but I'd argue it's way more complex. Oh, for 00:03:52.840 --> 00:03:55.479 sure. The philosophy behind the soft cap is really 00:03:55.479 --> 00:03:58.120 about connection and continuity. Yeah. The NBA 00:03:58.120 --> 00:04:01.080 realized decades and decades ago that their product 00:04:01.080 --> 00:04:04.280 is star driven. Fans fall in love with players, 00:04:04.439 --> 00:04:07.000 not just the laundry they wear. If you draft 00:04:07.000 --> 00:04:10.080 a superstar, a Michael Jordan. A Steph Curry. 00:04:10.280 --> 00:04:12.439 The league does not want you to be forced to 00:04:12.439 --> 00:04:14.759 trade him just because he hit his prime and got 00:04:14.759 --> 00:04:17.399 expensive. It would be bad for business. Terribly. 00:04:17.560 --> 00:04:19.540 Yeah. They want to foster that fan connection 00:04:19.540 --> 00:04:22.579 to a homegrown roster, to a player you've watched 00:04:22.579 --> 00:04:27.040 grow up. So, OK, a hard cap forces roster turnover 00:04:27.040 --> 00:04:29.779 to keep everyone on a level playing field. But 00:04:29.779 --> 00:04:32.939 a soft cap allows for continuity if you know 00:04:32.939 --> 00:04:35.579 how to navigate the rules. Precisely. In a hard 00:04:35.579 --> 00:04:38.399 cap system, success is punished immediately because 00:04:38.399 --> 00:04:40.220 everyone gets expensive and you have to cut them. 00:04:40.519 --> 00:04:43.759 In the NBA's soft cap system, you can keep everyone. 00:04:44.759 --> 00:04:47.139 Provided you have the right exceptions and maybe 00:04:47.139 --> 00:04:49.459 more importantly, an owner willing to pay the 00:04:49.459 --> 00:04:51.879 massive penalties. It's a system that rewards 00:04:51.879 --> 00:04:54.519 knowing the rules inside and out and having very 00:04:54.519 --> 00:04:57.139 deep pockets. OK, so let's unpack the roadmap 00:04:57.139 --> 00:05:00.000 for the next hour or so. We are going to look 00:05:00.000 --> 00:05:02.000 at the history of how we even got here because, 00:05:02.079 --> 00:05:04.740 you know, the cap didn't always exist. Then we're 00:05:04.740 --> 00:05:07.120 going to look at how teams legally break the 00:05:07.120 --> 00:05:09.720 cap. These are the exceptions. The permission 00:05:09.720 --> 00:05:11.920 slips. The get out of jail free cards. Exactly. 00:05:12.199 --> 00:05:14.240 Then we'll look at the punishments for breaking 00:05:14.240 --> 00:05:17.879 it too much. The luxury tax and the new dreaded 00:05:17.879 --> 00:05:20.740 second apron. Very scary stuff. And we'll get 00:05:20.740 --> 00:05:23.199 into the specific rules that are literally named 00:05:23.199 --> 00:05:26.519 after famous players. Larry Bird, Derrick Rose. 00:05:26.639 --> 00:05:29.040 I mean, even DeAndre Jordan has a rule named 00:05:29.040 --> 00:05:31.759 after him. It's fascinating, isn't it? How many 00:05:31.759 --> 00:05:35.019 of these dense legalistic rules are just... direct 00:05:35.019 --> 00:05:37.560 reactions to one specific player doing something 00:05:37.560 --> 00:05:40.660 crazy or one team finding a clever loophole. 00:05:40.740 --> 00:05:43.160 I love that. The history of the NBA is literally 00:05:43.160 --> 00:05:45.740 written in its own rulebook. But let's start 00:05:45.740 --> 00:05:48.259 at the foundation, Section 1. What actually is 00:05:48.259 --> 00:05:50.480 the cap? I mentioned the $140 million number, 00:05:50.540 --> 00:05:52.120 but where does that number come from? It's not 00:05:52.120 --> 00:05:53.740 just pulled out of a hat by the commissioner. 00:05:53.879 --> 00:05:56.060 No, no. It's a very specific calculation. It's 00:05:56.060 --> 00:05:58.240 strictly tied to the league's success, to its 00:05:58.240 --> 00:06:01.459 revenue. The cap is calculated as a percentage 00:06:01.459 --> 00:06:05.199 of basketball -related income, or BRI, from the 00:06:05.199 --> 00:06:07.240 season before. Basketball -related income. That 00:06:07.240 --> 00:06:10.709 sounds big. It sounds all encompassing. And it 00:06:10.709 --> 00:06:11.949 is. I mean, we were talking about the massive 00:06:11.949 --> 00:06:14.470 TV rights deals. That's the big one. But it's 00:06:14.470 --> 00:06:17.709 also ticket sales, concessions, parking, merchandise 00:06:17.709 --> 00:06:20.649 sold at the arena. Basically, if the NBA logo 00:06:20.649 --> 00:06:23.689 is on it and it makes money, it goes into this 00:06:23.689 --> 00:06:26.889 giant pot. So the players and the owners are 00:06:26.889 --> 00:06:28.930 essentially partners in the business. That's 00:06:28.930 --> 00:06:30.949 the entire idea behind the collective bargaining 00:06:30.949 --> 00:06:33.759 agreement. It's a partnership. If the league 00:06:33.759 --> 00:06:36.680 makes more money, if the TV ratings go up, if 00:06:36.680 --> 00:06:40.360 ticket prices rise, the cap goes up and the players 00:06:40.360 --> 00:06:42.319 get paid more. Now, what's the split generally? 00:06:42.579 --> 00:06:44.879 Under the current CBA, it's pretty close to a 00:06:44.879 --> 00:06:48.100 50 -50 split. The players get roughly half of 00:06:48.100 --> 00:06:50.579 all the revenue the league generates. And it's 00:06:50.579 --> 00:06:52.959 not just a ceiling, is it? There's also a basement. 00:06:53.019 --> 00:06:54.800 We always talk about the cap as a limit, but 00:06:54.800 --> 00:06:56.740 teams are also forced to spend. Correct. There 00:06:56.740 --> 00:06:59.399 is a salary floor. Teams must spend 90 percent 00:06:59.399 --> 00:07:02.100 of the cap. The Players Association fought very 00:07:02.100 --> 00:07:04.160 hard for this. Why is it so important to them? 00:07:04.379 --> 00:07:06.439 Well, they didn't want a team owner in a small 00:07:06.439 --> 00:07:09.139 market just pocketing all that shared TV revenue 00:07:09.139 --> 00:07:12.740 and then fielding a team of minimum wage rookies 00:07:12.740 --> 00:07:15.060 and G leaguers. Right. They don't want an owner 00:07:15.060 --> 00:07:17.600 to just treat the team as a personal piggy bank 00:07:17.600 --> 00:07:19.660 without actually trying to win games. Exactly. 00:07:19.759 --> 00:07:21.980 You have to spend money on talent. You have to 00:07:21.980 --> 00:07:24.060 at least try to put a competitive product on 00:07:24.060 --> 00:07:26.379 the floor. And the timeline for that has gotten 00:07:26.379 --> 00:07:28.720 much, much tighter in recent years. How so? What's 00:07:28.720 --> 00:07:33.279 changed? In the newest CBA from 2023, teams have 00:07:33.279 --> 00:07:37.120 to hit that 90 % floor by the very start of the 00:07:37.120 --> 00:07:39.819 preseason training camp. Oh, wow. It used to 00:07:39.819 --> 00:07:41.300 be that you could wait until the very end of 00:07:41.300 --> 00:07:43.339 the season. You could run a super cheap payroll 00:07:43.339 --> 00:07:46.519 all year and then just, you know, give everyone 00:07:46.519 --> 00:07:49.019 a bonus in March or sign a few random guys in 00:07:49.019 --> 00:07:50.819 April to get over the line. So you could cheap 00:07:50.819 --> 00:07:54.240 out for 95 % of the season. You could. Now. No. 00:07:54.379 --> 00:07:56.920 You have to field a legitimate payroll from day 00:07:56.920 --> 00:07:59.889 one. It forces your hand. That's a huge shift, 00:07:59.949 --> 00:08:01.670 especially for those tanking teams that are trying 00:08:01.670 --> 00:08:04.069 to rebuild. A massive shift. Now, for a little 00:08:04.069 --> 00:08:06.129 history lesson, and I think this context is just 00:08:06.129 --> 00:08:10.149 wild, the NBA didn't always have a cap. It's 00:08:10.149 --> 00:08:13.490 true. They actually had one briefly in the mid 00:08:13.490 --> 00:08:15.490 -40s, right at the very beginning of the league, 00:08:15.589 --> 00:08:17.509 but they abolished it after just one season. 00:08:17.709 --> 00:08:21.009 And then nothing for decades. Nothing. Through 00:08:21.009 --> 00:08:24.529 the entire era of Bill Russell, Will Chamberlain, 00:08:24.610 --> 00:08:27.680 the merger with the ABA no salary cap. It wasn't 00:08:27.680 --> 00:08:31.120 until the 1984 -85 season that the modern salary 00:08:31.120 --> 00:08:33.700 cap was reinstated. And the goal, I assume, was 00:08:33.700 --> 00:08:37.080 competitive balance, to stop the big market teams 00:08:37.080 --> 00:08:39.340 from just buying everyone. That was the idea. 00:08:39.539 --> 00:08:41.899 By the early 80s, you had some teams that were 00:08:41.899 --> 00:08:44.379 really struggling to stay afloat and others spending 00:08:44.379 --> 00:08:46.600 wildly. They wanted to level the playing field 00:08:46.600 --> 00:08:49.100 so the richest teams, the ones in L .A. or New 00:08:49.100 --> 00:08:51.539 York or Boston, couldn't just buy every single 00:08:51.539 --> 00:08:53.610 good player in the league. But the inflation 00:08:53.610 --> 00:08:55.710 here, this is the part that blows my mind every 00:08:55.710 --> 00:08:57.710 time I see it. It's unbelievable. In that first 00:08:57.710 --> 00:09:01.350 season, back with a cap, 1984, the total team 00:09:01.350 --> 00:09:04.110 payroll limit was somewhere between $3 .6 and 00:09:04.110 --> 00:09:06.549 $4 .6 million. Will you say that number again? 