Welcome back to the Deep Dive. Today we are shifting
gears a little bit. Just a bit. Usually we're
right there on the court. You know, we're looking
at the pick and rolls, the buzzer beaters, all
the defensive rotations. The fun stuff. The fun
stuff, exactly. But today... We're going behind
the scenes? No, we're going way behind the scenes.
We're going into the literal engine room of the
NBA. Right into the spreadsheet. We are talking
about the game behind the game. We are stepping
into the war room, the front office, the place
where championships are actually built, break
in, and, well, paid for. Long before a single
ball is even tipped. Exactly. It really is the
invisible hand of the league. I mean, you can
have the best transition offense in the world.
You can have the most athletic wings. But if
you lose the game on that spreadsheet. It's over.
Your dynasty is over before it even really begins.
It's so true. We are talking, of course, about
NBA salary cap. And I know I can almost hear
some of you groaning already. Eyes glaze over.
For some, the phrase salary cap. Sounds like
homework. It sounds like, you know, doing your
taxes or staring at a legal document until your
eyes cross. It can be that. But I promise you,
if you stick with us, you're going to realize
that this is actually a high stakes strategy
game. Yeah. It is 4D chess played with hundreds
of millions of dollars. And massive egos. And
massive egos and incredibly complex, sometimes
baffling rules. It really is. It's the set of
rules that dictates the face of franchises. It
explains the why. You know, why did your favorite
team suddenly trade their best player for, what,
a bunch of picks that seem like nothing? Right.
Or why does a billionaire owner, a literal billionaire,
claim they can't afford to sign one more player?
Exactly. Why do teams tank? It all comes back
to this. It is the ecosystem that moves players
around like chess pieces on a global board. And
our mission today is simple. We're going to decode
the jargon. We'll try our best. We're going to
take terms like the apron, bird rights, the poison
pill, and the supermax, and we're going to translate
them into something you can actually use. Right.
We want you to be able to win that argument at
the bar. Or at least understand what is happening
on Twitter when it just explodes into chaos during
free agency. We're going to turn the collective
bargaining agreement, or CBA, which is basically
a massive, hundreds of pages long legal contract,
into a playbook that actually makes sense. Okay,
so let's set the scene. Let's start with the
foundational number. Based on the sources we
have for the 2024 -25 season, the salary cap
is set at roughly, what, $140 .588 million. That's
the number. That is the magic number. That is
the line in the sand. Right. But, and this is
maybe the first massive plot twist of the day,
it's not actually a hard limit. Not at all. And
that is the most important distinction to make
right out of the gate. This is the aha. Moment
for a lot of people, isn't it? Especially if
you follow other sports like the NFL or the NHL.
Oh, absolutely. If you look at the NFL or the
NHL, they operate under what we call hard caps.
That means there is a rigid line, a brick wall,
no wiggle room, none. If the cap is $200 million
and your payroll is $200 million and one single
penny, the league rejects the contract. That's
it. You cannot operate. There are no excuses,
no loopholes, no rich owners just writing a bigger
check. No. If you hit the cap, you stop spending.
You have to start cutting players. You have to
trade them for less money. Which is why we see
that constant roster churn in football. I mean,
you win the Super Bowl, and then you have to
immediately cut five of your starters because
you just can't pay them. Exactly. It forces parity
through, what did you call it? Through brutality.
Through brutality. That's a perfect way to put
it. But the NBA has a soft cap. A soft cap. Which
sounds infinitely more comfortable, doesn't it?
Like a soft pillow. It is certainly more flexible,
but I'd argue it's way more complex. Oh, for
sure. The philosophy behind the soft cap is really
about connection and continuity. Yeah. The NBA
realized decades and decades ago that their product
is star driven. Fans fall in love with players,
not just the laundry they wear. If you draft
a superstar, a Michael Jordan. A Steph Curry.
The league does not want you to be forced to
trade him just because he hit his prime and got
expensive. It would be bad for business. Terribly.
Yeah. They want to foster that fan connection
to a homegrown roster, to a player you've watched
grow up. So, OK, a hard cap forces roster turnover
to keep everyone on a level playing field. But
a soft cap allows for continuity if you know
how to navigate the rules. Precisely. In a hard
cap system, success is punished immediately because
everyone gets expensive and you have to cut them.
In the NBA's soft cap system, you can keep everyone.
Provided you have the right exceptions and maybe
more importantly, an owner willing to pay the
massive penalties. It's a system that rewards
knowing the rules inside and out and having very
deep pockets. OK, so let's unpack the roadmap
for the next hour or so. We are going to look
at the history of how we even got here because,
you know, the cap didn't always exist. Then we're
going to look at how teams legally break the
cap. These are the exceptions. The permission
slips. The get out of jail free cards. Exactly.
Then we'll look at the punishments for breaking
it too much. The luxury tax and the new dreaded
second apron. Very scary stuff. And we'll get
into the specific rules that are literally named
after famous players. Larry Bird, Derrick Rose.
I mean, even DeAndre Jordan has a rule named
after him. It's fascinating, isn't it? How many
of these dense legalistic rules are just... direct
reactions to one specific player doing something
crazy or one team finding a clever loophole.
