NBA free agency: Salary cap exceptions explained

By Jorge Castillo
Washington Post Staff Writer
Saturday, July 3, 2010

Finally, the highly anticipated 2010 free agency period is upon us. Teams can negotiate with players but only oral agreements can be made until Thursday, when players can officially sign.

In this, the Summer of LeBron, the NBA's confusing salary cap and the daunting terminology hold the key to the future.

The NBA salary cap was first implemented under the 1983 collective bargaining agreement for the 1984-85 season and is based on the league's revenue the previous season. At the time, teams were limited to $3.6 million per season. Reportedly, that number is projected to stand at $56.1 million for next season, slightly lower than last season's $57.7 million cap. The NBA won't officially announce the number until Thursday.

Unlike the salary caps in the NFL and NHL, the NBA cap is "soft," meaning teams can go over the threshold using a few exceptions.

Qualifying veteran free agent exception: Perhaps the most important rule in this free agent class, this rule -- also known as the Larry Bird exception -- encourages players to re-sign with their current teams in hopes of providing loyalty and stability with fans. While other teams can offer only five-year contracts, the team that holds a player's Bird rights can offer him an extra sixth year and annual raises up to 10.5 percent of the salary in the first year of the contract.

To qualify for this, the player must have played three seasons under contract without clearing waivers or changing teams as a free agent. The player brings his Bird rights with him if he is traded to another team during the course of the three seasons unless he is on a one-year contract.

Notable free agents with Bird rights: LeBron James, Dwyane Wade, Chris Bosh.

Early qualifying veteran free agent exception: Also known as the Early Bird exception, this allows teams to re-sign their free agents with a first-year salary up to the average league salary or 175 percent of the player's previous salary, whichever is higher. Unlike the Larry Bird exception, it takes two years to qualify for the Early Bird exception and teams can offer contracts only up to five years. The player also receives raises up to 10.5 percent per season from the contract's first year.

Non-qualifying veteran free agent exception: Commonly referred to as the Non-Bird exception, it takes only one season to qualify for this exception. A team can re-sign its free agents for 120 percent of the minimum salary, whatever the amount of a qualifying offer if the player is a restricted free agent, or 120 percent of the player's previous salary. Contracts can range from one season to five with annual raises of 8 percent of the salary in the contract's first year.

Mid-level exception: This rule allows any team that is over the salary cap -- or on the brink -- at the beginning of the offseason to sign a player to a contract equal to the average NBA salary. It is estimated that next season's mid-level exception will be around $6 million. The entire mid-level exception can be spent on one player or divided among a few.

Veteran's minimum exception: Another break for teams over the cap, this exception allows those teams to sign players for the NBA's minimum salary, which is expected to be $1.3 million next season. The lengths of the contracts cannot exceed more than two seasons. The years of the contract can increase or decrease depending on what the minimum salary is for that season. There is no limit to the number of players a team can sign using this exception.

Sign-and-trade agreements: These transactions are made based on the Larry Bird exception. Because teams that hold a player's Bird rights can sign him to a longer, richer contract, a team could sign the player to the contract and trade him if it believes the player is going to sign with another team regardless. This decision allows the initial team to receive something in return, rather than losing the player to free agency and getting nothing out of it. When a team agrees on a sign-and-trade, it must trade the player immediately as part of the CBA. The contract has to be at least three years with a guaranteed first year.

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