On Saturday, the NBA and its players agreed to coexist peacefully with a new collective bargaining agreement. The deal ensures that we won’t have a lockout until 2029 at the earliest, but labor stability is just about the only constant at play here. The new collective bargaining agreement is going to tweak virtually every element of roster-building in some significant way. Trades, free agency, the NBA Draft and even the salary cap itself will undergo significant changes once the new deal takes effect this offseason. It might take years to feel the full impact of those changes.
The collective bargaining agreement itself is virtually indecipherable to the uninitiated. The 2017 edition is a 598-page tome written in the sort of legalese teams need to employ experts to fully understand, and in truth, the document tends to be a living, breathing organism. Rule changes beget new strategies and approaches to building basketball teams that won’t present themselves until teams have actually familiarized themselves with the updates and been forced to make decisions that abide by them. Part of the fun of any new CBA is watching the smartest teams find ways to bend and twist it for the sake of a competitive advantage.
So with many of the details of the new agreement now public, let’s go through all of the major changes to the CBA that the owners and union are known to have agreed to. In the process, we’ll try to figure out how these rules can be manipulated and what they might mean for the future of NBA roster-building.
Before we begin, I would be remiss if I didn’t cite the legendary Larry Coon, who writes an FAQ whenever a new CBA comes into effect. His documents are the single most valuable resource available to amateur capologists (and, in many cases, professional ones as well). If you have any questions about the salary cap, they will likely be answered there, and if they aren’t, they surely will be when the 2023 FAQ is released. Much of the background information and context we will use below comes from Coon’s indispenable explainers. In addition, The Athletic’s Shams Charania and ESPN’s Adrian Wojnarowski, Bobby Marks and Tim Bontemps provided much of the reporting for this story.
The cap and the luxury tax
Here’s the good news: the basic structure governing the salary cap is not changing. Players and owners will still split the league’s basketball-related income essentially 50-50 (with each side capable of bringing in up to 51%, depending on how much teams spend in a given season). The salary cap itself will still be based on a projection of the following season’s revenue and usually amounts to around 43% of that total basketball-related income divided across 30 teams. The NBA uses a “soft” cap as opposed to the NFL’s “hard” cap, meaning teams are allowed to exceed the cap under a variety of special circumstances. This season’s salary cap is roughly $122.7 million, but there are teams spending as much as $191 million in pre-tax salary.
The luxury tax line is a higher figure, usually amounting to around 53% of total basketball-related income divided across 30 teams, and teams that spend above that line have to pay a tax to the league and non-taxpaying teams for the privilege. The last relevant figure here is the “apron,” a figure that is typically around $6 million above the tax line, and serves as a trigger-able hard cap under certain conditions. Any team that acquires a player through a sign-and-trade or uses either the non-taxpayer mid-level exception or bi-annual exception in free agency is not allowed to cross that line for any reason during the current league year. Sounds simple enough, right?
Here’s where we introduce our first wrinkle. In the new collective bargaining agreement, there will be a second “apron.” This figure will come in at around $17.5 million above the tax line, and it will trigger a host of restrictions that we will cover in the subsequent sections. The basic idea of those restrictions will be to make it harder for teams like the Los Angeles Clippers and Golden State Warriors to spend significantly more money on talent than their competitors, but we should note that these restrictions will only make it harder for teams to acquire new, expensive players. None of these changes will make it harder to retain players that a team has drafted and developed, and only in a few, rare cases will it become more difficult for teams to retain free agents they’ve signed from other teams. The NBA wants teams to be able to keep their players. It just doesn’t want the rich to get richer.
Fortunately for those rich teams, the figures governing how much they will actually pay in luxury taxes are rising slightly. In the past, the NBA used fixed tax brackets set $5 million apart. If a team spent anywhere between $1 and $4,999,999 above the tax line, they would owe an additional $1.50 in luxury taxes for each dollar spent. Then, between $5 million and $10 million, that figure rose to $1.75. The tax grows more punitive the deeper a team goes, but it continues in those same $5 million increments forever. That’s changing slightly with the new CBA. Now, the size of those brackets will increase every year by the same amount that the salary cap does. If the cap goes up by 5%, the brackets will as well. This will effectively make it harder for teams to reach the highest, most punitive tax brackets, and in the process will lower their tax payments on a relative basis.
When it comes to actually calculating the salary cap, the players did win one major concession from ownership. The league’s licensing revenue—which is projected to come in at around $160 million next season—will now count as basketball-related income, allowing the players to share in that revenue. Based on that $160 million projection, this new source of player revenue will boost the salary cap by at least $2 million once instituted, and that figure is only likely to grow.
