The NBA Salary Cap, Explained

The NBA salary cap for the 2023-2024 season sits at $136,021,000. Here we dig into what that number means, how the NBA salary cap is determined, why it matters, and the massive influence it has on NBA operations.

An understanding why the salary cap exists, how it functions, and it’s many exceptions, can shed a lot of light on trade decisions and save you from sounding like a total plebe when it comes to trade speculation.

And while it can be a little intimidating at first, it’s not too complicated when it’s explained properly. So let’s get to it…

The purpose of the NBA salary cap

Each season, 30 teams compete for the NBA title. These 30 teams represent different cities, different markets, and different ownership groups. In practice, this can translate to very different payrolls.

It stands to reason that the teams that pay more are the teams that win more. While the biggest spenders don’t always win, there is a strong overall correlation between payroll and team success. And the lowest spenders almost always lose.

In 1984, concerned that a growing imbalance in spending would drive an imbalance in competition, the NBA introduced a salary cap, placing upper limits on what teams could spend on roster building without penalty. The salary cap was intended to level the playing field.

The NBA salary cap is what is known as a ‘soft cap’. Teams are penalized for allowing payroll to exceed certain limits, but they are still allowed to do it. This is in contrast to leagues like the NFL that operate under a ‘hard cap’, where teams are not allowed to exceed ‘hard’ salary limits.

How is the NBA salary cap determined?

The NBA salary cap is tied to revenue via the CBA (Collective Bargaining Agreement). This agreement, which is periodically re-negotiated, specifies the salary cap as a percentage of BRI (Basketball Related Income).

And obviously, we don’t know what BRI is going to look like until a season is complete, so the cap is based on projections. Adjustments are added to account for inaccuracy in previous projections.

The specific calculations are intricate. There are certainly those who have made their careers of knowing and understanding the details. For the casual observer, it’s mostly a black box. The league posts a number each year, and we roll with.

How does the salary cap work?

So teams get a number, and they’re not supposed to go over it. But how does the NBA enforce this? What’s to keep a team from just ignoring the cap?

The NBA salary cap is enforced through a complex system of benefits and penalties. As you move further from the salary cap, you lose access to certain benefits provided to lower payroll teams. Once you get high enough, you start facing fines and increasing trading restrictions.

Let’s dip into some of the more important mechanisms that teams face as their spending gets further and further out of control.

At the Cap – $136 Million

As soon as you break the salary cap, your deals have to fall under a long and specific list of salary cap exceptions. You’re not really looking at any specific penalties yet, but there are a lot more rules about who you can sign.

Tax level – $165 Million

At 121.5% of salary cap, the luxury tax kicks in. At this point, every dollar you spend on payroll means an additional $1.50 goes to luxury taxes. At the end of the season, these taxes are distributed evenly to those teams which did not breach the luxury tax threshold.

For every $5 Million that a team continues to spend over the tax level, the tax rate for a given bracket goes up. Here’s he scale for 2023-24

For every following $5 Million increase, the tax bumps by another 50%. That $5 Million bracket size is set to scale up with the salary cap, so the 2024-25 season bracket will be slightly higher. Also, the tax scale will change for the 2025-26 season to lighten the burden on the lower end and bump it up at the higher end.

Breaching the tax level also unlocks access to a specific exception called the Taxpayers Mid-Level Exception. The Taxpayer MLE allows a team to sign a player in the $5 Million range for 2 seasons.

The NBA Salary Aprons

There are 2 specific thresholds above the tax level where teams run into additional penalties. These are called the ‘salary cap aprons’. The second salary cap apron is new. It was added with the 2023 CBA.

The penalties at the apron levels are more bureaucratic than financial. They’re intended to make it increasingly difficult to build a roster as you keep spending.

The First Salary Apron – $172 Million

• Teams can’t run a sign-and-trade if the incoming player will keep them above the apron
• Salary matching must be within 110%.
• Teams can’t sign a player waived during the regular season for over the MLE. This makes signing a veteran free agent on the way into the playoffs pretty tough.

The Second Salary Apron – $182 Million

All of the penalties for the first apron still hold. For the 2023-24 season, there’s just one additional penalty. You can’t use the $5 Million MLE. Next season, the second apron gets more restrictive.

• Teams can’t aggregate salaries in trades. So, you can’t trade 2 players to match the salary of a higher-value incoming player.
• Teams can’t include cash in a trade.
• Teams can’t use trade exceptions from prior years.
• Teams can’t trade first-round picks 7-years out.

As these restrictions take hold next season, it should get really difficult to add talent if you’re above the second apron.

Multiple offenses

If a team has run over the tax level for three or more of the past four seasons, the luxury tax rates get boosted by an extra 100%. If a team remains in the second apron for three or more out of five seasons, their next first-round pick is moved to the end of the first round.

Takeaways

The NBA salary cap is extremely dynamic, and taking advantage of it can be as crucial to your team as choosing the right coach. But, if you’re not the type of person who goes in for rules and regulations, it’s a wildly unattractive topic.

Reading the CBA directly and trying to pull all out the details is not a pleasant way to spend an afternoon.