I love that. The history of the NBA is literally
written in its own rulebook. But let's start
at the foundation, Section 1. What actually is
the cap? I mentioned the $140 million number,
but where does that number come from? It's not
just pulled out of a hat by the commissioner.
No, no. It's a very specific calculation. It's
strictly tied to the league's success, to its
revenue. The cap is calculated as a percentage
of basketball -related income, or BRI, from the
season before. Basketball -related income. That
sounds big. It sounds all encompassing. And it
is. I mean, we were talking about the massive
TV rights deals. That's the big one. But it's
also ticket sales, concessions, parking, merchandise
sold at the arena. Basically, if the NBA logo
is on it and it makes money, it goes into this
giant pot. So the players and the owners are
essentially partners in the business. That's
the entire idea behind the collective bargaining
agreement. It's a partnership. If the league
makes more money, if the TV ratings go up, if
ticket prices rise, the cap goes up and the players
get paid more. Now, what's the split generally?
Under the current CBA, it's pretty close to a
50 -50 split. The players get roughly half of
all the revenue the league generates. And it's
not just a ceiling, is it? There's also a basement.
We always talk about the cap as a limit, but
teams are also forced to spend. Correct. There
is a salary floor. Teams must spend 90 percent
of the cap. The Players Association fought very
hard for this. Why is it so important to them?
Well, they didn't want a team owner in a small
market just pocketing all that shared TV revenue
and then fielding a team of minimum wage rookies
and G leaguers. Right. They don't want an owner
to just treat the team as a personal piggy bank
without actually trying to win games. Exactly.
You have to spend money on talent. You have to
at least try to put a competitive product on
the floor. And the timeline for that has gotten
much, much tighter in recent years. How so? What's
changed? In the newest CBA from 2023, teams have
to hit that 90 % floor by the very start of the
preseason training camp. Oh, wow. It used to
be that you could wait until the very end of
the season. You could run a super cheap payroll
all year and then just, you know, give everyone
a bonus in March or sign a few random guys in
April to get over the line. So you could cheap
out for 95 % of the season. You could. Now. No.
You have to field a legitimate payroll from day
one. It forces your hand. That's a huge shift,
especially for those tanking teams that are trying
to rebuild. A massive shift. Now, for a little
history lesson, and I think this context is just
wild, the NBA didn't always have a cap. It's
true. They actually had one briefly in the mid
-40s, right at the very beginning of the league,
but they abolished it after just one season.
And then nothing for decades. Nothing. Through
the entire era of Bill Russell, Will Chamberlain,
the merger with the ABA no salary cap. It wasn't
until the 1984 -85 season that the modern salary
cap was reinstated. And the goal, I assume, was
competitive balance, to stop the big market teams
from just buying everyone. That was the idea.
By the early 80s, you had some teams that were
really struggling to stay afloat and others spending
wildly. They wanted to level the playing field
so the richest teams, the ones in L .A. or New
York or Boston, couldn't just buy every single
good player in the league. But the inflation
here, this is the part that blows my mind every
time I see it. It's unbelievable. In that first
season, back with a cap, 1984, the total team
payroll limit was somewhere between $3 .6 and
$4 .6 million. Will you say that number again?
$4 .6 million for the whole team. For the entire
roster. Yeah. 12 to 15 players, the total limit
was under $5 million. That is absolutely insane.
Today, a single mid -level player, I mean, a
guy who comes off the bench and plays maybe 20
minutes a night makes double that. Easily. The
mid -level exception alone, which is just a tool
we'll get into for signing role players, is worth
around $12 million today. So just that one player
signing is worth almost triple the entire team
salary cap from 1984. It really puts the growth
of the game and especially the explosion of TV
money into perspective. It's a completely different
universe now. It really shows you how much that
basketball -related income has just skyrocketed.
Okay, so we have this cap. It's soft. Which brings
us right to section two, breaking the cap. You
called them permission slips. That's honestly
the best way to think of them. Imagine the salary
cap is a velvet rope at a nightclub. The $140
million mark is the bouncer. Okay. Most people
can't get past it. If your name's not on the
list, you're not getting in. But if you have
a specific VIP pass. A special invitation. Which
just steps aside. The bouncer steps aside and
lets you spin more. These passes are the exceptions.
And the granddaddy of them all, the VIP pass
that essentially built the modern NBA as we know
it, is the Larry Bird exception. The most famous
one, and rightfully so. It is the engine that
allows the entire soft cap system to function.
Without it, the whole thing falls apart. So take
us back to the origin story. Why is it named
after Larry Legend? Well, back in the early 80s,
when the cap was being brought back in, the Boston
Celtics were a powerhouse. They had Larry Bird,
Kevin McHale, Robert Parrish, the whole crew.
A dynasty. A full -blown dynasty. But Larry Bird's
contract was coming up. And the Celtics were
already at the new spending limit. Under a hard
cap system, or without a specific exception,
the rules would have said... Sorry, Boston. Too
bad. You can't pay Larry Bird what he's worth.
You'd have to let him go. You'd have to let him
go sign with, you know, the Kansas City Kings
or some other team with cap space. Which would
have been a complete disaster for the NBA. The
entire league was being built on the Bird versus
Magic Johnson rivalry. It would have been catastrophic.
