I've been noticing a lot of people with questions about the salary cap, I was hoping to clear up some questions with a FAQ with the help of the always fabulous Larry Coon Salary Cap FAQ. (I would suggest book marking this if you don't have it bookmarked already. I know a lot of people at StR already do, but there seem to be new people coming around every day.)

I always suggest using ShamSports as your salary source simply because Sham has contacts in the NBA office and verifies some tricky detail's that need to be fact checked whenever you're talking salaries. If you use the ESPN or Real GM trade checker, that's fine. It won't hurt you in the process of figuring out whether a trade works. (I don't usually use it, but sometimes when I'm tired and don't feel like calculating monetary stuff I will use it. Especially when a player is BYC. Anywayz...) If you use hoopshype or hoopsworld to verify salary info I understand, but don't expect me to read it. I won't tell you to not use it in August or something; I'll just roll my eyes and move on. I don't have the time to fight with people about those little details. Let's rock this joint after the jump.....

What kind of Salary Cap does the NBA use?

It's known as a soft cap. I'll excerpt Larry Coon to explain the rest:

The NBA has a soft cap. A hard cap doesn't allow the cap to be exceeded for any reason. A soft cap, which the NBA has, contains exceptions which allow teams to exceed the cap under certain conditions. In fact, historically very few teams are ever under the cap during a season.

Basically, that's all of it. (The beginning of the Coon FAQ contains interesting historical information.)

What's the purpose of the salary cap?

Again, Coon to the rescue:

It's the legal contract between the league and the Players Association that sets up the rules by which they all operate. (It's commonly abbreviated as "CBA," which is not to be confused with the Continental Basketball Association. The abbreviation CBA will be used in the remainder of this document.)

The CBA defines the salary cap, the procedures for determining how it is set, the minimum and maximum salaries, the rules for trades, the procedures for the NBA draft, and hundreds of other things that need to be defined in order for a league like the NBA to function.

Incidentally, the CBA is also what prevents the NBA from being in violation of antitrust laws. Many of the NBA's practices (salary cap, draft, etc.) would violate the Sherman act were the CBA not arrived at through collective bargaining.

You legal beagles can explain the Sherman Act. I'm not in the mood, but the NBA is not anti-trust exempt like MLB is. This is why the potential of the NFL's lawsuit to become anti-trust exempt will be very important to the NBA's long term health in terms of the balance the league currently seeks. TZ had 2 high quality articles at Fanhouse and at StR. I suggest reading them both if you haven't already. This is a good article by David Aldridge on how the current CBA could change after 2011.

What is the difference between the salary cap limit and luxury tax?

Again, Mr. Coon should be quite useful here:

A salary cap is a limit on the amount teams can spend on player contracts, which helps to maintain competitive balance in the league. Without a salary cap, teams with deeper pockets can simply outspend the remaining teams for the better free agents. The basic idea is that a team can only sign a free agent if the total payroll for the team will not exceed the salary cap. So a team with deep pockets is playing on a level playing field with every other team.

The evidence bears this out: For the 2001-02 NBA season, the correlation between team payroll and regular season wins was about 0.13. In other words, there is nearly no correlation between salary and wins. By comparison, MLB (with no salary cap) had a much stronger correlation of 0.43 for its 2002 season.

All a salary cap is a limit that you can spend on the players. As Coon points out, a salary cap is meant to give every team a fair and equal chance at competition. This season, that limit is 57.7 million.

As far as luxury tax, it's a monetary threshold that is pre-set before the season starts based on projected revenue over the course of the year. For this season, that threshold is 69.92 million. Most teams operate between the salary cap and luxury tax.

So why do the Lakers have all the advantages?

Because God is a Lakers fan. He also enjoys how many stupid LA people get to masquerade on TV pretending they're important. He rewards these folks with a Lakers championship. Fortunately God is also a Knicks fan and this is preeminent proof of a twisted sense of humor.

What teams are under the salary cap? Why aren't the Kings?