However, and this is perhaps the single most important point we will cover in this space: the cap’s growth will not be limitless. In 2016, a new television contract between the league and its national media partners (Disney and Turner) led to an influx of revenue that increased the salary cap by 32%. This spike gave the Golden State Warriors the cap space they needed to sign Kevin Durant, but just as critically, it created an extremely uneven distribution of wealth within the league. Players who were lucky enough or prescient enough to become free agents in 2016 got enormous contracts because almost every team had space to spend. However, players who became free agents in 2018 saw a barren market because the cap didn’t spike again and teams were still saddled with those enormous 2016 contracts.
That won’t happen again because the two sides agreed to institute cap smoothing. Under the terms of this agreement, the salary cap cannot increase by more than 10% in any given year regardless of how much new revenue the league makes. If there is an excess, it will be tacked onto future seasons. The players will still get all of their money, but it won’t come in the form of a short-term spike that alters that competitive balance of the league. If you’re interested in the mechanics of cap smoothing, I covered it in significantly more depth here.
Free agency
Remember that second “apron” we mentioned earlier? Here’s where it comes into play. It places two significant free-agent restrictions on teams that come in above that line:
- Teams above the second apron cannot use the taxpayer mid-level exception to sign free agents. That exception is the only tool tax teams currently have to pay free agents above the minimum salary. Such contracts could last up to three seasons, and this year, they could pay as much as $6,479,000 in starting salary. This rule would have prevented four free-agent signings in the 2022 offseason: Danilo Gallinari to the Boston Celtics, Donte DiVincenzo to the Golden State Warriors, Joe Ingles to the Milwaukee Bucks and John Wall to the Los Angeles Clippers.
- Teams above the second apron cannot sign players on the buyout market. The exact definition of “buyout market” has not yet been revealed, but it will likely apply to any player who is traded and waived during the season or waived while sacrificing a portion of his salary.
Already, we have two notable side effects to address here. As we’ve covered, most of the new rules will not impact teams if they are trying to retain their own players. There is one major exception, and that comes into play here.
The NBA’s most expensive teams rely on minimum contracts to fill out the back of their rosters, but as most minimum contracts last for only one year, those teams only have Non-Birds on that player in free agency the following offseason. That means that if they want to keep them without using a cap exception, they can only offer a 20% raise on their prior, minimum salary. Players those teams want to keep often outperform those figures, especially since veterans typically use minimum deals on good teams as opportunities to showcase themselves for future deals. The workaround for these teams used to be the taxpayer mid-level exception. It allowed them to retain their minimum-salary successes by giving them a reasonable raise. However, without the taxpayer mid-level exception at their disposal, these teams are probably going to lose their best minimum-salary players after only a single year.
The second notable side effect here is that, for the first time, the taxpayer mid-level exception will trigger a hard cap. The original hard cap we covered above limits teams to the first apron, but now, the taxpayer mid-level exception will limit teams to the second. This matters because these exceptions are largely used in the offseason, and can therefore affect a team’s ability to make trades or sign free agents during the season. Here’s one critical example: the Dallas Mavericks used their taxpayer mid-level exception on JaVale McGee in the offseason. That would have triggered a hard cap at the second apron figure. However, the Mavericks crossed that second apron figure at the deadline when they added roughly $8 million in salary by trading for Kyrie Irving. Had this rule been in effect at the time, the Irving trade would not have been legal.
So, now we’ve covered what teams can’t do. Now let’s talk about what they can do. To balance out the restrictions in spending applied to the most expensive teams, the NBA has loosened spending among its other teams. Most notably, that means significant increases in the two other mid-level exceptions:
- The non-taxpayer mid-level exception will be increased by 7.5%. This season, the maximum starting salary on a non-taxpayer mid-level contract was $10,490,000.
- The cap room mid-level exception, which is given to teams that operate below the cap, will be increased by a whopping 30%. This season, the maximum starting salary on a non-taxpayer mid-level contract was $5,401,000.
While free agency was once the primary vehicle for player-movement in the NBA, the 2017 CBA incentivized contract extensions in a way that robbed the July bonanza of much of its luster. These changes are meant to balance things out a bit. Teams will now have more money to throw at starter-level players with the full mid-level exception, and the enhanced cap room exception will give teams an extra path to depth if they carve out a bunch of space to chase a big fish.