The league realized immediately that it would
be terrible for business if a simple bookkeeping
rule forced a team to cut its franchise icon.
Though they created a loophole for themselves.
They created an exception. And the rule is...
What is the rule? The Larry Bird exception allows
teams to exceed the salary cap to re -sign their
own qualifying veteran free agents. So basically,
if a player has been with your team long enough,
the cap just doesn't apply to him. For re -signing
purposes, yes. You can pay him whatever you want,
up to his individual max salary, of course, regardless
of your team's cap situation. This goes right
back to that philosophy of retention we talked
about. This is the tool that lets you develop
a star and actually keep him. It is. It's the
most important one. Now, to qualify for full
bird rights, a player needs to play three full
seasons for a team. Without being waived or changing
teams as a free agent. Okay, three years. But
wait, here's a nuance that I think confuses people
all the time. If I trade for a guy who has played
three years with another team, do I get his bird
rights? Or do they reset because he's on a new
team? Great question. And this is a crucial mechanic
in the league. Bird rights travel with the player
in a trade. That's incredibly important. If the
Lakers trade for a player who is on the last
year of his deal, They aren't just trading for
his services for the rest of the season. They
are trading for his bird rights. So they're acquiring
the right to pay him in the summer. Exactly.
They're acquiring the right to go over the cap
to keep him. That makes the player so much more
valuable at the trade deadline. Because if you
just wait and try to sign him in free agency,
you need to have a huge amount of cap space.
A huge amount. If you trade for him first, you
don't. It's a massive, massive difference. And
are there like junior versions of this? There
are. It gets a little granular, but yes. There's
the early bird exception, which kicks in after
two years with the team. And what's the difference?
It's a weaker pass. It allows you to re -sign
a guy, but only for up to 175 % of his previous
salary or the league average salary, whichever
is higher. It limits your upside. So you can
keep a solid role player, but maybe not a star
who's about to break out. Exactly. And then there's
the non -bird exception for players with only
one year of service, which is even more limited.
But the full three -year bird right. is the golden
ticket. That's the one everyone wants. Okay,
so that helps you keep your own guys. But what
if I'm over the cap and I want to sign someone
else's guy? My team is capped out, we're in the
tax, but we really need a shooter. Can I just
go shopping? Generally, no. If you are over the
cap, you can't just go out and start offering
contracts. Your checkbook is closed. But the
league gives every team a coupon once a year.
That is the mid -level exception. or MLE. I love
the coupon analogy. Good for one pretty good
player. That's exactly it. It's a tool that every
team over the cap gets once a year to sign a
free agent for a preset amount. But, and this
is key, the value of that coupon changes based
on how much money you've already spent. It has
gotten quite complex in the modern game. Okay,
so break down the different tiers for us. So
first you have the standard or non -taxpayer
MLE. This is for teams that are over the cap,
but not deep into the luxury tax zone. This is
the big coupon. How much is it worth? Right now,
it's worth about $12 .8 million. You can get
a really solid starter for that money. A guy
like Dante DiVincenzo, for instance. That's a
huge piece. Okay. But what if you are a big spender?
What if you're already paying the luxury tax?
Then your coupon gets smaller. You get the taxpayer
MLE. It's about half the value, around $5 million,
maybe a little more. So the league is basically
saying, okay, you're already spending a ton,
so you can add a player, but he's... probably
going to be an older vet or a reclamation project.
Precisely. You're not getting a high -level starter
with that. You're filling out the end of your
bench. And if you have cap space, what if you're
under the cap? Then you get the Room MLE. It's
a small sweetener, just a few million dollars,
to help you fill out the roster after you've
used up all your cap room on a big star. And
this is where the new 2023 CBA dropped an absolute
hammer. We're going to talk about the second
apron later, but it directly affects this coupon.
It's a massive hammer. The short version is,
if you spend too much money, if you cross that
dreaded second apron line, the league rips up
your coupon. It's just gone. You lose access
to the mid -level exception entirely. You cannot
sign anyone from another team other than players
on minimum wage contracts. That is a complete
game changer. It really, really restricts the
super spenders from adding any quality depth.
That's the entire point. What about rookies?
What happens when I draft a guy? That's the rookie
exception. Simple enough. Teams can always sign
their first round draft picks to their rookie
scale contracts, even if they are over the cap.
The league doesn't want you to draft a kid and
then not be able to sign them because of some
math problem. That would be a PR nightmare. And
there's one more that pops up every now and then,
the biannual exception. Right, the BAE. As the
name suggests, you can use it once every two
years. It's smaller than the mid -level, maybe
around $4 million, and you cannot use it in consecutive
seasons. It's just another small tool for filling
out the rotation with a decent bench piece. I
see. Now let's talk about a darker scenario.
Disaster strikes. Your star player, making $40
million, snaps his leg in October. He's done
for the year. Is your season just over? Do you
just have an empty roster spot and a huge chunk
of dead money on your books? Not necessarily.
In that scenario, you can apply for a disabled
player exception or DPE. What does that entail?