00:09:06.710 --> 00:09:10.990 $4 .6 million for the whole team. For the entire 00:09:10.990 --> 00:09:14.009 roster. Yeah. 12 to 15 players, the total limit 00:09:14.009 --> 00:09:16.789 was under $5 million. That is absolutely insane. 00:09:16.929 --> 00:09:19.629 Today, a single mid -level player, I mean, a 00:09:19.629 --> 00:09:21.529 guy who comes off the bench and plays maybe 20 00:09:21.529 --> 00:09:24.399 minutes a night makes double that. Easily. The 00:09:24.399 --> 00:09:26.740 mid -level exception alone, which is just a tool 00:09:26.740 --> 00:09:29.080 we'll get into for signing role players, is worth 00:09:29.080 --> 00:09:31.960 around $12 million today. So just that one player 00:09:31.960 --> 00:09:35.159 signing is worth almost triple the entire team 00:09:35.159 --> 00:09:38.320 salary cap from 1984. It really puts the growth 00:09:38.320 --> 00:09:41.019 of the game and especially the explosion of TV 00:09:41.019 --> 00:09:44.100 money into perspective. It's a completely different 00:09:44.100 --> 00:09:46.460 universe now. It really shows you how much that 00:09:46.460 --> 00:09:49.500 basketball -related income has just skyrocketed. 00:09:49.740 --> 00:09:53.220 Okay, so we have this cap. It's soft. Which brings 00:09:53.220 --> 00:09:56.659 us right to section two, breaking the cap. You 00:09:56.659 --> 00:09:59.320 called them permission slips. That's honestly 00:09:59.320 --> 00:10:01.899 the best way to think of them. Imagine the salary 00:10:01.899 --> 00:10:05.539 cap is a velvet rope at a nightclub. The $140 00:10:05.539 --> 00:10:08.279 million mark is the bouncer. Okay. Most people 00:10:08.279 --> 00:10:09.519 can't get past it. If your name's not on the 00:10:09.519 --> 00:10:11.120 list, you're not getting in. But if you have 00:10:11.120 --> 00:10:13.889 a specific VIP pass. A special invitation. Which 00:10:13.889 --> 00:10:15.950 just steps aside. The bouncer steps aside and 00:10:15.950 --> 00:10:18.330 lets you spin more. These passes are the exceptions. 00:10:18.629 --> 00:10:20.850 And the granddaddy of them all, the VIP pass 00:10:20.850 --> 00:10:23.149 that essentially built the modern NBA as we know 00:10:23.149 --> 00:10:25.590 it, is the Larry Bird exception. The most famous 00:10:25.590 --> 00:10:28.629 one, and rightfully so. It is the engine that 00:10:28.629 --> 00:10:30.970 allows the entire soft cap system to function. 00:10:31.809 --> 00:10:34.509 Without it, the whole thing falls apart. So take 00:10:34.509 --> 00:10:37.169 us back to the origin story. Why is it named 00:10:37.169 --> 00:10:40.330 after Larry Legend? Well, back in the early 80s, 00:10:40.330 --> 00:10:42.490 when the cap was being brought back in, the Boston 00:10:42.490 --> 00:10:45.210 Celtics were a powerhouse. They had Larry Bird, 00:10:45.409 --> 00:10:47.470 Kevin McHale, Robert Parrish, the whole crew. 00:10:47.529 --> 00:10:50.289 A dynasty. A full -blown dynasty. But Larry Bird's 00:10:50.289 --> 00:10:53.350 contract was coming up. And the Celtics were 00:10:53.350 --> 00:10:55.889 already at the new spending limit. Under a hard 00:10:55.889 --> 00:10:57.909 cap system, or without a specific exception, 00:10:58.230 --> 00:11:00.799 the rules would have said... Sorry, Boston. Too 00:11:00.799 --> 00:11:03.139 bad. You can't pay Larry Bird what he's worth. 00:11:03.320 --> 00:11:04.980 You'd have to let him go. You'd have to let him 00:11:04.980 --> 00:11:06.820 go sign with, you know, the Kansas City Kings 00:11:06.820 --> 00:11:09.100 or some other team with cap space. Which would 00:11:09.100 --> 00:11:11.899 have been a complete disaster for the NBA. The 00:11:11.899 --> 00:11:14.360 entire league was being built on the Bird versus 00:11:14.360 --> 00:11:16.679 Magic Johnson rivalry. It would have been catastrophic. 00:11:17.080 --> 00:11:19.799 The league realized immediately that it would 00:11:19.799 --> 00:11:22.600 be terrible for business if a simple bookkeeping 00:11:22.600 --> 00:11:24.899 rule forced a team to cut its franchise icon. 00:11:25.240 --> 00:11:26.659 Though they created a loophole for themselves. 00:11:27.259 --> 00:11:29.519 They created an exception. And the rule is... 00:11:29.519 --> 00:11:32.259 What is the rule? The Larry Bird exception allows 00:11:32.259 --> 00:11:35.299 teams to exceed the salary cap to re -sign their 00:11:35.299 --> 00:11:38.840 own qualifying veteran free agents. So basically, 00:11:39.019 --> 00:11:41.460 if a player has been with your team long enough, 00:11:41.519 --> 00:11:45.059 the cap just doesn't apply to him. For re -signing 00:11:45.059 --> 00:11:47.960 purposes, yes. You can pay him whatever you want, 00:11:48.019 --> 00:11:50.740 up to his individual max salary, of course, regardless 00:11:50.740 --> 00:11:53.100 of your team's cap situation. This goes right 00:11:53.100 --> 00:11:55.039 back to that philosophy of retention we talked 00:11:55.039 --> 00:11:57.559 about. This is the tool that lets you develop 00:11:57.559 --> 00:11:59.539 a star and actually keep him. It is. It's the 00:11:59.539 --> 00:12:02.360 most important one. Now, to qualify for full 00:12:02.360 --> 00:12:05.159 bird rights, a player needs to play three full 00:12:05.159 --> 00:12:08.379 seasons for a team. Without being waived or changing 00:12:08.379 --> 00:12:11.159 teams as a free agent. Okay, three years. But 00:12:11.159 --> 00:12:13.179 wait, here's a nuance that I think confuses people 00:12:13.179 --> 00:12:15.960 all the time. If I trade for a guy who has played 00:12:15.960 --> 00:12:18.500 three years with another team, do I get his bird 00:12:18.500 --> 00:12:21.200 rights? Or do they reset because he's on a new 00:12:21.200 --> 00:12:23.860 team? Great question. And this is a crucial mechanic 00:12:23.860 --> 00:12:27.080 in the league. Bird rights travel with the player 00:12:27.080 --> 00:12:30.940 in a trade. That's incredibly important. If the 00:12:30.940 --> 00:12:34.299 Lakers trade for a player who is on the last 00:12:34.299 --> 00:12:37.480 year of his deal, They aren't just trading for 00:12:37.480 --> 00:12:39.799 his services for the rest of the season. They 00:12:39.799 --> 00:12:42.740 are trading for his bird rights. So they're acquiring 00:12:42.740 --> 00:12:45.519 the right to pay him in the summer. Exactly. 00:12:45.580 --> 00:12:47.919 They're acquiring the right to go over the cap 00:12:47.919 --> 00:12:50.600 to keep him. That makes the player so much more 00:12:50.600 --> 00:12:52.519 valuable at the trade deadline. Because if you 00:12:52.519 --> 00:12:54.379 just wait and try to sign him in free agency, 00:12:54.659 --> 00:12:56.500 you need to have a huge amount of cap space. 00:12:56.620 --> 00:12:59.399 A huge amount. If you trade for him first, you 00:12:59.399 --> 00:13:02.080 don't. It's a massive, massive difference. And 00:13:02.080 --> 00:13:04.960 are there like junior versions of this? There 00:13:04.960 --> 00:13:07.779 are. It gets a little granular, but yes. There's 00:13:07.779 --> 00:13:09.799 the early bird exception, which kicks in after 00:13:09.799 --> 00:13:11.440 two years with the team. And what's the difference? 00:13:11.759 --> 00:13:14.299 It's a weaker pass. It allows you to re -sign 00:13:14.299 --> 00:13:18.519 a guy, but only for up to 175 % of his previous 00:13:18.519 --> 00:13:20.919 salary or the league average salary, whichever 00:13:20.919 --> 00:13:23.159 is higher. It limits your upside. So you can 00:13:23.159 --> 00:13:25.720 keep a solid role player, but maybe not a star 00:13:25.720 --> 00:13:28.779 who's about to break out. Exactly. And then there's 00:13:28.779 --> 00:13:30.820 the non -bird exception for players with only 00:13:30.820 --> 00:13:32.740 one year of service, which is even more limited. 00:13:32.899 --> 00:13:35.899 But the full three -year bird right. is the golden 00:13:35.899 --> 00:13:38.299 ticket. That's the one everyone wants. Okay, 00:13:38.340 --> 00:13:40.679 so that helps you keep your own guys. But what 00:13:40.679 --> 00:13:42.220 if I'm over the cap and I want to sign someone 00:13:42.220 --> 00:13:44.639 else's guy? My team is capped out, we're in the 00:13:44.639 --> 00:13:47.639 tax, but we really need a shooter. Can I just 00:13:47.639 --> 00:13:51.059 go shopping? Generally, no. If you are over the 00:13:51.059 --> 00:13:52.919 cap, you can't just go out and start offering 00:13:52.919 --> 00:13:56.419 contracts. Your checkbook is closed. But the 00:13:56.419 --> 00:13:59.559 league gives every team a coupon once a year. 00:13:59.779 --> 00:14:03.639 That is the mid -level exception. or MLE. I love 00:14:03.639 --> 00:14:05.759 the coupon analogy. Good for one pretty good 00:14:05.759 --> 00:14:08.220 player. That's exactly it. It's a tool that every 00:14:08.220 --> 00:14:10.539 team over the cap gets once a year to sign a 00:14:10.539 --> 00:14:13.440 free agent for a preset amount. But, and this 00:14:13.440 --> 00:14:16.159 is key, the value of that coupon changes based 00:14:16.159 --> 00:14:18.399 on how much money you've already spent. It has 00:14:18.399 --> 00:14:20.419 gotten quite complex in the modern game. Okay, 00:14:20.460 --> 00:14:22.539 so break down the different tiers for us. So 00:14:22.539 --> 00:14:24.879 first you have the standard or non -taxpayer 00:14:24.879 --> 00:14:27.940 MLE. This is for teams that are over the cap, 00:14:27.960 --> 00:14:30.909 but not deep into the luxury tax zone. This is 00:14:30.909 --> 00:14:33.250 the big coupon. How much is it worth? Right now, 00:14:33.269 --> 00:14:35.929 it's worth about $12 .8 million. You can get 00:14:35.929 --> 00:14:38.649 a really solid starter for that money. A guy 00:14:38.649 --> 00:14:41.250 like Dante DiVincenzo, for instance. That's a 00:14:41.250 --> 00:14:45.250 huge piece. Okay. But what if you are a big spender? 