Depending on whom you ask, the Kings are under the salary cap. However, by the way the NBA judges whether a team has space under the salary cap the Kings do not. Therefore the only team in the NBA operating under the salary cap at the moment is the Oklahoma City Thunder.

The Memphis Grizzlies were also under the cap, but they have since gotten so close to the actual salary cap line that they are no longer in danger of using their cap room.

Sacramento also has money under the cap, but monetarily wise it's only 4 million or so under the cap. However, as termed by the CBA, the Kings are technically NOT UNDER the salary cap.

What the NBA does is add the salaries of all the players, the cap holds of contracts on the roster from the previous season (those happen to include Calvin Booth, Corliss Williamson and Bobby Jackson), plus draft pick cap holds, and then exceptions such as the Mid Level and Bi-Annual are also added into the salary. This is why the Kings are not under the salary cap.

There is one more wrinkle to this. The Kings had the choice to renounce the exceptions, but did not. The reason for this is pretty simple. If you have cap room (which the Kings would have about 4.3 million right now), you could make all the deals you would want up until you reach the salary cap limit.

The one mistake fans may make, and avoid this trap, is that you can't be over and under the cap in the same season. For instance, you can't have cap room to pay a player a 10 million salary AND use the Mid Level/Bi-Annual exception in the same season.

I thought the salary cap was going to drop in 2010. Does that mean contracts signed in previous years are going to be a burden?

It depends on what you believe where the current salary may end up. The NBA has sent memo's to teams that the salary cap may be set next year at 50-53 million depending on where revenue ends up. At the moment, the current contract structure is built around the current revenue that the NBA has. So, in a way, it makes no sense to change much about the current CBA from the players perspective because they are the league so to speak.

I've read the argument (StR & elsewhere) that as revenue continues to drop teams can't afford to pay salaries based off a former salary structure. Currently, that is not true. Teams can afford it for this season and next. The question is 2011 and beyond. Because the 2011 CBA will be different (how different is anybody's real guess) I suppose I should hold off in any assumptions.

I won't assume, but I'll offer my opinion. I don't like a hard cap in the NBA for a number of reason's. The biggest reason is that the current system allows teams to re-sign all their players. For better of for worse, that allows teams to make decisions that would, in theory, allow teams to maximize their competitiveness.

By making a hard cap, you would in turn cap spending for all teams. Doing that would make players vulnerable to better endorsement deals in bigger markets or whatever revenue streams would be available. While the current system is not perfect, there isn't going to be a salary cap system that will suit every team in every situation. My feeling is that any hard cap in the NBA will not necessarily pertain to local market spending, and that will give the largest market teams (Nets, Knicks, Bulls, Lakers) the biggest advantage in the long haul. As it is during this decade, the Bulls have had the largest operating level of income. The Knicks, no thanks to Isiah Thomas, have spent 125 million in luxury tax by themselves. I personally feel, not only in the NBA, but in all sports, is that you must spend wisely consistently to make your investments in players work for you. A hard cap would paralyze many NBA teams once they made a heavy salary commitment to an All-Star level player, and going to a non-guaranteed contract system like the NFL has may end up turning away potential NBA talent in the long run.

The NBA is the only league where you can give Chris Webber 30% of your salary cap, and make it work in a salary cap environment. Why? Because a top 10 player in the NBA means more than it does in the NFL or MLB or even the Premier League in England (soccer). As such, there is a delicate balancing act that is required when compensating players of the highest caliber (and unfortunately players who are not of that caliber). I don't care how many players of Ime Udoka's caliber the Kings sign; there isn't a number you can name that would be able to match Tyreke Evans capability as a potential franchise player. As such, there is no way 100 Ime Udoka's would be worth as much as Evans to a franchise. (Bad example I realize, but I hope I'm making my point.) Here's a better example: How many Michael Cooper's would it take to equal the effect of a Magic Johnson?

The Kings should be like the A's and play the Moneyball game.

