NBA Salary Cap
The NBA uses what is know as a “soft” salary cap. Each team can only spend a certain amount of money on payroll based on a figure the league sets each year. The cap prevents big market teams from luring players on small market teams away with huge contracts. However, the cap is not as simple as one definite ceiling; in order to allow teams to retain fan favorites, the NBA allows exceptions to the general rule. For example, any team is permitted to re-sign their own players to as much money as the maximum deal allows - a max contract is 5 years for 25%, 30%, or 35% of the salary cap, depending on the player’s credentials and league experience - despite the salary cap. There are also smaller exceptions for veterans and low salary players. As a team uses these exceptions, they are liable to pay extra money to the league if they exceed another cap set by the league, the luxury tax line. Once a team’s payroll exceeds the luxury tax line, they must pay money back to the league based on how much they have spent. This money is then shared with other teams. For repeat violators of a payroll above the luxury tax line, there are even harsher penalties, as shown below.