00:14:45.409 --> 00:14:47.710 What if you're already paying the luxury tax? 00:14:48.049 --> 00:14:50.429 Then your coupon gets smaller. You get the taxpayer 00:14:50.429 --> 00:14:53.509 MLE. It's about half the value, around $5 million, 00:14:53.789 --> 00:14:55.850 maybe a little more. So the league is basically 00:14:55.850 --> 00:14:57.490 saying, okay, you're already spending a ton, 00:14:57.690 --> 00:14:59.830 so you can add a player, but he's... probably 00:14:59.830 --> 00:15:03.610 going to be an older vet or a reclamation project. 00:15:04.090 --> 00:15:06.090 Precisely. You're not getting a high -level starter 00:15:06.090 --> 00:15:07.590 with that. You're filling out the end of your 00:15:07.590 --> 00:15:10.710 bench. And if you have cap space, what if you're 00:15:10.710 --> 00:15:13.529 under the cap? Then you get the Room MLE. It's 00:15:13.529 --> 00:15:15.470 a small sweetener, just a few million dollars, 00:15:15.590 --> 00:15:17.730 to help you fill out the roster after you've 00:15:17.730 --> 00:15:19.909 used up all your cap room on a big star. And 00:15:19.909 --> 00:15:23.110 this is where the new 2023 CBA dropped an absolute 00:15:23.110 --> 00:15:25.149 hammer. We're going to talk about the second 00:15:25.149 --> 00:15:27.769 apron later, but it directly affects this coupon. 00:15:27.870 --> 00:15:29.980 It's a massive hammer. The short version is, 00:15:30.059 --> 00:15:33.740 if you spend too much money, if you cross that 00:15:33.740 --> 00:15:37.899 dreaded second apron line, the league rips up 00:15:37.899 --> 00:15:40.059 your coupon. It's just gone. You lose access 00:15:40.059 --> 00:15:42.860 to the mid -level exception entirely. You cannot 00:15:42.860 --> 00:15:45.659 sign anyone from another team other than players 00:15:45.659 --> 00:15:48.000 on minimum wage contracts. That is a complete 00:15:48.000 --> 00:15:50.860 game changer. It really, really restricts the 00:15:50.860 --> 00:15:53.460 super spenders from adding any quality depth. 00:15:53.620 --> 00:15:55.559 That's the entire point. What about rookies? 00:15:55.600 --> 00:15:57.879 What happens when I draft a guy? That's the rookie 00:15:57.879 --> 00:16:01.480 exception. Simple enough. Teams can always sign 00:16:01.480 --> 00:16:03.179 their first round draft picks to their rookie 00:16:03.179 --> 00:16:05.919 scale contracts, even if they are over the cap. 00:16:06.120 --> 00:16:08.279 The league doesn't want you to draft a kid and 00:16:08.279 --> 00:16:10.120 then not be able to sign them because of some 00:16:10.120 --> 00:16:12.480 math problem. That would be a PR nightmare. And 00:16:12.480 --> 00:16:14.360 there's one more that pops up every now and then, 00:16:14.440 --> 00:16:18.580 the biannual exception. Right, the BAE. As the 00:16:18.580 --> 00:16:20.460 name suggests, you can use it once every two 00:16:20.460 --> 00:16:23.090 years. It's smaller than the mid -level, maybe 00:16:23.090 --> 00:16:26.370 around $4 million, and you cannot use it in consecutive 00:16:26.370 --> 00:16:29.169 seasons. It's just another small tool for filling 00:16:29.169 --> 00:16:31.710 out the rotation with a decent bench piece. I 00:16:31.710 --> 00:16:33.889 see. Now let's talk about a darker scenario. 00:16:34.570 --> 00:16:37.929 Disaster strikes. Your star player, making $40 00:16:37.929 --> 00:16:40.889 million, snaps his leg in October. He's done 00:16:40.889 --> 00:16:44.350 for the year. Is your season just over? Do you 00:16:44.350 --> 00:16:46.870 just have an empty roster spot and a huge chunk 00:16:46.870 --> 00:16:49.070 of dead money on your books? Not necessarily. 00:16:49.899 --> 00:16:52.200 In that scenario, you can apply for a disabled 00:16:52.200 --> 00:16:55.580 player exception or DPE. What does that entail? 00:16:55.659 --> 00:16:58.840 If an NBA designated doctor verifies that a player 00:16:58.840 --> 00:17:01.320 will be out for the entire season and it has 00:17:01.320 --> 00:17:03.240 to be verified by their doctors, you can't just 00:17:03.240 --> 00:17:05.660 say he's hurt. The team is granted an exception 00:17:05.660 --> 00:17:07.900 to sign a replacement player. And how much can 00:17:07.900 --> 00:17:10.559 you pay the replacement, the full $40 million? 00:17:10.799 --> 00:17:12.740 Oh, no, not even close. You can pay them up to 00:17:12.740 --> 00:17:15.640 50 % of the injured player's salary or the amount 00:17:15.640 --> 00:17:17.940 of the non -taxpayer mid -level exception, whichever 00:17:17.940 --> 00:17:20.059 is less. So you aren't replacing a superstar 00:17:20.059 --> 00:17:23.000 with another superstar? No. If Steph Curry gets 00:17:23.000 --> 00:17:25.180 hurt, you aren't going out and signing other 00:17:25.180 --> 00:17:27.779 Steph Curry with the DPE. You are getting a solid 00:17:27.779 --> 00:17:29.460 role player to help you patch the hole in the 00:17:29.460 --> 00:17:31.640 boat. And remember, it's only a one -year contract. 00:17:31.799 --> 00:17:34.259 It's a temporary patch, not a long -term solution. 00:17:34.559 --> 00:17:36.869 Got it. One more exception before I move on, 00:17:36.910 --> 00:17:38.730 and this is the one that confuses people constantly 00:17:38.730 --> 00:17:40.970 during trade deadline season, the traded player 00:17:40.970 --> 00:17:44.029 exception. This feels like the math class portion 00:17:44.029 --> 00:17:46.289 of the show. This is all about the algebra of 00:17:46.289 --> 00:17:48.869 trading. In, say, baseball or football, you can 00:17:48.869 --> 00:17:50.650 sometimes just trade a player for a draft pick 00:17:50.650 --> 00:17:53.250 and dump the salary. That's it. Not in the NBA. 00:17:53.509 --> 00:17:55.509 Not if you're over the cap. You can't just trade 00:17:55.509 --> 00:17:58.029 a guy making $2 million for a guy making $20 00:17:58.029 --> 00:18:01.319 million. The salaries have to match. Somewhat. 00:18:01.319 --> 00:18:03.319 Somewhat being the key word. There's a buffer 00:18:03.319 --> 00:18:05.839 zone. Right. The traded player exception allows 00:18:05.839 --> 00:18:08.519 teams to absorb salary in a trade as long as 00:18:08.519 --> 00:18:11.259 they sent out salary. The math used to be simpler, 00:18:11.359 --> 00:18:14.019 but generally for taxpaying teams, you can take 00:18:14.019 --> 00:18:17.839 back 125 % of the outgoing salary plus a small 00:18:17.839 --> 00:18:20.549 buffer. About $100 ,000. Okay, let's put that 00:18:20.549 --> 00:18:22.390 into real numbers so it makes sense. If I'm a 00:18:22.390 --> 00:18:25.130 team and I trade away a player making $10 million. 00:18:25.410 --> 00:18:28.150 You can take back a player or multiple players 00:18:28.150 --> 00:18:32.390 making up to roughly $12 .6 million. That 25 00:18:32.390 --> 00:18:35.190 % buffer allows deals to get done even if the 00:18:35.190 --> 00:18:37.779 contracts aren't perfectly identical. It greases 00:18:37.779 --> 00:18:39.980 the wheels of the trade market. OK, but what 00:18:39.980 --> 00:18:41.900 about the other way around? What if I trade a 00:18:41.900 --> 00:18:44.680 big salary for a small salary? Say I send out 00:18:44.680 --> 00:18:47.299 a $20 million player and I get back a guy on 00:18:47.299 --> 00:18:49.940 a $10 million contract. Then you generate a trade 00:18:49.940 --> 00:18:53.599 exception credit. You now have a credit for $10 00:18:53.599 --> 00:18:56.660 million. The difference in the salaries. And 00:18:56.660 --> 00:18:59.420 what do I do with that? You have one year to 00:18:59.420 --> 00:19:02.000 use that credit to acquire another player in 00:19:02.000 --> 00:19:04.880 a separate trade without having to send any salary 00:19:04.880 --> 00:19:07.240 back out. So it's like a store credit at the 00:19:07.240 --> 00:19:09.960 NBA trade store. You returned an expensive sweater. 00:19:10.119 --> 00:19:12.420 Here is a gift card. That is the perfect analogy. 