A great idea in theory. (Or not.) It doesn't work for the NBA, unfortunately. There aren't many ways to exploit untapped resources in the NBA. The main commodities are the same one's all teams value. Therefore, it's very difficult to find a player who is more valuable to one team than another. This is especially true because a player like Kobe Bryant means far more to the Lakers than Derek Jeter ever will to the Yankee's.

What is BYC?

The actual term is Base Year Compensation better known as BYC. What it really means is trade value for a player is half of the actual salary. A good example of that this season for the Kings is Francisco Garcia. Garcia has a salary of 5.8 million this season, but for trade purposes the Kings can only take back 2.9 million in salary. Thus, you need to find a team with cap room (OKC is the only one capable of making such a trade at the moment). This is done to close several loopholes teams used to use by signing players to big contracts and then trading that player within a year.

A good example of this is Marcin Gortat. Gortat is difficult to trade for. The first is because he has a right to turn down any trade because the Magic matched an offer made to him by Dallas. The second, Gortat is also BYC. Since this is a hypothetical situation (as in I know it won't happen), I'm going to suggest that the Kings could trade Garcia for Gortat. One, even though both are BYC, their trade values fit within each other's trade value range. (Their salary is about 45K apart.) Two, because the trade values fall within range, so does the money each team absorbs.

What is a trade(d) player exception? Do the Kings have any right now?

A "Traded Player Exception" is actually 2 things. I'll let Mr. Coon explain what the "traded exception" is:

The Traded Player exception is the primary means used by teams over the cap for completing trades. It allows teams to make trades that leave them over the cap, but it places several restrictions on those trades. Trades using the Traded Player exception are classified into two categories: simultaneous and non-simultaneous. As its name suggests, a simultaneous trade takes place all at once. Teams can acquire up to 125% plus $100,000 of the salaries they are trading in a simultaneous trade. For example, a team trading a $5 million player in a simultaneous trade can receive one or more players whose salary is no more than 125% of $5 million, plus $100,000, or $6.35 million in return.

This is important because a lot of people assume the 125% rule actually is how you make all trades. As I've mentioned above in the cap space portion, you can make all the trades you want until you've reached the cap space for a particular season. OR, you can make a trade while your over the cap provided it's done within the 125% + 100K rule.

The other half of the Traded Player Exception is the little things used to acquire players without actually sending a player to another team. The Kings have actually used these exceptions 4 times since February. The first was to acquire to Sam Cassell, the second was to acquire Ike Diogu from Portland (that went down a bit tricky and I would rather not explain that), the third went in acquiring Will Solomon, and the fourth went to acquiring Sergio Rodriguez on draft day. What a traded player exception is (there's a lot of mis-conception on how they are used--I was listening to David Steele and Matt Goukas--the Orlando Magic TV broadcasters--incorrectly state the use of these exceptions the other night when a fan asked so it's not exactly widespread knowledge) an amount of money a team can use to acquire another player and his ENTIRE salary. What CANNOT be done, I repeat CANNOT BE DONE, is use a TPE with another player on a roster to acquire on another player on another team's roster.

For example, let's say the Kings had an 8 million TPE, and they wanted to acquire LeBron James. They could not use the 8 million TPE, and Kenny Thomas to accomplish this task. (I'm well aware of all the issue's with this scenario. It's precisely why I chose it. It's meant to be hypothetical.)

As far as the Kings having a TPE, the ESPN trade checker (as good a source as any) says the Kings have 1 TPE for the value of Bobby Brown's contract (442K). Because the value is very small, you can bet your WAMU Stock that the Kings won't use it before it expires in February 2010.

What does back-loading a contract mean? What does Front-loading a contract mean?

Back-Loading a contract means you're paying a player more money at the end of the contract than at the beginning. Front loading a contract means you pay players more at the beginning of the contract than towards the end. A good example of this is Andres Nocioni whose contract will decline by a million and a half dollars in value by the time his contract reaches his option year in 2012-13.

Can players be traded during draft day when they have player options and/or become free agents for the upcoming season?