One minor possible side effect to keep an eye on here relates to Early Bird Rights, which players typically earn by spending two years with a team after signing with them in free agency. Free agents with Early Bird Rights are eligible to be re-signed for 105% of the previous season’s average salary (though their maximum might be higher, depending on their previous salary). This typically kept Early Bird Rights in line with the non-taxpayer mid-level exception, as that is meant to reflect the price of an average player and has previously risen the same percentage as the cap. If the non-taxpayer mid-level exception is rising and the Early Bird max doesn’t, we are going to start seeing more teams lose their Early Bird free agents to teams who offer them the full mid-level exception. However, at only a 7.5% increase, both figures are likely to land in the same general ballpark.
The new CBA outlines one significant change that will affect all 30 teams. The 2017 CBA introduced the concept of two-way players, who split time between the NBA and G-League. Thus far, teams have been allowed to have two of them at a time. Now, that figure is increasing to three. Something to keep an eye on here is how it affects the final roster spot on certain teams. Owners looking to save a buck have frequently carried only 14 players with standard, NBA contracts on their roster for parts of the season knowing that cheaper two-way players can fill in when necessary. With three slots, that temptation is only going to get stronger. NBA rules still forbid teams from having two-way players active for more than 90 combined games in a season, but with three slots, teams will be able to cycle through two-way players and experiment more with ones that they like, which could steer them away from signing pricier veterans.
It’s an interesting tradeoff from the union’s perspective. They are undoubtedly losing full-salary jobs in this arrangement, and veterans tend to hold more sway than youngsters within the player’s association. However, 30 new two-way slots will give so many more young players opportunities to prove they belong in the league that the union likely viewed the tradeoff as worthwhile.
Finally, the new CBA tosses a lifeline to restricted free agents. Their original teams will still be given the option to match any offer sheet that they sign, but they will now only have 24 hours to do so rather than the old 48. Additionally, the qualifying offers that teams are forced to make their own restricted free agents in order to retain their rights are getting a 10% bump. It’s not much given the uneven leverage that comes with match rights, but it’s a start.
Contract extensions
You can finally relax, Celtics fans. The new CBA introduced a change that may one day be known as “The Jaylen Brown Rule.” Under the old collective bargaining agreement, most veterans could only sign extensions that increased their salary by 20% in the first season of the new deal. This unfairly punished teams for signing players to contracts that were below market value, and Brown was the highest-profile example. That 20% limitation prevented the Celtics from extending Brown at his maximum salary. As Brown is obviously a max-caliber player, this restriction would have virtually guaranteed that Brown would become an unrestricted free agent in 2024. Their only hope of extending him early would have been Brown earning All-NBA honors and therefore qualifying for a supermax extension. Amazingly, this might have put both Brown and Boston’s future in the hands of the basketball writers voting on All-NBA selections this season.
But now, that 20% figure has been increased to 40%. That bump is enough to take Brown to his extended max, which may not guarantee his signature in Boston, but at least gives the Celtics the freedom to offer him what he is worth. However, there are still several notable players who are still probably not extendable. Take Dejounte Murray, for instance. He will make just $17.7 million next season, the final year of his current deal. A 40% bump wouldn’t even take him to $25 million. We can’t accurately project his max in 2024 without knowing where the cap will fall, but at a bare minimum, it’s going to exceed $40 million. It still doesn’t make sense for him to extend, and that’s a major blow to the Hawks.
Here’s a far more inclusive change: all rookie-scale extensions can now last five years. Rookie extensions refer to deals signed by former first-round picks with either the team that drafted them or the team that traded for them during their rookie deal, and in the past, only deals that paid those players their maximum salary could last five years. This led to a few slower-developing youngsters reaching free agency earlier than their teams would have liked. Charlotte lost Kemba Walker in 2019 when this rule would have allowed them to keep him an extra year, and while the Bucks ultimately re-signed Giannis Antetokounmpo to a supermax deal in 2020, they had to sweat out his possible exit because, as a non-max player at the time of his rookie extension, he only inked a four-year deal.
Trades
You didn’t think that we were done with the second apron, did you? Oh no. Here’s where the restrictions get really draconian. Teams above the second apron will face the three following trade limitations:
- They cannot send out cash in trades. Teams are ordinarily allowed to include a certain amount of cash in trades per season, with this season’s figuring coming in at around $6 million. Teams frequently use this tool when they make unbalanced trades or need another team to take on a player to clear a roster spot.
- They cannot trade first-round picks that are more than six years into the future. The NBA allows teams to trade draft picks up to seven years into the future, but that last season will be restricted to these teams.