00:19:13.049 --> 00:19:15.710 And teams hoard these things. They're incredibly 00:19:15.710 --> 00:19:18.349 valuable assets because they allow you to add 00:19:18.349 --> 00:19:21.029 a player to your roster without subtracting one 00:19:21.029 --> 00:19:23.589 from your current team. It's a way to add talent 00:19:23.589 --> 00:19:25.910 out of thin air. OK, so we've established all 00:19:25.910 --> 00:19:27.450 the ways you can break the cap. You have your 00:19:27.450 --> 00:19:29.309 bird rights, your mid -level coupons, your trade 00:19:29.309 --> 00:19:31.630 exceptions. But the NBA doesn't just let you 00:19:31.630 --> 00:19:34.829 do this for free. No, sir. There is a price to 00:19:34.829 --> 00:19:37.710 pay. The punishment. Section three, the luxury 00:19:37.710 --> 00:19:40.430 tax in the apron. This is the stick. This is 00:19:40.430 --> 00:19:43.450 the very, very big stick that balances the carrot 00:19:43.450 --> 00:19:46.930 of the exceptions. If your team payroll exceeds 00:19:46.930 --> 00:19:51.589 a certain threshold, the tax line, you have to 00:19:51.589 --> 00:19:54.490 pay a tax to the league, a penalty. And it's 00:19:54.490 --> 00:19:56.269 important for the listeners to know the tax line 00:19:56.269 --> 00:19:58.569 is higher than the salary cap line. Much higher, 00:19:58.710 --> 00:20:01.130 yeah. You have the cap at, say, $140 million, 00:20:01.369 --> 00:20:03.710 and the tax line might be all the way up around 00:20:03.710 --> 00:20:07.630 $170 million. There's a buffer zone where you 00:20:07.630 --> 00:20:09.490 can use exceptions without paying a penalty. 00:20:09.670 --> 00:20:12.670 But if you cross that $170 million line... The 00:20:12.670 --> 00:20:14.630 meter starts running. Yeah. And it's not just 00:20:14.630 --> 00:20:16.470 a flat fee. It's not like a speeding ticket where 00:20:16.470 --> 00:20:18.569 you pay $100 and you just move on with your day. 00:20:18.690 --> 00:20:20.690 No. And this is where it gets incredibly expensive. 00:20:20.829 --> 00:20:22.650 It used to be dollar for dollar. You spend a 00:20:22.650 --> 00:20:25.349 dollar over, you pay a dollar tax. Simple. But 00:20:25.349 --> 00:20:28.450 in 2013, they changed it to an incremental bracket 00:20:28.450 --> 00:20:31.650 system. It's a progressive tax, just like income 00:20:31.650 --> 00:20:34.400 tax. The more you are over the line... the higher 00:20:34.400 --> 00:20:36.640 the rate you pay on each dollar. For example, 00:20:36.799 --> 00:20:39.200 if you were just a little bit over, say, up to 00:20:39.200 --> 00:20:42.640 $5 million over, maybe you pay $1 .50 for every 00:20:42.640 --> 00:20:45.380 dollar you're over. So a $1 million player costs 00:20:45.380 --> 00:20:48.380 you $2 .5 million. Exactly. Yeah. As you get 00:20:48.380 --> 00:20:50.859 into the higher brackets, $10 million over, $15 00:20:50.859 --> 00:20:54.059 million over, that rate jumps dramatically. It 00:20:54.059 --> 00:20:58.480 goes to $2 .50 and $3 .25, $3 .75, and it just 00:20:58.480 --> 00:21:00.859 keeps climbing. So let's frame that for a fan. 00:21:01.279 --> 00:21:03.220 If a team like the Golden State Warriors is deep 00:21:03.220 --> 00:21:05.259 in the tax and they want to sign a backup center 00:21:05.259 --> 00:21:07.519 for a veteran minimum contract, say $2 million. 00:21:07.920 --> 00:21:10.779 That $2 million player might actually cost the 00:21:10.779 --> 00:21:13.420 owner $10 or $12 million. You pay the player 00:21:13.420 --> 00:21:15.960 his $2 million salary and then you write a separate 00:21:15.960 --> 00:21:18.099 check to the league for $8 or $10 million in 00:21:18.099 --> 00:21:21.079 taxes. That is why owners get so hesitant to 00:21:21.079 --> 00:21:23.140 fill out that 14th or 15th roster spot. That's 00:21:23.140 --> 00:21:25.339 exactly why. And it gets even worse if you are 00:21:25.339 --> 00:21:28.359 a repeat offender. The repeater tax, this sounds 00:21:28.359 --> 00:21:30.180 like you're going to criminal court. It basically 00:21:30.180 --> 00:21:33.279 is in the eyes of the other 29 owners. If a team 00:21:33.279 --> 00:21:35.539 pays the luxury tax in three out of the previous 00:21:35.539 --> 00:21:38.380 four seasons, the tax rates skyrocket. They add 00:21:38.380 --> 00:21:41.240 a whole dollar to each bracket. So that $3 .75 00:21:41.240 --> 00:21:45.400 rate becomes $4 .75. Correct. This is designed 00:21:45.400 --> 00:21:49.500 specifically to stop the richest owners, the 00:21:49.500 --> 00:21:52.579 Steve Ballmers, the Joe Lakobs, from just treating 00:21:52.579 --> 00:21:54.980 the tax as a cost of doing business every single 00:21:54.980 --> 00:21:58.099 year. It adds a multiplier that is designed to 00:21:58.099 --> 00:22:00.759 be painful even for billionaires. And where does 00:22:00.759 --> 00:22:02.599 all this tax money go? Does the league office 00:22:02.599 --> 00:22:05.299 just throw a massive party? Some of it goes to 00:22:05.299 --> 00:22:08.990 fund league -wide revenue sharing. but a significant 00:22:08.990 --> 00:22:11.910 chunk of it is collected and then distributed 00:22:11.910 --> 00:22:14.250 evenly to the teams that didn't pay the tax. 00:22:14.470 --> 00:22:16.730 Oh, I love that mechanism. It's so clever. So 00:22:16.730 --> 00:22:19.269 if I'm a frugal team like the Indiana Pacers 00:22:19.269 --> 00:22:21.509 or the Charlotte Hornets, I'm actually rooting 00:22:21.509 --> 00:22:24.130 for the Warriors or the Clippers to spend wildly. 00:22:24.410 --> 00:22:26.289 You are absolutely rooting for them because at 00:22:26.289 --> 00:22:28.329 the end of the year, you get a check in the mail 00:22:28.329 --> 00:22:30.670 for millions of dollars just for being fiscally 00:22:30.670 --> 00:22:33.069 responsible. It creates this multi -million dollar 00:22:33.069 --> 00:22:35.369 incentive to stay under the limit. You're not 00:22:35.369 --> 00:22:37.519 just saving money on your own salary. You're 00:22:37.519 --> 00:22:40.400 literally receiving a dividend from the big spenders. 00:22:40.420 --> 00:22:42.440 That's a brilliant piece of game theory. Now, 00:22:42.440 --> 00:22:44.960 we need to talk about the apron. This is a term 00:22:44.960 --> 00:22:47.279 that has become huge, especially in the last 00:22:47.279 --> 00:22:50.880 year. What is the apron? The apron is a specific 00:22:50.880 --> 00:22:53.599 financial line set above the luxury tax threshold. 00:22:53.960 --> 00:22:56.420 Think of it as a secondary danger zone. It's 00:22:56.420 --> 00:22:58.680 about $7 million above the tax line. And it triggers 00:22:58.680 --> 00:23:00.500 a hard cap. Right. But I thought we just spent 00:23:00.500 --> 00:23:02.259 10 minutes saying there was no hard cap. There 00:23:02.259 --> 00:23:05.759 is no league -wide hard cap. However, a team 00:23:05.759 --> 00:23:08.299 can trigger a hard cap on themselves by taking 00:23:08.299 --> 00:23:11.180 certain actions. So you can choose to be hard 00:23:11.180 --> 00:23:14.289 capped. You can. If you use the biannual exception, 00:23:14.549 --> 00:23:17.210 or if you acquire a player via sign and trade, 00:23:17.369 --> 00:23:19.869 or if you use that big non -taxpayer mid -level 00:23:19.869 --> 00:23:22.309 exception, you become hard capped at the apron 00:23:22.309 --> 00:23:24.390 for the rest of the season. Meaning what exactly? 00:23:24.549 --> 00:23:26.710 Meaning for the rest of that season, you absolutely 00:23:26.710 --> 00:23:29.750 under no circumstances can allow your payroll 00:23:29.750 --> 00:23:33.200 to exceed that apron line. Not for a penny, not 00:23:33.200 --> 00:23:35.880 for a day. It turns the soft cap into a hard 00:23:35.880 --> 00:23:38.240 cap for your specific team. So you completely 00:23:38.240 --> 00:23:40.619 handcuff your own flexibility for the rest of 00:23:40.619 --> 00:23:42.740 the year. If a trade opportunity comes up, you 00:23:42.740 --> 00:23:44.539 might not be able to make it. You literally cannot 00:23:44.539 --> 00:23:48.299 make a trade that adds even $1 of salary. If 00:23:48.299 --> 00:23:50.440 it puts you over that line, it's a huge restriction. 