If an NBA designated doctor verifies that a player
will be out for the entire season and it has
to be verified by their doctors, you can't just
say he's hurt. The team is granted an exception
to sign a replacement player. And how much can
you pay the replacement, the full $40 million?
Oh, no, not even close. You can pay them up to
50 % of the injured player's salary or the amount
of the non -taxpayer mid -level exception, whichever
is less. So you aren't replacing a superstar
with another superstar? No. If Steph Curry gets
hurt, you aren't going out and signing other
Steph Curry with the DPE. You are getting a solid
role player to help you patch the hole in the
boat. And remember, it's only a one -year contract.
It's a temporary patch, not a long -term solution.
Got it. One more exception before I move on,
and this is the one that confuses people constantly
during trade deadline season, the traded player
exception. This feels like the math class portion
of the show. This is all about the algebra of
trading. In, say, baseball or football, you can
sometimes just trade a player for a draft pick
and dump the salary. That's it. Not in the NBA.
Not if you're over the cap. You can't just trade
a guy making $2 million for a guy making $20
million. The salaries have to match. Somewhat.
Somewhat being the key word. There's a buffer
zone. Right. The traded player exception allows
teams to absorb salary in a trade as long as
they sent out salary. The math used to be simpler,
but generally for taxpaying teams, you can take
back 125 % of the outgoing salary plus a small
buffer. About $100 ,000. Okay, let's put that
into real numbers so it makes sense. If I'm a
team and I trade away a player making $10 million.
You can take back a player or multiple players
making up to roughly $12 .6 million. That 25
% buffer allows deals to get done even if the
contracts aren't perfectly identical. It greases
the wheels of the trade market. OK, but what
about the other way around? What if I trade a
big salary for a small salary? Say I send out
a $20 million player and I get back a guy on
a $10 million contract. Then you generate a trade
exception credit. You now have a credit for $10
million. The difference in the salaries. And
what do I do with that? You have one year to
use that credit to acquire another player in
a separate trade without having to send any salary
back out. So it's like a store credit at the
NBA trade store. You returned an expensive sweater.
Here is a gift card. That is the perfect analogy.
And teams hoard these things. They're incredibly
valuable assets because they allow you to add
a player to your roster without subtracting one
from your current team. It's a way to add talent
out of thin air. OK, so we've established all
the ways you can break the cap. You have your
bird rights, your mid -level coupons, your trade
exceptions. But the NBA doesn't just let you
do this for free. No, sir. There is a price to
pay. The punishment. Section three, the luxury
tax in the apron. This is the stick. This is
the very, very big stick that balances the carrot
of the exceptions. If your team payroll exceeds
a certain threshold, the tax line, you have to
pay a tax to the league, a penalty. And it's
important for the listeners to know the tax line
is higher than the salary cap line. Much higher,
yeah. You have the cap at, say, $140 million,
and the tax line might be all the way up around
$170 million. There's a buffer zone where you
can use exceptions without paying a penalty.
But if you cross that $170 million line... The
meter starts running. Yeah. And it's not just
a flat fee. It's not like a speeding ticket where
you pay $100 and you just move on with your day.
No. And this is where it gets incredibly expensive.
It used to be dollar for dollar. You spend a
dollar over, you pay a dollar tax. Simple. But
in 2013, they changed it to an incremental bracket
system. It's a progressive tax, just like income
tax. The more you are over the line... the higher
the rate you pay on each dollar. For example,
if you were just a little bit over, say, up to
$5 million over, maybe you pay $1 .50 for every
dollar you're over. So a $1 million player costs
you $2 .5 million. Exactly. Yeah. As you get
into the higher brackets, $10 million over, $15
million over, that rate jumps dramatically. It
goes to $2 .50 and $3 .25, $3 .75, and it just
keeps climbing. So let's frame that for a fan.
If a team like the Golden State Warriors is deep
in the tax and they want to sign a backup center
for a veteran minimum contract, say $2 million.
That $2 million player might actually cost the
owner $10 or $12 million. You pay the player
his $2 million salary and then you write a separate
check to the league for $8 or $10 million in
taxes. That is why owners get so hesitant to
fill out that 14th or 15th roster spot. That's
exactly why. And it gets even worse if you are
a repeat offender. The repeater tax, this sounds
like you're going to criminal court. It basically
is in the eyes of the other 29 owners. If a team
pays the luxury tax in three out of the previous
four seasons, the tax rates skyrocket. They add
a whole dollar to each bracket. So that $3 .75
rate becomes $4 .75. Correct. This is designed
specifically to stop the richest owners, the
Steve Ballmers, the Joe Lakobs, from just treating
the tax as a cost of doing business every single
year. It adds a multiplier that is designed to
be painful even for billionaires. And where does
all this tax money go? Does the league office
just throw a massive party? Some of it goes to
fund league -wide revenue sharing. but a significant
chunk of it is collected and then distributed
evenly to the teams that didn't pay the tax.
Oh, I love that mechanism. It's so clever. So
if I'm a frugal team like the Indiana Pacers
or the Charlotte Hornets, I'm actually rooting
for the Warriors or the Clippers to spend wildly.