- They cannot make trades in which they take back more salary than they send out.
It would take all day to list all of the blockbusters these rules would restrict. James Harden never would have become a Brooklyn Net with these restrictions. Kevin Durant wouldn’t be a Phoenix Sun. Steve Ballmer won’t be able to use his immense wealth to make trades like the 2022 deadline deal he swung for Norman Powell and Robert Covington anymore. These teams aren’t even going to be able to pay off rivals to take players from them for the sake of tax savings. These rules are going to fundamentally change how NBA trades are made.
Predicting all of the ramifications of these new rules would be impossible. For now, the most important takeaway is this: it is going to be significantly harder for teams to trade for a second or a third superstar. Most teams that already have one in the building are either paying the tax or getting close to it, and the cost of those superstars on the trade market is typically so expensive that a first-round pick seven years away can make or break the deal. In fact, you could argue that those picks are the most valuable assets available in such deals. Ultimately, star trades tend to be player-driven. If a player is desperate enough to get somewhere, the teams can usually find a way to make it happen. It’s just going to be much harder for them to do so now than it has been over the past few years.
Awards
Here’s a relatively innocuous change that’s going to have absolutely enormous unintended consequences: players must play in at least 65 games to be eligible for major individual awards, including All-NBA. The league is ostensibly doing this to discourage load management. What it is actually doing is making a small, potentially random group of players far more expensive.
Why? Because supermax eligibility is tied individual awards. Last season, we had four players make an All-NBA team despite playing fewer than 65 games, and two more players made it at exactly 65 games. That number might get bigger this season, as LeBron James, Kevin Durant, Kawhi Leonard, Stephen Curry, Ja Morant, Anthony Davis, Damian Lillard, Giannis Antetokounpo, Devin Booker and Paul George are all going to come in below 65 games. It’s possible that MVP frontrunner Joel Embiid does as well, and the same is true of presumptive All-NBA forward Jimmy Butler. If we assume that seasons like this are going to be the norm moving forward, we’re going to see a whole lot of unusual players named to All-NBA teams and earn supermax eligibility in the process.
This same logic applies to other awards as well. Jaren Jackson Jr. has spent most of the season as the betting favorite to win Defensive Player of the Year. Even if he plays in every remaining game on his schedule, the most total games he can play this season is 64. That would knock him out of contention and potentially hand his award, the supermax eligibility that comes with it, to the wrong player.
One change that might work to counteract these risks is the league’s decision to make All-NBA teams positionless. At least in this scenario, higher quality players will be able to replace those who do not meet the games played threshold than those that would have been chosen with strict positional adherence. Centers in particular have long struggled under the old All-NBA system because only three of them could be selected compared to six guards and forwards. There is a reasonable chance that we are about to see more centers earn supermax eligibility through All-NBA selections.
Speaking of the supermax, the new CBA does make one direct change that addresses it. In the past, teams were limited to only two players at each tier of supermax: the Rose Rule version that applied to younger players coming off of rookie contracts as well the designated veteran version for players with at least seven years of experience. This proved especially problematic in trade negotiations, as teams were forbidden from having multiple players on their roster with that Rose Rule designation if they did not draft at least one of them. This prevented the Boston Celtics from trading for Anthony Davis when they had Kyrie Irving, and it could have impacted trade negotiations involving Ben Simmons over the past two offseasons.
Those restrictions have been lifted, and teams are now free to give the supermax to any player that is eligible for it. They can trade for supermax players freely so long as doing so does not break any other CBA rules.
NBA Draft
The most notable draft nugget to emerge out of the new CBA is a change that wasn’t made. For years, we’ve expected the end of the one-and-done era and the reemergence of high school prospects in the NBA Draft. For now, that isn’t happening. There’s a bit of irony baked into that outcome. Originally, it was owners that pushed for the one-and-done rule because of the inherent risk present in drafting high schoolers. Now, it is likely the players fighting to keep it in place.
The NBPA represents current and past NBA players, and while there will be future players who join it, it is not the union’s responsibility to act in the best interest of its own future members. If the NBA did bring high schoolers back into the draft, it would create a long-rumored “double” draft in which the best high school prospects from two separate years would be available at the same time. Veterans would fear losing jobs to these youngsters if so many of them entered the league at the same time. That is, in all likelihood, what kept the one-and-done rule intact. The veterans who fear losing their jobs had a seat at the table. The high-schoolers who might like to get to the NBA sooner didn’t.
