Instead of being in a single part of the Collective Bargaining Agreement, the rules pertaining to the hard cap comes up in various places in the document with notable parts in Article VII, Sections 6 and 8.
What the Hard Cap is:
Under its current structure, the NBA uses a “soft” salary cap, meaning teams can go over that line as opposed to a hard cap with a firm limit like the NFL uses. The current CBA gives additional team-building tools to franchises that operate under the luxury tax line, including a larger Mid-Level Exception, acquiring players via sign-and-trade and extra exceptions like the Bi-Annual.
That kind of difference in flexibility could be exploited by teams using the perks of being below the tax and then blowing over the line once they got their fill. The hard cap closes that potential loophole.
When Teams are Subjected to the Hard Cap:
Unsurprisingly, the actions that trigger the hard cap are the things that below the tax teams can do but taxpayers (more specifically, teams over the “apron”) cannot:
- Acquiring a player via sign-and-trade
- Using the Bi-Annual Exception
- Signing a player using the Mid-Level Exception for more than allowed under the Taxpayer Mid-Level Exception
What Happens When a Team is Hard Capped:
If a team does one of the above three things, they cannot have a team salary above the “apron” which is always exactly $4 million above the luxury tax line at any point during the remainder that league year (which turns over July 1). Unlike the soft cap, these teams cannot exceed this line for any reason even if they have exceptions or hardship. The league will reject any move that could potentially take them over the line.
How the Hard Cap is Calculated:
As stated above, making a line that teams cannot go over has to change a few aspects of how the league calculates team salary.
The differences in calculating team salary are detailed in Article VII, Section 6(m)(3) of the CBA. Larry Coon also discusses it in his CBAFAQ.
One of the more interesting complications comes in the form of bonuses. While the league counts bonuses classified as “likely” all the time for salary calculations, players can have unlikely bonuses that do not factor in to team salary unless and until there is a change to the status quo, meaning the player earns it that season or in a prior year that changes the operating assumption from unlikely to likely moving forward. However, counting that way for the hard cap would leave a potential loophole in cases where a player earns an unlikely bonus so the salary counted for the hard cap is the maximum possible salary, likely and unlikely bonuses included. That same logic applies to any amount subject to a grievance before it is resolved.
Since the margin between the apron and the luxury tax line is so narrow (only $4 million regardless of the cap size), those unlikely bonuses can actually provide a buffer to keep a hard capped team under the tax unless enough of those unlikely bonuses actually occur. For example, the Golden State Warriors were hard capped in 2014-15 since they signed Shaun Livingston using the Non-Taxpayer Mid-Level Exception. Andrew Bogut’s large unlikely bonus helped keep them separated from the tax but then he ended up achieving it, which could have pushed the team over the line but they kept enough wiggle room to stay under it.
One of the many interesting aspects of the 2016 offseason will be how teams think about the hard tax. The astonishing amount of money (about $1 billion with the $92 million cap estimate) and cap space around the league will make the apron a smaller factor so the logistical challenges associated with the hard cap will be less prevalent. However, massive sums of money reduce the need for sign-and-trades while many franchises will be far enough below the cap to lose the exceptions that trigger it.
Teams that are Hard Capped for the 2015-16 Season:
- Charlotte Hornets because they used the Bi-Annual Exception to sign Jeremy Lin
- Houston Rockets because they signed KJ McDaniels and Montrezl Harrell to contracts that combine to be worth more than the Taxpayer Mid-Level Exception
- Memphis Grizzlies because they signed Brandan Wright using the Non-Taxpayer Mid-Level Exception
- Minnesota Timberwolves because they signed Nemanja Bjelica to a contract worth more than the Taxpayer Mid-Level Exception
- New Orleans Pelicans because they used more of the Mid-Level Exception than the Taxpayer MLE to sign Dante Cunningham, Alonzo Gee and Bryce DeJean-Jones
- New York Knicks because they acquired Kyle O'Quinn via sign-and-trade
- Washington Wizards because they used the Bi-Annual Exception to sign Gary Neal and signed Alan Anderson to a contract worth more than the Taxpayer Mid-Level Exception