In our Complete Guide to the NBA Market, we discussed the concept of the Salary Cap, a term mainly linked to NBA market news, player trades, or new contracts.
This, together with the Draft mechanism, is a fundamental tool for maintaining balance between teams in the league and preventing the best players from concentrating in a few wealthier teams.
What is the Salary Cap?
The Salary Cap refers to the salary cap, which is the amount of money each team has available to pay players on their roster.
This figure, which changes slightly from team to team, ensures that there is no significant imbalance between franchises. This way, at least in theory, the more prestigious teams are not advantaged over the “smaller” teams.
For the 2024/25 season, the Salary Cap is set at $140.588 million.
What is the Salary Floor?
The Salary Floor, on the other hand, is the minimum salary limit that every team must meet to participate in the NBA championship. Essentially, each franchise must ensure they spend a minimum amount on salaries, which is defined as 90% of the Salary Cap ($126.529 million for 2024/25).
If the Floor is not met, the team is required to distribute the shortfall to the players on the roster.
How Does the Salary Cap Work?
Each year, a new cap is established based on the earnings from the previous season and the Collective Bargaining Agreement. This is a contract between the players and the NBA management, setting precise rules regarding the salary cap, minimum salaries, and the contracts of Free Agents.
Unlike other leagues like the NFL, MLB, NHL, and MLS, the NBA operates with a Soft Cap, meaning it’s possible to exceed the cap before facing penalties.
The penalty is defined as the Luxury Tax, which involves an incremental fine based on the extent of the excess, and a market freeze in extreme cases with the Luxury Tax Apron.
In the 2024/25 season, the Luxury Tax kicks in when the cap exceeds $170.814 million, about $30 million over the Salary Cap, clearly highlighting the definition of a Soft Cap.
Therefore, in the NBA, it’s not impossible to build a winning team from the ground up: the Salary Cap rules allow this through long-term planning and a good mix of insight and luck with Draft selections.
A very illustrative case is the Golden State Warriors.
The Golden State Warriors Case
Considered one of the greatest teams of all time, the Golden State Warriors dominated the five-year period from 2014 to 2019. Many called it an “illegal” team: perhaps in terms of play, but certainly not in terms of economics and contracts.
The signing of Kevin Durant seemed surreal to less experienced observers, but looking at the franchise’s data, we can see that the three cornerstones of their success came through the draft, with their rookie contracts.
Steph Curry, Klay Thompson, and Draymond Green only saw their contracts adjusted after some time. In 2016, when KD arrived, Curry was still earning $12 million annually, far from the $48 million he now earns, making him the highest-paid player ever.
With excellent Draft choices, the Warriors were able to build a winning franchise, spending little, and thus creating salary space to sign other champions.
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Author: Team Dunkest
December 15, 2024 | 3:31 am