You are absolutely rooting for them because at
the end of the year, you get a check in the mail
for millions of dollars just for being fiscally
responsible. It creates this multi -million dollar
incentive to stay under the limit. You're not
just saving money on your own salary. You're
literally receiving a dividend from the big spenders.
That's a brilliant piece of game theory. Now,
we need to talk about the apron. This is a term
that has become huge, especially in the last
year. What is the apron? The apron is a specific
financial line set above the luxury tax threshold.
Think of it as a secondary danger zone. It's
about $7 million above the tax line. And it triggers
a hard cap. Right. But I thought we just spent
10 minutes saying there was no hard cap. There
is no league -wide hard cap. However, a team
can trigger a hard cap on themselves by taking
certain actions. So you can choose to be hard
capped. You can. If you use the biannual exception,
or if you acquire a player via sign and trade,
or if you use that big non -taxpayer mid -level
exception, you become hard capped at the apron
for the rest of the season. Meaning what exactly?
Meaning for the rest of that season, you absolutely
under no circumstances can allow your payroll
to exceed that apron line. Not for a penny, not
for a day. It turns the soft cap into a hard
cap for your specific team. So you completely
handcuff your own flexibility for the rest of
the year. If a trade opportunity comes up, you
might not be able to make it. You literally cannot
make a trade that adds even $1 of salary. If
it puts you over that line, it's a huge restriction.
And the 2023 CBA introduced something even scarier
than the first apron, the second apron. This
is the biggest story in NBA finance right now.
The second apron is a new, even higher threshold
set approximately 17 .5 million dollars over
the tax line. Yeah. If your payroll crosses this
line, the restrictions are draconian. It is designed
explicitly to kill dynasties. Okay, give us the
list of horrors. Why is every general manager
so terrified of this second apron? If you are
over the second apron, first, as we already mentioned,
you lose access to your mid -level exception
entirely. Gone. So no adding free agents? None.
besides minimums. Second, you cannot send cash
in trades. So you can't buy second round picks
from other teams anymore. Okay, that's a small
thing. It is, but it adds up. Third, and this
is a big one, you cannot aggregate salaries in
a trade. Explain that one for us. Usually a team
can trade, say, two players making $10 million
each for one superstar making $20 million. You
combine the salaries to make the math work. If
you are over the second apron, you can't do that.
You can't combine contracts to acquire a more
expensive player. It makes trading for a start
nearly impossible. And the draft picks. I heard
there's something about draft picks. This is
the real killer for long -term planning. If you
finish the season over the second apron, your
first round draft pick seven years from now becomes
frozen. Frozen. You cannot trade it. It's locked.
And if you stay over the second apron for multiple
years, that pick automatically moves to the very
end of the first round. So pick number 30, regardless
of your team's record. Wow. So even if you're
the worst team in the league seven years from
now, you get the 30th pick instead of the first.
Exactly. So it freezes your ability to improve
the team now, and it actively punishes your draft
stock in the future. It creates a frozen roster.
The goal is to break up super teams. If you want
to have three superstars making max money, fine,
you can do that. But you will have zero flexibility
to put a supporting cast around them. You will
be stuck with minimum contracts and no trade
assets. It's the league's nuclear option for
parity. It really is. Speaking of rich teams
and rich players, let's move to Section 4. Player
contracts. We hear the term max contract all
the time. But a max contract isn't the same number
for everyone. No, not at all. It's tiered. Based
on your years of service in the league, it's
an experience ladder. Okay, walk us through the
tiers. If you have zero to six years of experience
in the league, the maximum starting salary you
can get is 25 % of the total salary cap. Okay.
If you have seven to nine years of service, that
number bumps up to 30 % of the cap. And if you're
a longtime veteran, 10 or more years in the league,
you can command up to 35 % of the cap. So loyalty
and longevity literally pay off. Your potential
earnings go up the longer you play. But... There
are ways to jump the line. There are. And this
brings us to one of the most famous examples,
the Derrick Rose rule. I remember when this happened.
Derrick Rose was just a phenomenon in Chicago.
He was the youngest MVP in league history, an
absolute force of nature. Yeah. And at the time,
he was still on his rookie contract. Right. So
he was only eligible for that 25 percent max.
Correct. And the league. And the Players Association
basically said, OK, if a kid is this good this
early in his career, he shouldn't be stuck at
the lowest max tier. So they created a rule just
for players like him. And what does the rule
do? The Derrick Rose rule allows a player who
is still on his rookie contract, so zero to four
years of experience, to jump straight from the
25 % max tier to the 30 % salary tier, which
is usually reserved for seven -year veterans.
But you have to earn it. You can't just be a
good young player. You have to be truly great.
You have to be elite. To trigger the Rose Rule,
you must be named MVP, as he was. Or you have
to start in two All -Star games. Or be named
to two All -NBA teams. That is a very high bar.
It's an extremely high bar. In fact, it's led
to some absolutely fascinating financial drama
over the years. Players will often have this
clause written into their extensions. I get 25%,
but if I make All -NBA this season, it escalates
to 30%. And we've seen guys miss it by a whisker.
It's financially heartbreaking. James Harden
and Anthony Davis both had this escalator clause
written into their early contract extensions.