00:23:50.579 --> 00:23:54.319 And the 2023 CBA introduced something even scarier 00:23:54.319 --> 00:23:56.440 than the first apron, the second apron. This 00:23:56.440 --> 00:23:58.740 is the biggest story in NBA finance right now. 00:23:58.839 --> 00:24:02.259 The second apron is a new, even higher threshold 00:24:02.259 --> 00:24:05.779 set approximately 17 .5 million dollars over 00:24:05.779 --> 00:24:08.279 the tax line. Yeah. If your payroll crosses this 00:24:08.279 --> 00:24:12.430 line, the restrictions are draconian. It is designed 00:24:12.430 --> 00:24:14.950 explicitly to kill dynasties. Okay, give us the 00:24:14.950 --> 00:24:17.329 list of horrors. Why is every general manager 00:24:17.329 --> 00:24:19.930 so terrified of this second apron? If you are 00:24:19.930 --> 00:24:22.390 over the second apron, first, as we already mentioned, 00:24:22.529 --> 00:24:24.569 you lose access to your mid -level exception 00:24:24.569 --> 00:24:27.670 entirely. Gone. So no adding free agents? None. 00:24:28.039 --> 00:24:30.819 besides minimums. Second, you cannot send cash 00:24:30.819 --> 00:24:33.359 in trades. So you can't buy second round picks 00:24:33.359 --> 00:24:35.140 from other teams anymore. Okay, that's a small 00:24:35.140 --> 00:24:37.640 thing. It is, but it adds up. Third, and this 00:24:37.640 --> 00:24:39.960 is a big one, you cannot aggregate salaries in 00:24:39.960 --> 00:24:41.980 a trade. Explain that one for us. Usually a team 00:24:41.980 --> 00:24:44.500 can trade, say, two players making $10 million 00:24:44.500 --> 00:24:47.980 each for one superstar making $20 million. You 00:24:47.980 --> 00:24:49.799 combine the salaries to make the math work. If 00:24:49.799 --> 00:24:52.960 you are over the second apron, you can't do that. 00:24:53.039 --> 00:24:56.000 You can't combine contracts to acquire a more 00:24:56.000 --> 00:24:58.500 expensive player. It makes trading for a start 00:24:58.500 --> 00:25:01.500 nearly impossible. And the draft picks. I heard 00:25:01.500 --> 00:25:03.259 there's something about draft picks. This is 00:25:03.259 --> 00:25:06.599 the real killer for long -term planning. If you 00:25:06.599 --> 00:25:09.039 finish the season over the second apron, your 00:25:09.039 --> 00:25:11.259 first round draft pick seven years from now becomes 00:25:11.259 --> 00:25:14.500 frozen. Frozen. You cannot trade it. It's locked. 00:25:15.139 --> 00:25:17.099 And if you stay over the second apron for multiple 00:25:17.099 --> 00:25:20.099 years, that pick automatically moves to the very 00:25:20.099 --> 00:25:22.559 end of the first round. So pick number 30, regardless 00:25:22.559 --> 00:25:25.059 of your team's record. Wow. So even if you're 00:25:25.059 --> 00:25:26.900 the worst team in the league seven years from 00:25:26.900 --> 00:25:29.059 now, you get the 30th pick instead of the first. 00:25:29.259 --> 00:25:31.380 Exactly. So it freezes your ability to improve 00:25:31.380 --> 00:25:34.700 the team now, and it actively punishes your draft 00:25:34.700 --> 00:25:37.039 stock in the future. It creates a frozen roster. 00:25:37.359 --> 00:25:40.589 The goal is to break up super teams. If you want 00:25:40.589 --> 00:25:42.950 to have three superstars making max money, fine, 00:25:43.150 --> 00:25:46.109 you can do that. But you will have zero flexibility 00:25:46.109 --> 00:25:48.710 to put a supporting cast around them. You will 00:25:48.710 --> 00:25:51.190 be stuck with minimum contracts and no trade 00:25:51.190 --> 00:25:52.990 assets. It's the league's nuclear option for 00:25:52.990 --> 00:25:56.529 parity. It really is. Speaking of rich teams 00:25:56.529 --> 00:25:59.970 and rich players, let's move to Section 4. Player 00:25:59.970 --> 00:26:03.250 contracts. We hear the term max contract all 00:26:03.250 --> 00:26:06.690 the time. But a max contract isn't the same number 00:26:06.690 --> 00:26:09.309 for everyone. No, not at all. It's tiered. Based 00:26:09.309 --> 00:26:11.390 on your years of service in the league, it's 00:26:11.390 --> 00:26:13.650 an experience ladder. Okay, walk us through the 00:26:13.650 --> 00:26:16.670 tiers. If you have zero to six years of experience 00:26:16.670 --> 00:26:19.130 in the league, the maximum starting salary you 00:26:19.130 --> 00:26:22.029 can get is 25 % of the total salary cap. Okay. 00:26:22.109 --> 00:26:24.630 If you have seven to nine years of service, that 00:26:24.630 --> 00:26:27.250 number bumps up to 30 % of the cap. And if you're 00:26:27.250 --> 00:26:29.849 a longtime veteran, 10 or more years in the league, 00:26:29.970 --> 00:26:32.930 you can command up to 35 % of the cap. So loyalty 00:26:32.930 --> 00:26:35.170 and longevity literally pay off. Your potential 00:26:35.170 --> 00:26:38.289 earnings go up the longer you play. But... There 00:26:38.289 --> 00:26:40.309 are ways to jump the line. There are. And this 00:26:40.309 --> 00:26:42.029 brings us to one of the most famous examples, 00:26:42.190 --> 00:26:44.470 the Derrick Rose rule. I remember when this happened. 00:26:44.529 --> 00:26:46.430 Derrick Rose was just a phenomenon in Chicago. 00:26:46.529 --> 00:26:49.250 He was the youngest MVP in league history, an 00:26:49.250 --> 00:26:51.569 absolute force of nature. Yeah. And at the time, 00:26:51.569 --> 00:26:53.329 he was still on his rookie contract. Right. So 00:26:53.329 --> 00:26:55.690 he was only eligible for that 25 percent max. 00:26:56.049 --> 00:27:00.000 Correct. And the league. And the Players Association 00:27:00.000 --> 00:27:03.220 basically said, OK, if a kid is this good this 00:27:03.220 --> 00:27:05.539 early in his career, he shouldn't be stuck at 00:27:05.539 --> 00:27:08.240 the lowest max tier. So they created a rule just 00:27:08.240 --> 00:27:10.000 for players like him. And what does the rule 00:27:10.000 --> 00:27:13.559 do? The Derrick Rose rule allows a player who 00:27:13.559 --> 00:27:16.400 is still on his rookie contract, so zero to four 00:27:16.400 --> 00:27:18.720 years of experience, to jump straight from the 00:27:18.720 --> 00:27:22.680 25 % max tier to the 30 % salary tier, which 00:27:22.680 --> 00:27:24.400 is usually reserved for seven -year veterans. 00:27:24.859 --> 00:27:26.619 But you have to earn it. You can't just be a 00:27:26.619 --> 00:27:28.799 good young player. You have to be truly great. 00:27:29.059 --> 00:27:31.559 You have to be elite. To trigger the Rose Rule, 00:27:31.680 --> 00:27:35.099 you must be named MVP, as he was. Or you have 00:27:35.099 --> 00:27:37.980 to start in two All -Star games. Or be named 00:27:37.980 --> 00:27:40.539 to two All -NBA teams. That is a very high bar. 00:27:40.740 --> 00:27:42.440 It's an extremely high bar. In fact, it's led 00:27:42.440 --> 00:27:44.599 to some absolutely fascinating financial drama 00:27:44.599 --> 00:27:46.700 over the years. Players will often have this 00:27:46.700 --> 00:27:49.160 clause written into their extensions. I get 25%, 00:27:49.160 --> 00:27:51.680 but if I make All -NBA this season, it escalates 00:27:51.680 --> 00:27:54.180 to 30%. And we've seen guys miss it by a whisker. 00:27:54.460 --> 00:27:56.920 It's financially heartbreaking. James Harden 00:27:56.920 --> 00:27:59.740 and Anthony Davis both had this escalator clause 00:27:59.740 --> 00:28:01.980 written into their early contract extensions. 00:28:02.339 --> 00:28:05.019 And both of them failed to meet the voting criteria 00:28:05.019 --> 00:28:07.119 by the slimmest of margins. How does that even 00:28:07.119 --> 00:28:09.539 happen? It usually comes down to the media votes 00:28:09.539 --> 00:28:12.880 for the all -NBA teams. A handful of sportswriters 00:28:12.880 --> 00:28:15.039 leaving a guy off their ballot, maybe putting 00:28:15.039 --> 00:28:16.799 him on the third team instead of the second team, 00:28:16.920 --> 00:28:20.950 can literally cost that player $20, $30. even 00:28:20.950 --> 00:28:23.349 $40 million over the life of the contract. That 00:28:23.349 --> 00:28:26.009 is brutal. Millions and millions of dollars are 00:28:26.009 --> 00:28:28.250 dependent on whether a writer in, I don't know, 00:28:28.329 --> 00:28:31.049 Milwaukee thinks you are the second best forward 00:28:31.049 --> 00:28:33.599 or the third best forward in the league. It really 00:28:33.599 --> 00:28:35.960 highlights how these awards aren't just for prestige 00:28:35.960 --> 00:28:38.940 or a trophy on the mantle. They have massive, 00:28:38.940 --> 00:28:42.000 life -altering financial implications. Wow. Now, 00:28:42.039 --> 00:28:44.599 what about the big one, the Supermax? This is 00:28:44.599 --> 00:28:47.539 the designated veteran player extension. This 00:28:47.539 --> 00:28:49.619 feels like the biggest contract in all of sports 00:28:49.619 --> 00:28:51.900 when we hear about it. It often is. This is also 00:28:51.900 --> 00:28:53.900 known as the Kevin Durant rule. Because he left 00:28:53.900 --> 00:28:57.180 Oklahoma City for Golden State. Exactly. When 00:28:57.180 --> 00:28:59.720 Durant left OKC to join the 73 -win Warriors, 00:29:00.039 --> 00:29:03.640 the league panicked. Small market teams panicked. 00:29:03.779 --> 00:29:07.099 They saw a small market team lose a generational 00:29:07.099 --> 00:29:10.160 homegrown talent to an existing super team. And 00:29:10.160 --> 00:29:11.619 they wanted to stop that from happening again. 00:29:11.799 --> 00:29:14.259 They wanted to give teams like OKC or Milwaukee 00:29:14.259 --> 00:29:17.400 or Portland a tool to keep their superstars. 