No. Under any circumstances, they cannot. It is occasionally reported as such, but unless Larry Coon is wrong (which I doubt) I think it's an unusual occurrence that most media doesn't care to report accurately. Additionally, most fans wouldn't be pleased to learn to hear of a trade that worked like this:

Randy Foye for Darius Songalia & Wizards 1st round pick (5th overall) on June 24th.

Then Mike Miller for Olekisy Pecherov and Etan Thomas on July 9th.

That's why most teams won't bother to clarify in those situations. Because teams don't usually tell this stuff to the media (and I'm only telling you this for reason's I can't fathom), it seems strange. It happens all the time though with regards to ETO's and Player Options.

Here's why it's important. When Richard Jefferson was traded for Fabricio Oberto, Bruce Bowen, and Kurt Thomas that was done in part because of the partial guarantee's on Oberto and Bowen's contracts. Largely because Milwaukee was after cap relief in the deal, the partial guarantee on Oberto and Bowen's contracts were important. In regards to Oberto, his contract had a partial guarantee until July 1st which meant that the Spurs had until June 30th to trade Oberto before waiving him.

What is BRI? What percentage of revenue is the salary cap derived from? What about Luxury Tax?

BRI is Basketball Revenue Income. Here is a list of income stream's that feed into BRI. The Salary Cap is set at 51% of BRI, and the Luxury Tax is set at 61% of BRI. Additionally, guaranteed players are guaranteed 57% of revenue, or else the owners have to cut the players a check. (This hasn't happened)Last season, the Players paid the Owners just under 205 million in Escrow. This is designed so that when players get too much of the pie it gets re-distributed back to teams. This economic disbursal is the single biggest reason why I'm against the hard salary cap that owners would like.

Is there ways to gain revenue without selling tickets, TV time, etc. etc.?

Last season, the Kings got 9.37 million in escrow and luxury taxes back from the NBA. Additionally, the franchise also received a million dollars from the Toronto Raptors and Boston Celtics at the trade deadline that netted, if you believe TZ, 700K for both trades of Will Solomon and Sam Cassell. Plus, there was a million dollars from the Sonics moving to the Oklahoma City expansion fee. The Kings also saved 2 million on Drew Gooden's buyout, were able to take all of Shareef Abdur-Rahim's salary due to medical retirement, and Ike Diogu's remaining salary was paid by Portland. Whatever the argument is that the franchise lost gob's of money last season is simply not true. The exact amount cannot be verified because I don't know every revenue stream that existed. But if I had to guess, I would estimate the Kings lost somewhere between 5-10 million (and that's being generous).

Can Cash be included in a trade?

Up to 3 million per transaction.

Can Sean May and Ime Udoka be traded as part of a bigger trade anytime?

No. May can't be traded until December 15th, and Ime Udoka can't be traded until February 4th. Assuming Udoka's contract becomes guaranteed that is. Udoka's contract is unguaranteed, and if he is still on the Kings roster past January 10th, his contract will become guaranteed for the rest of the season.

It is very unlikely either player will be part of a deal between now & the trade deadline.

When a player is traded (like Stephen Jackson), can a team turn around and trade them tomorrow?

Well, there is a limit to what the Bobcats could do with S-Jax. Acie Law, the other player sent to Charlotte, cannot be packaged with Jackson for 60 days. (This same rule also applies to Acie Law, Raja Bell and Vladimir Radmanovich as well. I chose to mention Jackson specifically because he's more likely than the other 3 players to be traded again.) Additionally, no other Bobcats player on the roster can be packaged in a trade with Jackson or Law.

However, the Bobcats can trade Jackson anytime before the trade deadline. Here is Larry Coon on the issue:

For two months after receiving the player in trade or claiming him off waivers, if the player is being traded in combination with other players. However, the team is free to trade the player by himself (not packaged with other players) immediately. This restriction applies only to teams over the salary cap. (Also see question number 72 for a special case where players can be traded together in less than two months.)