And both of them failed to meet the voting criteria
by the slimmest of margins. How does that even
happen? It usually comes down to the media votes
for the all -NBA teams. A handful of sportswriters
leaving a guy off their ballot, maybe putting
him on the third team instead of the second team,
can literally cost that player $20, $30. even
$40 million over the life of the contract. That
is brutal. Millions and millions of dollars are
dependent on whether a writer in, I don't know,
Milwaukee thinks you are the second best forward
or the third best forward in the league. It really
highlights how these awards aren't just for prestige
or a trophy on the mantle. They have massive,
life -altering financial implications. Wow. Now,
what about the big one, the Supermax? This is
the designated veteran player extension. This
feels like the biggest contract in all of sports
when we hear about it. It often is. This is also
known as the Kevin Durant rule. Because he left
Oklahoma City for Golden State. Exactly. When
Durant left OKC to join the 73 -win Warriors,
the league panicked. Small market teams panicked.
They saw a small market team lose a generational
homegrown talent to an existing super team. And
they wanted to stop that from happening again.
They wanted to give teams like OKC or Milwaukee
or Portland a tool to keep their superstars.
So they created the Supermax. How does it work?
What makes it super? It allows the team to offer
their own drafted player, or a player they traded
for while he was on his rookie deal, a massive
extension starting at 35 % of the cap. even if
they haven't hit the 10 -year service mark yet.
So they can offer the highest possible salary
tier years earlier than anyone else. And for
more years, with bigger raises. The whole idea
is, we can pay you way, way more money than anyone
else can. Please stay. We're talking a difference
of $40 or $50 million total compared to what
another team can offer that player in free agency.
It's a huge financial incentive. But has it actually
worked? Because I feel like we still see superstars
demanding trades all the time. It's a very mixed
bag. And there is a delicious irony with this
rule. The very first player who became eligible
for this massive, record -breaking deal was DeMarcus
Cousins in Sacramento. Oh, right. Boogie Cousins.
He was putting up monster numbers on a bad team.
He met the criteria. He was eligible for the
Supermax, a deal worth over $200 million. And
what happened? The Kings looked at that number,
and they looked at their mediocre record, and
they looked at his, uh... volatile personality.
A nice way to put it. And they decided they didn't
want to pay him that much. They were scared of
that contract. So they traded him to New Orleans
right before he could sign it. So the rule that
was designed to help the Kings keep him there
actually forced his exit because the price tag
got too high for them. Exactly. It put the Kings
in a put up or shut up position and they chose
to shut up and trade him. What about other examples?
Well, then you have Anthony Davis. The Pelicans
offered him the Supermax. He was the first player
to publicly refuse it. He basically said, Keep
your extra $50 million. I want to go win. And
he forced a trade to the Lakers. He paid a huge
premium just to leave. He did. But on the other
hand, it has worked. Gianna Zanda -Decumbo stayed
in Milwaukee and signed the Supermax. Damian
Lillard signed it in Portland, even though he
eventually left later. Nikol Jokic signed it
in Denver and won a title. So for some players,
the golden handcuffs work. But for others, the
desire to win or just... Chain scenery outweighs
even that much extra cash. It's fascinating psychology.
Is $50 million enough to make you stay in a city
you don't like or on a team that's not winning?
For some, yes. For others, no. A very expensive
question. Let's shift gears to Section 5, free
agency mechanics. When the season ends, the chaos
begins. The summer soap opera, my favorite time
of year. First, we have to distinguish between
restricted and unrestricted free agents. What's
the difference? Unrestricted is simple. You're
free. Your contract is up. You can sign with
anyone in the league who has the money to pay
you. LeBron James, Kevin Durant, when their deals
are up, they are usually unrestricted. They control
their own destiny. Restricted is where all the
strategy and game theory comes in? Right. Restricted
free agency usually applies to players coming
off their four -year rookie deals. The team that
drafted them still controls them to a degree.
They have the right of first refusal. Correct.
The player is allowed to go out and solicit a
contract from another team. This is called an
offer sheet. But before he can sign it, he has
to bring it back to his original team. And they
get to decide. They have 48 hours to match that
offer. If they match it dollar for dollar, the
player must stay. He has no choice in the matter.
And this leads to some very dirty tactics. Let's
talk about the poison pill. Oh, the poison pill.
This is a strategy used by a rival GM to make
it as painful as possible for the original team
to match the offer sheet. The classic example
that everyone brings up is the Jeremy Lin saga,
Lin's sanity. The Houston Rockets, led by their
GM at the time, Daryl Morey, wanted Jeremy Lin.
He was a restricted free agent for the New York
Knicks. The Knicks had publicly signaled they
would match any normal offer to keep him. So
Morey didn't make a normal offer. He structured
the offer in a very creative or devious way.
They backloaded the money. Explain that structure
for us. It was a three -year deal. The salary
in the first two years was very reasonable, something
like $5 million a year. But the third year, it
ballooned to a massive number, around $15 million.
Now, for the Rockets, the team making the offer,
the cap hit was just the average of the three
years, so it was manageable. Right. For the offering
team, it smoothed out over the life of the deal.
But under the rules at the time, if the Knicks
matched it, they had to take the actual salary
hit in each individual year. So that massive
balloon payment in year three would have hit
their salary cap for the full massive amount.