We may not have gotten the major change we expected, but there were a few more modest tweaks that will prove beneficial. We covered “The Jaylen Brown Rule,” and now, we have “The Rob Pelinka Rule.” The NBA has a designated structure in place for paying first-round picks. That is the rookie scale, and it creates a cap exception that allows teams to sign their first-round selections regardless of how much cap space they do or do not have. No such exception previously existed for second-round picks. Teams either had to dip into their mid-level exception to sign them, or they had to give them minimum-salary deals.
This is where Pelinka comes in. Ever since he took over the Lakers, they have had a maddening tendency to sign their rookies to two-year minimum deals when using a small portion of the mid-level exception would have allowed him to sign them to longer contracts. This approach allowed Talen Horton-Tucker to reach restricted free agency after only his second season, and the resulting expenditure may have cost the Lakers Alex Caruso. Pelinka seemingly failed to learn from that mistake, because in that same offseason, he signed Austin Reaves to a two-year minimum deal instead of a mid-level contract. Now Reaves is headed for a free-agent payday, and lest you believe he is the last Laker on that timeline, promising rookie Max Christie is also bound for restricted free agency after his second season. Well, the NBA has officially saved the Lakers from themselves. There will now be a designated cap exception for second-round picks.
The last major change has nothing to do with salary. Now, all players that participate in the NBA Draft combine will be required to undergo physical exams, and the results will be distributed to select teams that will draft in the range that player is expected to be selected. This change will make it harder for agents to hide medical information from teams, which they typically do as a way of steering their clients to certain destinations. This will still take place at the top of the draft, as those players can simply trust their preexisting draft stock and choose not to attend the combine, but it will matter from the middle of the first round on.
In-season tournament
Indulge my conspiratorial brain for a moment. One of the most significant elements of the new CBA is the institution of an in-season tournament. We know very little about the structure, but at least for now, it has been reported that the tournament will use pool play to determine a final eight that will move to a single-elimination style tournament. Here’s the problem: there are 30 teams in the NBA, and 30 isn’t divisible by eight. The NBA can’t create eight even pools. There are theoretical workarounds here, like six pools of five with two wildcard teams moving on despite losing within their group.
Or, we could acknowledge the seemingly likelier possibility that this tournament was not designed for a 30-team league, but rather, the 32-team league that the NBA may one day become. Adam Silver has said that expansion is inevitable eventually, but the league’s focus has been on completing the CBA and getting a new media rights deal done. Well, the CBA is done, and it won’t be long now before the media rights deal is as well. The NBA seems destined to add teams in Seattle and Las Vegas, and doing so would clean up the structure of this in-season tournament a fair bit.
The league could fairly easily group the 32 teams into eight pools and have the winner of each advance into the knockout stage. In fact, this would create an ideal opportunity for divisional realignment. Divisions have largely become irrelevant in the modern NBA, but if a team’s in-season tournament pool was always their three divisional opponents, it would be easier for rivalries to naturally form over the years.
This is, of course, speculation. For now, we only know that an in-season tournament is coming, and that winning players and coaches will be awarded a cash prize. If you’re interested in a more in-depth look at the financial mechanics of NBA expansion, I covered that here.
Miscellaneous
For the first time in league history, players will now be able to own minority shares in NBA and WNBA teams. While we do not know the exact mechanics of this rule, Charania reported players will be able to invest in team ownership through an NBPA-selected private equity firm. This is obviously groundbreaking in the context of American sports. No other league allows its players to hold ownership shares, but this move raises quite a few questions.
Are players going to be able to buy pieces of specific teams, or are they merely going to be able to invest in a portfolio of ownership stakes in multiple franchises held by that private equity firm? If a player owns shares in a team and then leaves that team, will he be able to keep those shares? Will ownership shares count against the salary cap, and if so, how will that be calculated? For now, these are all unanswerable questions, but this is one of the most important overall developments of this entire agreement.
Additionally, players will now be free to invest in a few other areas that they were not previously allowed to. Now, players can be sponsored by both sports gambling ventures and cannabis companies, provided those things are legal where they are being promoted. Notably, players will not be allowed to promote betting on sports themselves, but they can work with companies that operate in that space. The new CBA has eliminated testing for cannabis, making it a legal substance in the NBA.
Finally, we must again note that the official document has not been released to the public yet, as it has not officially been voted on as of this writing. There could still be critical components we aren’t aware of, so all of the above is subject to updates and changes. This is the nature of collective bargaining in sports. By the time we actually understand a deal, it’s usually time for the next one.