There is an exception to this rule, and I'll briefly explain it the way I understand it. Let's say the Bobcats want to trade Jackson and DJ Augustin. (Hypothetically speaking of course.) In the next 60 days, the Bobcats would have to execute TWO trades and trade Augustin/Jackson separately to get any deal done. Otherwise, Jackson cannot be packaged with another player in the same deal.

Could the Kings trade 4 players for Kenny Thomas right now if they wanted?

No. The CBA stipulates that you have a max of 15 players on your roster, and that you can't have anymore. If you were to trade Kenny Thomas for 4 players, you'd have to waive 2 players before making the trade. (The Kings currently have 14 players on the roster.) A nearly identical scenario happened when the Kings traded Mike Bibby to Atlanta. To make room for the new players, the Kings had to waive Justin Williams to meet roster requirements.

Does waived players count as roster spots?

No. The salary owed a player is still paid to any player waived, but waiving a player by definition means that you are no longer paying that player to occupy a roster spot.

If the Kings make a big multi-player deal, like a 4 for 1 swap, can the Kings trade 2 of those players to another team immediately?

No. Players when they're traded to another team have to wait until 60 days passes until you trade them together again. However, you can trade players individually to another teams without having to wait any time at all.

How do Sign and Trades work?

Read this. I don't feel like explaining it.

What is a trade kicker?

A trade kicker is an amount of money assumed by a team trading for a player. Click on the link to see a monetary breakdown.

What happens when you have a restricted FA on your roster but he no longer plays for your team?

Well, there are 2 probably well known instances of this scenario playing out. The best known, of course, is Josh Childress who currently plays for the Greek team Olympiacos. The other, lesser known situation is Ersan Ilyasova, a current (and former) Bucks forward. In the case of Ilyssova he signed a contract with the Bucks (as their restricted FA he was under different rules than when he signed as a 2nd round pick in 2005) that allowed Illyasova to receive a higher salary. By offering Ilyasova the Qualifying Offer (knowing he wouldn't take it) the last 2 summers, the Bucks avoided losing the Free Agent rights to Ilyasova. But, the flip side to this is the Bucks could also pay Ilyasova without having to use an exception like the Mid-Level or Bi-Annual to accomplish the task.

Josh Childress is a bit different. The Hawks have retained Childress' rights the last 2 seasons by offering the QO to Childress (who of course went to Olympiacos instead). Next summer though Childress probably won't return to Olympiacos as he most likely would be looking to procure a contract with so many teams being able to offer money.

Do the Kings have any player they can tender a Qualifying Offer to next summer?

Yes, the Kings have the rights to tender a QO to both Sergio Rodriguez and Jon Brockman. Of the two players, it's more likely that Brockman would be retained at this point.

What are Larry Bird rights? Why are they important?

Bird rights are what allow a team to re-sign their own Free Agents and sign them to more money. There are 2 different kinds of bird rights. There are Early Bird rights (which the Kings used to sign Kevin Martin and Francisco Garcia), and there are Full Bird rights (which the Kings most recently used to sign Mike Bibby, Doug Christie and Chris Webber).

In case you're wondering, it's the Bird Rights that allow Miami to offer Dwyane Wade more money, and LeBron James in Cleveland, and so on & so forth. Contracts can run for up to 6 years, or 5 years if another team offers the contract.

How important is this FAQ?

It's not. I just ripped off Larry Coon for all I know about the subject matter so just simply read his FAQ and don't bother me anymore. Thanks.

On a more serious note, this was written so that people would have references to questions when things came up. Such as "trading Sean May" for instance. There are plenty of people who simply don't know the correct rules in order to properly assess options. Hopefully, I've hit enough of the subject matter that you can feel your way around these topics. I didn't explain everything; if you want that explanation simply read all of Coon's FAQ. There isn't one order to reading this, so skip to the highlight's in bold that interest you. Feel free to drop suggestions on a detail I explained wrong or you feel I can explain better. I'll gladly tweak it so people will have a clearer understanding.