And because the Knicks were already a big spending
over the tax team. That one year, $15 million
salary would have triggered an astronomical luxury
tax bill. We're talking tens of millions of dollars
in taxes just for Jeremy Lin in that one year.
The Knicks looked at that future tax bill and
they blinked. They didn't match. Lin went to
Houston. It was a checkmate move. Ruthless. I
love it. It really is financial warfare. There's
also the Gilbert Arenas rule, which was a fix
for a similar problem with second round picks,
basically limiting how much other teams can offer
early on to prevent the original team from being
unable to match due to weird cap rules. Now let's
talk about the timeline. July 1st hits, free
agency starts, but nothing is actually signed
immediately. This is the moratorium. Right, the
July moratorium. It's a period, it's now about
five or six days, where deals can be agreed to
verbally, but Penn cannot officially hit paper.
It's designed to give the league time to audit
all the previous year's finances and set the
final official cap number for the upcoming year.
But verbal agreements, I mean, those aren't...
Legally binding. They are not. It's a gentleman's
agreement. And this brings us to the infamous
DeAndre Jordan rule. One of the wildest days
in NBA Twitter history. I remember exactly where
I was. The DeAndre Jordan hostage crisis of 2015.
So DeAndre Jordan verbally agreed to sign a max
contract with the Dallas Mavericks. The moratorium
was ongoing. Mark Cuban, the Mavs owner, was
celebrating. They had their star center. And
then what happened? DeAndre started having second
thoughts. His old team, the Los Angeles Clippers,
caught wind of it. And the Clippers didn't just,
you know, call him on the phone. No. The Clippers
coach, Doc Rivers, and a bunch of players like
Blake Griffin and Chris Paul, they all flew to
Houston where DeAndre lived. They went to his
house. They essentially blockaded him in his
own home. They wouldn't let him leave. They started
tweeting emojis of planes and cars and bananas.
It was reality television playing out in real
time. They stayed with him playing cards and
video games until the clock struck midnight and
the moratorium ended, just to make sure he couldn't
answer the phone if Mark Cuban called. And at
12 .01 a .m. He signed the contract with the
Clippers. He completely stiffed the Mavericks
and left them with no center and no cap space.
And because of that one absolutely wild incident,
the league changed the rules. They did. They
shortened the moratorium from about 10 days down
to five or six days. They want to reduce the
amount of time for buyers remorse to set in.
They basically said, OK, we can't have teams
holding players hostage in their own homes. Another
player, another rule in the book. What about
when a player wants to leave, but his new preferred
team doesn't have any cap space to sign him?
This is where the sign and trade comes in. This
is a mechanism that can be a win, win, win. Usually
the team that is losing the free agent. signs
him to a new contract, and then immediately trades
him to his new team. Why would a team do that?
Why help a player leave? Well, for the player,
it gets him to a team that is over the cap and
couldn't have signed him otherwise. Yes. The
best recent example is Jimmy Butler going to
the Miami Heat. Miami didn't have the cap space
to sign him outright. So Philadelphia signed
him first? Philadelphia signed him to the contract
he wanted and immediately traded him to Miami.
And what does the losing team, Philadelphia,
get out of it? Instead of losing their star player
for absolutely nothing, they get assets back.
Maybe a trade exception, maybe a draft pick,
maybe another player. It's much, much better
than watching him just walk out the door for
zero return. Unlike MLB, where you just get a
compensatory draft pick from the league. Exactly.
In the NBA, you have to engineer the compensation
yourself. But, and this is a key restriction
we mentioned earlier, the receiving team in a
sign -in trade, in this case Miami, becomes hard
-capped at the apron for the whole season. Everything
has a cost. There's always a trade -off. Always.
Okay, section six. Weird science. These are the
deep cuts, the loopholes, and the fixes that
have built up over the years. Let's start with
the over 38 rule. This used to be the over 36
rule, which is an important detail. It's a rule
designed to stop teams from circumventing the
cap by signing older players to very long contracts
that everyone knows the player won't actually
finish. So deferred compensation in disguise.
That's exactly what it was. Imagine a team signing
a 37 -year -old star to a four -year deal. They
know he's probably going to retire in two years.
But by spreading the money out over four years
on the books, they lower the annual cap hit for
the years he's actually playing. It was a loophole.
A pretty clever one. So the league said no. If
a contract extends past a player's 38th birthday,
the salary for those later years is presumed
to be deferred and is accelerated onto the cap
hit of the earlier years. It basically removes
the benefit. You said it used to be the over
36 rule. Why the change to 38? That seems specific.
Well, let's look at the politics of it. Who was
the president of the Players Association at the
time this was being negotiated in the last CBA?
Chris Paul. Chris Paul. And who was another key
executive on the union's board? LeBron James.
Two guys who were, at the time, approaching 36
and wanted to be able to sign long, lucrative,
multi -year deals. Oh, yeah, that works. Isn't
it? They negotiated the age up from 36 to 38.
That change specifically allowed Chris Paul to
sign a massive four -year deal with Phoenix and
for LeBron to sign extensions with the Lakers
without triggering the penalty. It's a great
example of the union leadership directly benefiting
from a rule change they negotiated. That is very
convenient. Now, what about the amnesty clause?