00:29:17.779 --> 00:29:20.319 So they created the Supermax. How does it work? 00:29:20.380 --> 00:29:23.200 What makes it super? It allows the team to offer 00:29:23.200 --> 00:29:25.799 their own drafted player, or a player they traded 00:29:25.799 --> 00:29:28.819 for while he was on his rookie deal, a massive 00:29:28.819 --> 00:29:31.920 extension starting at 35 % of the cap. even if 00:29:31.920 --> 00:29:33.619 they haven't hit the 10 -year service mark yet. 00:29:33.720 --> 00:29:35.960 So they can offer the highest possible salary 00:29:35.960 --> 00:29:38.319 tier years earlier than anyone else. And for 00:29:38.319 --> 00:29:41.319 more years, with bigger raises. The whole idea 00:29:41.319 --> 00:29:43.859 is, we can pay you way, way more money than anyone 00:29:43.859 --> 00:29:46.059 else can. Please stay. We're talking a difference 00:29:46.059 --> 00:29:48.839 of $40 or $50 million total compared to what 00:29:48.839 --> 00:29:51.019 another team can offer that player in free agency. 00:29:51.140 --> 00:29:53.500 It's a huge financial incentive. But has it actually 00:29:53.500 --> 00:29:55.559 worked? Because I feel like we still see superstars 00:29:55.559 --> 00:29:57.680 demanding trades all the time. It's a very mixed 00:29:57.680 --> 00:30:00.319 bag. And there is a delicious irony with this 00:30:00.319 --> 00:30:03.680 rule. The very first player who became eligible 00:30:03.680 --> 00:30:07.519 for this massive, record -breaking deal was DeMarcus 00:30:07.519 --> 00:30:10.859 Cousins in Sacramento. Oh, right. Boogie Cousins. 00:30:11.039 --> 00:30:13.680 He was putting up monster numbers on a bad team. 00:30:13.940 --> 00:30:17.039 He met the criteria. He was eligible for the 00:30:17.039 --> 00:30:20.599 Supermax, a deal worth over $200 million. And 00:30:20.599 --> 00:30:23.440 what happened? The Kings looked at that number, 00:30:23.519 --> 00:30:25.940 and they looked at their mediocre record, and 00:30:25.940 --> 00:30:29.819 they looked at his, uh... volatile personality. 00:30:30.140 --> 00:30:32.180 A nice way to put it. And they decided they didn't 00:30:32.180 --> 00:30:33.519 want to pay him that much. They were scared of 00:30:33.519 --> 00:30:35.420 that contract. So they traded him to New Orleans 00:30:35.420 --> 00:30:37.980 right before he could sign it. So the rule that 00:30:37.980 --> 00:30:40.099 was designed to help the Kings keep him there 00:30:40.099 --> 00:30:42.819 actually forced his exit because the price tag 00:30:42.819 --> 00:30:44.700 got too high for them. Exactly. It put the Kings 00:30:44.700 --> 00:30:46.880 in a put up or shut up position and they chose 00:30:46.880 --> 00:30:49.160 to shut up and trade him. What about other examples? 00:30:49.400 --> 00:30:51.700 Well, then you have Anthony Davis. The Pelicans 00:30:51.700 --> 00:30:53.859 offered him the Supermax. He was the first player 00:30:53.859 --> 00:30:56.769 to publicly refuse it. He basically said, Keep 00:30:56.769 --> 00:30:59.289 your extra $50 million. I want to go win. And 00:30:59.289 --> 00:31:01.730 he forced a trade to the Lakers. He paid a huge 00:31:01.730 --> 00:31:04.910 premium just to leave. He did. But on the other 00:31:04.910 --> 00:31:07.829 hand, it has worked. Gianna Zanda -Decumbo stayed 00:31:07.829 --> 00:31:10.410 in Milwaukee and signed the Supermax. Damian 00:31:10.410 --> 00:31:12.210 Lillard signed it in Portland, even though he 00:31:12.210 --> 00:31:14.710 eventually left later. Nikol Jokic signed it 00:31:14.710 --> 00:31:17.609 in Denver and won a title. So for some players, 00:31:17.750 --> 00:31:21.069 the golden handcuffs work. But for others, the 00:31:21.069 --> 00:31:24.079 desire to win or just... Chain scenery outweighs 00:31:24.079 --> 00:31:26.759 even that much extra cash. It's fascinating psychology. 00:31:27.240 --> 00:31:29.980 Is $50 million enough to make you stay in a city 00:31:29.980 --> 00:31:31.940 you don't like or on a team that's not winning? 00:31:32.079 --> 00:31:35.279 For some, yes. For others, no. A very expensive 00:31:35.279 --> 00:31:38.460 question. Let's shift gears to Section 5, free 00:31:38.460 --> 00:31:41.539 agency mechanics. When the season ends, the chaos 00:31:41.539 --> 00:31:44.539 begins. The summer soap opera, my favorite time 00:31:44.539 --> 00:31:46.400 of year. First, we have to distinguish between 00:31:46.400 --> 00:31:49.480 restricted and unrestricted free agents. What's 00:31:49.480 --> 00:31:51.299 the difference? Unrestricted is simple. You're 00:31:51.299 --> 00:31:53.730 free. Your contract is up. You can sign with 00:31:53.730 --> 00:31:55.390 anyone in the league who has the money to pay 00:31:55.390 --> 00:31:58.609 you. LeBron James, Kevin Durant, when their deals 00:31:58.609 --> 00:32:00.549 are up, they are usually unrestricted. They control 00:32:00.549 --> 00:32:02.529 their own destiny. Restricted is where all the 00:32:02.529 --> 00:32:05.569 strategy and game theory comes in? Right. Restricted 00:32:05.569 --> 00:32:07.630 free agency usually applies to players coming 00:32:07.630 --> 00:32:10.309 off their four -year rookie deals. The team that 00:32:10.309 --> 00:32:12.529 drafted them still controls them to a degree. 00:32:12.710 --> 00:32:14.750 They have the right of first refusal. Correct. 00:32:15.009 --> 00:32:17.470 The player is allowed to go out and solicit a 00:32:17.470 --> 00:32:19.829 contract from another team. This is called an 00:32:19.829 --> 00:32:22.670 offer sheet. But before he can sign it, he has 00:32:22.670 --> 00:32:24.750 to bring it back to his original team. And they 00:32:24.750 --> 00:32:27.450 get to decide. They have 48 hours to match that 00:32:27.450 --> 00:32:30.089 offer. If they match it dollar for dollar, the 00:32:30.089 --> 00:32:32.390 player must stay. He has no choice in the matter. 00:32:32.529 --> 00:32:35.329 And this leads to some very dirty tactics. Let's 00:32:35.329 --> 00:32:37.630 talk about the poison pill. Oh, the poison pill. 00:32:38.319 --> 00:32:41.640 This is a strategy used by a rival GM to make 00:32:41.640 --> 00:32:43.960 it as painful as possible for the original team 00:32:43.960 --> 00:32:45.900 to match the offer sheet. The classic example 00:32:45.900 --> 00:32:48.359 that everyone brings up is the Jeremy Lin saga, 00:32:48.720 --> 00:32:52.279 Lin's sanity. The Houston Rockets, led by their 00:32:52.279 --> 00:32:55.299 GM at the time, Daryl Morey, wanted Jeremy Lin. 00:32:55.619 --> 00:32:57.920 He was a restricted free agent for the New York 00:32:57.920 --> 00:33:00.539 Knicks. The Knicks had publicly signaled they 00:33:00.539 --> 00:33:02.880 would match any normal offer to keep him. So 00:33:02.880 --> 00:33:05.220 Morey didn't make a normal offer. He structured 00:33:05.220 --> 00:33:07.819 the offer in a very creative or devious way. 00:33:08.250 --> 00:33:10.750 They backloaded the money. Explain that structure 00:33:10.750 --> 00:33:13.390 for us. It was a three -year deal. The salary 00:33:13.390 --> 00:33:15.670 in the first two years was very reasonable, something 00:33:15.670 --> 00:33:19.369 like $5 million a year. But the third year, it 00:33:19.369 --> 00:33:22.130 ballooned to a massive number, around $15 million. 00:33:22.529 --> 00:33:24.829 Now, for the Rockets, the team making the offer, 00:33:24.930 --> 00:33:26.829 the cap hit was just the average of the three 00:33:26.829 --> 00:33:29.529 years, so it was manageable. Right. For the offering 00:33:29.529 --> 00:33:31.730 team, it smoothed out over the life of the deal. 00:33:32.049 --> 00:33:35.009 But under the rules at the time, if the Knicks 00:33:35.009 --> 00:33:37.650 matched it, they had to take the actual salary 00:33:37.650 --> 00:33:41.150 hit in each individual year. So that massive 00:33:41.150 --> 00:33:43.930 balloon payment in year three would have hit 00:33:43.930 --> 00:33:46.349 their salary cap for the full massive amount. 00:33:46.549 --> 00:33:48.789 And because the Knicks were already a big spending 00:33:48.789 --> 00:33:52.069 over the tax team. That one year, $15 million 00:33:52.069 --> 00:33:55.029 salary would have triggered an astronomical luxury 00:33:55.029 --> 00:33:58.089 tax bill. We're talking tens of millions of dollars 00:33:58.089 --> 00:34:00.589 in taxes just for Jeremy Lin in that one year. 00:34:00.750 --> 00:34:03.109 The Knicks looked at that future tax bill and 00:34:03.109 --> 00:34:05.210 they blinked. They didn't match. Lin went to 00:34:05.210 --> 00:34:07.750 Houston. It was a checkmate move. Ruthless. I 00:34:07.750 --> 00:34:10.949 love it. It really is financial warfare. There's 00:34:10.949 --> 00:34:14.110 also the Gilbert Arenas rule, which was a fix 00:34:14.110 --> 00:34:16.289 for a similar problem with second round picks, 00:34:16.469 --> 00:34:19.070 basically limiting how much other teams can offer 00:34:19.070 --> 00:34:21.670 early on to prevent the original team from being 00:34:21.670 --> 00:34:24.929 unable to match due to weird cap rules. Now let's 00:34:24.929 --> 00:34:28.050 talk about the timeline. July 1st hits, free 00:34:28.050 --> 00:34:30.449 agency starts, but nothing is actually signed 00:34:30.449 --> 00:34:32.730 immediately. This is the moratorium. Right, the 00:34:32.730 --> 00:34:35.250 July moratorium. It's a period, it's now about 00:34:35.250 --> 00:34:37.949 five or six days, where deals can be agreed to 00:34:37.949 --> 00:34:40.550 verbally, but Penn cannot officially hit paper. 00:34:40.710 --> 00:34:43.469 It's designed to give the league time to audit 00:34:43.469 --> 00:34:45.889 all the previous year's finances and set the 00:34:45.889 --> 00:34:48.250 final official cap number for the upcoming year. 00:34:48.389 --> 00:34:50.369 But verbal agreements, I mean, those aren't... 00:34:50.519 --> 00:34:53.119 Legally binding. They are not. It's a gentleman's 00:34:53.119 --> 00:34:54.980 agreement. And this brings us to the infamous 00:34:54.980 --> 00:34:57.579 DeAndre Jordan rule. One of the wildest days 00:34:57.579 --> 00:34:59.840 in NBA Twitter history. I remember exactly where 00:34:59.840 --> 00:35:02.579 I was. The DeAndre Jordan hostage crisis of 2015. 00:35:03.340 --> 00:35:05.880 So DeAndre Jordan verbally agreed to sign a max 00:35:05.880 --> 00:35:08.139 contract with the Dallas Mavericks. The moratorium 00:35:08.139 --> 00:35:10.519 was ongoing. Mark Cuban, the Mavs owner, was 00:35:10.519 --> 00:35:12.300 celebrating. They had their star center. And 00:35:12.300 --> 00:35:14.559 then what happened? DeAndre started having second 00:35:14.559 --> 00:35:18.269 thoughts. His old team, the Los Angeles Clippers, 00:35:18.329 --> 00:35:20.070 caught wind of it. And the Clippers didn't just, 00:35:20.090 --> 00:35:22.690 you know, call him on the phone. No. The Clippers 00:35:22.690 --> 00:35:25.869 coach, Doc Rivers, and a bunch of players like 00:35:25.869 --> 00:35:28.510 Blake Griffin and Chris Paul, they all flew to 00:35:28.510 --> 00:35:30.829 Houston where DeAndre lived. They went to his 00:35:30.829 --> 00:35:33.309 house. They essentially blockaded him in his 00:35:33.309 --> 00:35:35.710 own home. They wouldn't let him leave. They started 00:35:35.710 --> 00:35:38.610 tweeting emojis of planes and cars and bananas. 00:35:39.309 --> 00:35:41.550 It was reality television playing out in real 00:35:41.550 --> 00:35:44.110 time. They stayed with him playing cards and 00:35:44.110 --> 00:35:47.289 video games until the clock struck midnight and 00:35:47.289 --> 00:35:49.809 the moratorium ended, just to make sure he couldn't 00:35:49.809 --> 00:35:51.889 answer the phone if Mark Cuban called. And at 00:35:51.889 --> 00:35:55.150 12 .01 a .m. He signed the contract with the 00:35:55.150 --> 00:35:57.789 Clippers. He completely stiffed the Mavericks 00:35:57.789 --> 00:36:00.230 and left them with no center and no cap space. 00:36:00.530 --> 00:36:03.530 And because of that one absolutely wild incident, 00:36:03.690 --> 00:36:05.909 the league changed the rules. They did. They 00:36:05.909 --> 00:36:08.110 shortened the moratorium from about 10 days down 00:36:08.110 --> 00:36:10.349 to five or six days. They want to reduce the 00:36:10.349 --> 00:36:12.469 amount of time for buyers remorse to set in. 00:36:12.550 --> 00:36:14.710 They basically said, OK, we can't have teams 00:36:14.710 --> 00:36:16.889 holding players hostage in their own homes. Another 00:36:16.889 --> 00:36:19.329 player, another rule in the book. What about 00:36:19.329 --> 00:36:22.570 when a player wants to leave, but his new preferred 00:36:22.570 --> 00:36:25.170 team doesn't have any cap space to sign him? 00:36:25.369 --> 00:36:27.469 This is where the sign and trade comes in. This 00:36:27.469 --> 00:36:29.730 is a mechanism that can be a win, win, win. Usually 00:36:29.730 --> 00:36:32.849 the team that is losing the free agent. signs 00:36:32.849 --> 00:36:35.469 him to a new contract, and then immediately trades 00:36:35.469 --> 00:36:38.409 him to his new team. Why would a team do that? 00:36:38.829 --> 00:36:41.789 Why help a player leave? Well, for the player, 00:36:41.869 --> 00:36:45.269 it gets him to a team that is over the cap and 00:36:45.269 --> 00:36:47.289 couldn't have signed him otherwise. Yes. The 00:36:47.289 --> 00:36:49.510 best recent example is Jimmy Butler going to 00:36:49.510 --> 00:36:51.610 the Miami Heat. Miami didn't have the cap space 00:36:51.610 --> 00:36:54.329 to sign him outright. So Philadelphia signed 00:36:54.329 --> 00:36:56.769 him first? Philadelphia signed him to the contract 00:36:56.769 --> 00:36:59.309 he wanted and immediately traded him to Miami. 00:36:59.530 --> 00:37:01.269 And what does the losing team, Philadelphia, 00:37:01.489 --> 00:37:03.739 get out of it? Instead of losing their star player 00:37:03.739 --> 00:37:06.639 for absolutely nothing, they get assets back. 00:37:06.800 --> 00:37:08.820 Maybe a trade exception, maybe a draft pick, 00:37:08.880 --> 00:37:11.420 maybe another player. It's much, much better 00:37:11.420 --> 00:37:13.159 than watching him just walk out the door for 00:37:13.159 --> 00:37:16.320 zero return. Unlike MLB, where you just get a 00:37:16.320 --> 00:37:18.800 compensatory draft pick from the league. Exactly. 00:37:18.860 --> 00:37:20.559 In the NBA, you have to engineer the compensation 00:37:20.559 --> 00:37:23.900 yourself. But, and this is a key restriction 00:37:23.900 --> 00:37:26.760 we mentioned earlier, the receiving team in a 00:37:26.760 --> 00:37:29.780 sign -in trade, in this case Miami, becomes hard 00:37:29.780 --> 00:37:31.940 -capped at the apron for the whole season. Everything 00:37:31.940 --> 00:37:34.739 has a cost. There's always a trade -off. Always. 00:37:34.960 --> 00:37:39.719 Okay, section six. Weird science. These are the 00:37:39.719 --> 00:37:42.739 deep cuts, the loopholes, and the fixes that 00:37:42.739 --> 00:37:45.000 have built up over the years. Let's start with 00:37:45.000 --> 00:37:47.780 the over 38 rule. This used to be the over 36 00:37:47.780 --> 00:37:50.420 rule, which is an important detail. It's a rule 00:37:50.420 --> 00:37:52.760 designed to stop teams from circumventing the 00:37:52.760 --> 00:37:56.380 cap by signing older players to very long contracts 00:37:56.380 --> 00:37:58.280 that everyone knows the player won't actually 00:37:58.280 --> 00:38:00.539 finish. So deferred compensation in disguise. 00:38:00.840 --> 00:38:02.860 That's exactly what it was. Imagine a team signing 00:38:02.860 --> 00:38:05.920 a 37 -year -old star to a four -year deal. They 00:38:05.920 --> 00:38:07.460 know he's probably going to retire in two years. 00:38:08.039 --> 00:38:10.239 But by spreading the money out over four years 00:38:10.239 --> 00:38:12.739 on the books, they lower the annual cap hit for 00:38:12.739 --> 00:38:14.579 the years he's actually playing. It was a loophole. 00:38:14.679 --> 00:38:17.840 A pretty clever one. So the league said no. If 00:38:17.840 --> 00:38:20.460 a contract extends past a player's 38th birthday, 00:38:20.639 --> 00:38:23.599 the salary for those later years is presumed 00:38:23.599 --> 00:38:26.539 to be deferred and is accelerated onto the cap 00:38:26.539 --> 00:38:29.119 hit of the earlier years. It basically removes 00:38:29.119 --> 00:38:30.719 the benefit. You said it used to be the over 00:38:30.719 --> 00:38:33.940 36 rule. Why the change to 38? That seems specific. 00:38:34.400 --> 00:38:36.489 Well, let's look at the politics of it. Who was 00:38:36.489 --> 00:38:38.449 the president of the Players Association at the 00:38:38.449 --> 00:38:40.429 time this was being negotiated in the last CBA? 00:38:40.750 --> 00:38:43.250 Chris Paul. Chris Paul. And who was another key 00:38:43.250 --> 00:38:45.469 executive on the union's board? LeBron James. 00:38:45.690 --> 00:38:48.630 Two guys who were, at the time, approaching 36 00:38:48.630 --> 00:38:51.969 and wanted to be able to sign long, lucrative, 00:38:52.010 --> 00:38:54.449 multi -year deals. Oh, yeah, that works. Isn't 00:38:54.449 --> 00:38:57.369 it? They negotiated the age up from 36 to 38. 00:38:57.920 --> 00:39:01.000 That change specifically allowed Chris Paul to 00:39:01.000 --> 00:39:03.780 sign a massive four -year deal with Phoenix and 00:39:03.780 --> 00:39:06.039 for LeBron to sign extensions with the Lakers 00:39:06.039 --> 00:39:09.199 without triggering the penalty. It's a great 00:39:09.199 --> 00:39:11.639 example of the union leadership directly benefiting 00:39:11.639 --> 00:39:14.260 from a rule change they negotiated. That is very 00:39:14.260 --> 00:39:16.260 convenient. Now, what about the amnesty clause? 00:39:16.400 --> 00:39:18.280 This sounds like a legal pardon from a governor. 