This sounds like a legal pardon from a governor.
It is, financially speaking. It's a mechanism
that has appeared in a couple of past CBAs, usually
right after a league lockout, that allows a team
a one -time ability to waive a player and wipe
his salary completely from their salary cap and
luxury tax calculations. The player still gets
paid his money, right? The owner can't just tear
up the contract. Oh, yeah. The check's still
clear. The player gets every single dime he is
owed. But the salary just vanishes from the team's
books. It's a get -out -of -jail -free card for
one really bad contract. And the 2005 version
of this rule has a hilarious nickname. The Allen
Houston Rule. The Knicks had signed Allen Houston
to a massive back -breaking $100 million deal,
and then his knees just completely gave out.
He couldn't play. Everyone in the league assumed
the rule was created specifically so the Knicks
could waive him and save all that tax money.
And did they use it on him? They did not. In
one of the most baffling decisions in franchise
history, the Knicks did not use the Allen Houston
rule on Allen Houston. They used it on Jerome
Williams, a role player known as the Junkyard
Dog. Why would they do that? Nobody knows. They
kept Allen Houston's massive dead salary on the
books. It's just... Peak Knicks. You can't make
this stuff up. Then in 2011, there was another
amnesty round after that lockout. Teams used
it to clear guys like Gilbert Arenas, who had
a huge deal, and Brandon Roy, whose knees had
also failed him. It's a reset button for a general
manager's biggest mistake. We also have the stretch
provision. What's that? This is a way to make
the pain of waiving a player with guaranteed
money left on his deal a little less painful
in the short term. If you cut a guy, you can
stretch his remaining salary over twice the remaining
contract length plus one additional year. Okay,
an example. If I owe a guy $20 million for one
more year and I cut him. You can stretch that
$20 million over three years. That's twice the
remaining one year, plus one. So instead of a
massive $20 million cap hit this year, you take
a smaller $6 .6 million cap hit for the next
three years. So it opens up immediate cap space,
but it clogs up your books with dead money for
the future. Exactly. The Los Angeles Lakers famously
did this with Luol Deng. They were paying him
millions of dollars a year for years and years
after he last played for them. it can come back
to haunt you. And finally, trade ballast and
the wink -wink deals. Trade ballast is just a
term for adding extra players to a trade solely
to make the salary math work. But the wink -wink
deal was a specific loophole that the league
absolutely hated. The Zydrunas -Ilgauskas situation
in Cleveland. The quintessential example. The
Cavaliers traded Ilgauskas, their longtime center,
to the Washington Wizards as part of a bigger
deal. Washington didn't actually want him. They
just wanted the other assets in the trade. So
Washington waived him almost immediately after
the trade went through. Okay, so he's a free
agent. And then, after a mandatory 30 -day waiting
period, he just re -signed with Cleveland for
the rest of the season. So Cleveland basically
got the assets they wanted in the trade, and
D, they got their own player back for nothing.
Exactly. It completely undermined the concept
of a trade. So the league closed that loop very
quickly. Now, if you trade a player and he gets
waived by his new team, he cannot re -sign with
his original team for one full year. or until
his traded contract would have expired. No more
wink -wink deals. It's just an endless game of
cat and mouse. The teams find a loophole. The
league closes it in the next CBA. That is the
entire history of the collective bargaining agreement.
It is a living, breathing document that is constantly
reacting. So bringing this all together for the
outro, after all of this, what does this mean
for the listener? What's the big takeaway? It
means that the salary cap isn't a static set
of rules. It reacts. The poison pill strategy
led to changes in the offer sheet rules. The
DeAndre Jordan situation led to the shorter moratorium.
Every single weird rule has a story behind it.
And usually that story involves a very clever
general manager trying to get an edge. Or a very
rich owner trying to save a little bit of money.
So here is a provocative thought to leave you
with. The stated goal of all these complex rules,
the salary cap, the luxury tax, it's all designed
to create parity. Right. To level the playing
field between the big markets and the small markets.
And yet. The supermax, which was intended to
help small market teams keep their stars home,
sometimes forces those same teams to trade their
star away because they're scared of the massive
price tag. Right. And the luxury tax, which was
meant to curb spending, sometimes just becomes
a cost of doing business for the ultra rich owners
in Golden State or Los Angeles, while the smaller
market owners are happy to stay under it and
just cash the tax distribution checks. It raises
the fundamental question, is the cap actually
working? Is it actually creating parity? Or is
it just changing the rules of engagement? The
big markets still have huge advantages. They
just had to be more creative with their accounting
now. Maybe the cap isn't a tool for parity at
all. Maybe it's just a way to make the game more
complicated without actually changing who wins
in the end. A question worth mulling over, for
sure. So the next time you see a confusing trade
pop up on your phone, don't just look at the
players' names. Look at the exceptions being
used. Look at the tax apron. Ask yourself. Are
they trying to get under the second apron with
this move? Did they just generate a big trade
exception? That is where the real game is being
played. Thanks for diving deep with us. We'll
see you next time. Keep watching the cap.