00:39:18.539 --> 00:39:21.429 It is, financially speaking. It's a mechanism 00:39:21.429 --> 00:39:25.130 that has appeared in a couple of past CBAs, usually 00:39:25.130 --> 00:39:28.570 right after a league lockout, that allows a team 00:39:28.570 --> 00:39:32.750 a one -time ability to waive a player and wipe 00:39:32.750 --> 00:39:34.869 his salary completely from their salary cap and 00:39:34.869 --> 00:39:37.090 luxury tax calculations. The player still gets 00:39:37.090 --> 00:39:39.820 paid his money, right? The owner can't just tear 00:39:39.820 --> 00:39:41.519 up the contract. Oh, yeah. The check's still 00:39:41.519 --> 00:39:44.599 clear. The player gets every single dime he is 00:39:44.599 --> 00:39:47.400 owed. But the salary just vanishes from the team's 00:39:47.400 --> 00:39:50.059 books. It's a get -out -of -jail -free card for 00:39:50.059 --> 00:39:53.099 one really bad contract. And the 2005 version 00:39:53.099 --> 00:39:55.940 of this rule has a hilarious nickname. The Allen 00:39:55.940 --> 00:39:58.679 Houston Rule. The Knicks had signed Allen Houston 00:39:58.679 --> 00:40:01.480 to a massive back -breaking $100 million deal, 00:40:01.639 --> 00:40:03.599 and then his knees just completely gave out. 00:40:03.619 --> 00:40:05.659 He couldn't play. Everyone in the league assumed 00:40:05.659 --> 00:40:07.380 the rule was created specifically so the Knicks 00:40:07.380 --> 00:40:09.119 could waive him and save all that tax money. 00:40:09.199 --> 00:40:11.420 And did they use it on him? They did not. In 00:40:11.420 --> 00:40:12.960 one of the most baffling decisions in franchise 00:40:12.960 --> 00:40:15.380 history, the Knicks did not use the Allen Houston 00:40:15.380 --> 00:40:17.780 rule on Allen Houston. They used it on Jerome 00:40:17.780 --> 00:40:20.119 Williams, a role player known as the Junkyard 00:40:20.119 --> 00:40:23.079 Dog. Why would they do that? Nobody knows. They 00:40:23.079 --> 00:40:25.400 kept Allen Houston's massive dead salary on the 00:40:25.400 --> 00:40:28.460 books. It's just... Peak Knicks. You can't make 00:40:28.460 --> 00:40:30.820 this stuff up. Then in 2011, there was another 00:40:30.820 --> 00:40:33.699 amnesty round after that lockout. Teams used 00:40:33.699 --> 00:40:35.619 it to clear guys like Gilbert Arenas, who had 00:40:35.619 --> 00:40:39.420 a huge deal, and Brandon Roy, whose knees had 00:40:39.420 --> 00:40:42.400 also failed him. It's a reset button for a general 00:40:42.400 --> 00:40:44.949 manager's biggest mistake. We also have the stretch 00:40:44.949 --> 00:40:47.409 provision. What's that? This is a way to make 00:40:47.409 --> 00:40:50.489 the pain of waiving a player with guaranteed 00:40:50.489 --> 00:40:52.889 money left on his deal a little less painful 00:40:52.889 --> 00:40:55.869 in the short term. If you cut a guy, you can 00:40:55.869 --> 00:40:58.650 stretch his remaining salary over twice the remaining 00:40:58.650 --> 00:41:01.469 contract length plus one additional year. Okay, 00:41:01.510 --> 00:41:03.510 an example. If I owe a guy $20 million for one 00:41:03.510 --> 00:41:05.369 more year and I cut him. You can stretch that 00:41:05.369 --> 00:41:07.969 $20 million over three years. That's twice the 00:41:07.969 --> 00:41:10.070 remaining one year, plus one. So instead of a 00:41:10.070 --> 00:41:12.809 massive $20 million cap hit this year, you take 00:41:12.809 --> 00:41:15.570 a smaller $6 .6 million cap hit for the next 00:41:15.570 --> 00:41:18.050 three years. So it opens up immediate cap space, 00:41:18.210 --> 00:41:20.250 but it clogs up your books with dead money for 00:41:20.250 --> 00:41:23.530 the future. Exactly. The Los Angeles Lakers famously 00:41:23.530 --> 00:41:26.289 did this with Luol Deng. They were paying him 00:41:26.289 --> 00:41:29.170 millions of dollars a year for years and years 00:41:29.170 --> 00:41:31.519 after he last played for them. it can come back 00:41:31.519 --> 00:41:34.059 to haunt you. And finally, trade ballast and 00:41:34.059 --> 00:41:36.920 the wink -wink deals. Trade ballast is just a 00:41:36.920 --> 00:41:40.119 term for adding extra players to a trade solely 00:41:40.119 --> 00:41:43.159 to make the salary math work. But the wink -wink 00:41:43.159 --> 00:41:45.940 deal was a specific loophole that the league 00:41:45.940 --> 00:41:49.420 absolutely hated. The Zydrunas -Ilgauskas situation 00:41:49.420 --> 00:41:52.739 in Cleveland. The quintessential example. The 00:41:52.739 --> 00:41:55.139 Cavaliers traded Ilgauskas, their longtime center, 00:41:55.300 --> 00:41:57.460 to the Washington Wizards as part of a bigger 00:41:57.460 --> 00:42:00.000 deal. Washington didn't actually want him. They 00:42:00.000 --> 00:42:02.179 just wanted the other assets in the trade. So 00:42:02.179 --> 00:42:04.460 Washington waived him almost immediately after 00:42:04.460 --> 00:42:06.199 the trade went through. Okay, so he's a free 00:42:06.199 --> 00:42:09.079 agent. And then, after a mandatory 30 -day waiting 00:42:09.079 --> 00:42:11.019 period, he just re -signed with Cleveland for 00:42:11.019 --> 00:42:12.929 the rest of the season. So Cleveland basically 00:42:12.929 --> 00:42:15.449 got the assets they wanted in the trade, and 00:42:15.449 --> 00:42:17.250 D, they got their own player back for nothing. 00:42:17.650 --> 00:42:20.150 Exactly. It completely undermined the concept 00:42:20.150 --> 00:42:23.309 of a trade. So the league closed that loop very 00:42:23.309 --> 00:42:27.050 quickly. Now, if you trade a player and he gets 00:42:27.050 --> 00:42:30.210 waived by his new team, he cannot re -sign with 00:42:30.210 --> 00:42:33.639 his original team for one full year. or until 00:42:33.639 --> 00:42:36.219 his traded contract would have expired. No more 00:42:36.219 --> 00:42:38.840 wink -wink deals. It's just an endless game of 00:42:38.840 --> 00:42:41.519 cat and mouse. The teams find a loophole. The 00:42:41.519 --> 00:42:44.099 league closes it in the next CBA. That is the 00:42:44.099 --> 00:42:46.440 entire history of the collective bargaining agreement. 00:42:46.920 --> 00:42:50.320 It is a living, breathing document that is constantly 00:42:50.320 --> 00:42:53.199 reacting. So bringing this all together for the 00:42:53.199 --> 00:42:55.280 outro, after all of this, what does this mean 00:42:55.280 --> 00:42:57.199 for the listener? What's the big takeaway? It 00:42:57.199 --> 00:42:59.300 means that the salary cap isn't a static set 00:42:59.300 --> 00:43:02.300 of rules. It reacts. The poison pill strategy 00:43:02.300 --> 00:43:04.719 led to changes in the offer sheet rules. The 00:43:04.719 --> 00:43:07.460 DeAndre Jordan situation led to the shorter moratorium. 00:43:07.780 --> 00:43:10.599 Every single weird rule has a story behind it. 00:43:10.639 --> 00:43:13.039 And usually that story involves a very clever 00:43:13.039 --> 00:43:15.440 general manager trying to get an edge. Or a very 00:43:15.440 --> 00:43:17.139 rich owner trying to save a little bit of money. 00:43:17.340 --> 00:43:20.019 So here is a provocative thought to leave you 00:43:20.019 --> 00:43:23.340 with. The stated goal of all these complex rules, 00:43:23.599 --> 00:43:26.360 the salary cap, the luxury tax, it's all designed 00:43:26.360 --> 00:43:29.039 to create parity. Right. To level the playing 00:43:29.039 --> 00:43:31.480 field between the big markets and the small markets. 00:43:31.639 --> 00:43:35.320 And yet. The supermax, which was intended to 00:43:35.320 --> 00:43:37.340 help small market teams keep their stars home, 00:43:37.559 --> 00:43:40.280 sometimes forces those same teams to trade their 00:43:40.280 --> 00:43:42.079 star away because they're scared of the massive 00:43:42.079 --> 00:43:44.800 price tag. Right. And the luxury tax, which was 00:43:44.800 --> 00:43:47.559 meant to curb spending, sometimes just becomes 00:43:47.559 --> 00:43:50.639 a cost of doing business for the ultra rich owners 00:43:50.639 --> 00:43:53.300 in Golden State or Los Angeles, while the smaller 00:43:53.300 --> 00:43:55.480 market owners are happy to stay under it and 00:43:55.480 --> 00:43:58.139 just cash the tax distribution checks. It raises 00:43:58.139 --> 00:44:00.739 the fundamental question, is the cap actually 00:44:00.739 --> 00:44:05.699 working? Is it actually creating parity? Or is 00:44:05.699 --> 00:44:08.039 it just changing the rules of engagement? The 00:44:08.039 --> 00:44:10.219 big markets still have huge advantages. They 00:44:10.219 --> 00:44:11.880 just had to be more creative with their accounting 00:44:11.880 --> 00:44:14.159 now. Maybe the cap isn't a tool for parity at 00:44:14.159 --> 00:44:16.039 all. Maybe it's just a way to make the game more 00:44:16.039 --> 00:44:18.119 complicated without actually changing who wins 00:44:18.119 --> 00:44:20.260 in the end. A question worth mulling over, for 00:44:20.260 --> 00:44:23.019 sure. So the next time you see a confusing trade 00:44:23.019 --> 00:44:25.340 pop up on your phone, don't just look at the 00:44:25.340 --> 00:44:27.719 players' names. Look at the exceptions being 00:44:27.719 --> 00:44:30.730 used. Look at the tax apron. Ask yourself. Are 00:44:30.730 --> 00:44:33.190 they trying to get under the second apron with 00:44:33.190 --> 00:44:35.530 this move? Did they just generate a big trade 00:44:35.530 --> 00:44:38.110 exception? That is where the real game is being 00:44:38.110 --> 00:44:40.170 played. Thanks for diving deep with us. We'll 00:44:40.170 --> 00:44:41.889 see you next time. Keep watching the cap.