Hoops Rumors Glossary

When the Rockets so quickly reached an agreement to sign Aaron Brooks after the point guard was bought out by the Kings yesterday, cost-conscious management in Sacramento may have let out a sigh of relief. Unless another team snatches Brooks up by claiming him off waivers before the Rockets can sign him, the Kings will still be on the hook for whatever remaining portion of Brooks' contract they consented to pay as part of the buyout. But, if he signs with the Rockets, Sacramento may not have to pay out quite as much.

That's because of a provision in the collective bargaining agreement known as set-off rights. If a player signs with another team after he's been waived, his original team gets to reduce the amount of money it still owes him. A team may reduce the salary it owes a player by half the difference between the salary the player earns under a contract with a new team and the minimum salary for a one-year veteran. If the player is a rookie, the rookie minimum is used instead.

We don't yet know the financial details of Brooks' buyout with the Kings or his pending contract with the Rockets. The Rockets could sign Brooks for more than a prorated portion of the minimum salary, since they're under the cap, but let's say they sign him only for that amount. If they finalize the deal Monday, he would be on the team for 45 of the regular season's 170 days, so he'd receive $234,296, or 45/170 of the $885,120 minimum for a three-year veteran. The minimum salary for a player with just one year of experience is $762,195. The prorated amount of that figure is $201,758. The difference between $234,296 and $201,758 is $32,538, and half of that is $16,296 — the number the Kings could subtract from their cap and their payout to Brooks. That's a tiny amount in the world of NBA salaries, but to owners who count every penny, it's not insignificant. That figure would only increase if Brooks signed with Houston for more than the minimum.

Brooks would still benefit from signing with Houston, even if it's for the minimum, since he'd be giving back only a small portion of his new salary. Teams and players can waive the right to set-off as part of their buyout agreements, so perhaps that's what the Kings and Brooks have done in this case — though given the Kings' thriftiness of late, I wouldn't bet on it.  

Interestingly, set off applies if a waived player signs a deal with a professional team in any league while his last team is still paying off his old contract. It doesn't have to be an NBA team — it can be a D-League squad or an overseas club. In many cases, though, a player's non-NBA contract is for less than the one-year veteran's NBA minimum salary, making the set-off provision moot. 

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.

One of the new additions to the NBA's most recent Collective Bargaining Agreement was increased penalties for teams in the luxury tax. Those more punitive penalties haven't taken effect yet, but the rates for taxpaying teams will increase in 2013/14, with a "repeater tax" introduced starting in 2014/15.

Up until this point, teams have been required to pay an extra $1 for every dollar they spend over the tax threshold ($70.307MM in 2011/12 and 2012/13, though it figures to increase going forward). If a team is $8MM over the tax line at the end of the regular season, the club will take a penalty of $8MM, meaning that extra salary actually costs them $16MM overall. Beginning in 2013/14, however, tax penalties will be assessed as follows:

• $0-5MM above tax line: $1.50 penalty per dollar.
• $5-10MM above tax line: $1.75 penalty per dollar.
• $10-15MM above tax line: $2.50 penalty per dollar.
• $15-20MM above tax line: $3.25 penalty per dollar.
• For every additional $5MM above tax line, rates increase by $0.50 per dollar (ie. $3.75 for $20-25MM, $4.25 for $25-30MM, etc.)

Under the new system, a team $8MM over the tax line will be charged $1.50 per dollar for the first $5MM, then $1.75 per dollar for the next $3MM, for a total penalty of $12.75MM.

Penalties for taxpaying teams can also increase even more if a club has been in the tax for multiple years. These penalties will apply to teams that have been in the tax for four years in a five-year period (beginning in 2011/12). So teams who remain in the tax every year starting in '11/12 will face increased rates starting in 2014/15.

The "repeater tax" increases the rates listed above by $1 each. So the hypothetical team that's $8MM above the tax line would be charged $2.50 per dollar for the first $5MM, then $2.75 per dollar for the next $3MM. The club's total penalty would be $20.75MM, meaning it would cost $28.75MM overall to exceed the tax threshold by $8MM. Obviously, the cost would be exponentially more exorbitant for teams further above the tax line.

These looming penalties explain why we'll see teams try to avoid being in the tax over the next few seasons. The most prominent examples so far have been the Mavericks' decision to break up the 2011 champions, and the Thunder's decision to trade James Harden rather than extend him, but those are just the first of many cases. As Ian Thomsen of SI.com writes, even teams like the Heat may be in danger of having to break up their rosters within the next few years.

To retain LeBron James, Dwyane Wade, and Chris Bosh, along with a roster of lesser-paid role players in 2014/15, the Heat would likely to have to pay $140MM+ for 12 players, Thomsen estimates. That's why one rival general manager predicts that the Heat are "going to have to break up their team." Another GM thinks only three clubs will be able to afford the massive penalties that the repeater tax will bring: the Lakers, Knicks, and Nets.

2012/13 is the final year that teams will be penalized under the old CBA's rules, so it's not likely that we'll see a ton of teams manoeuvering to avoid the tax before next summer. However, going forward, it figures to be a major consideration when clubs add salary and build their rosters.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement.

Hoops Rumors is continuing the process of creating a glossary of terms related to trades, free agency, and other areas of the NBA's Collective Bargaining Agreement. If you're confused about our use of phrases like "Bird rights," "mid-level exception," or "cap holds," this reference tool should help clear things up.

We've been adding entries to this page over the last several months, and will continue to fill it out over the next few months. The link to our glossary can be found anytime on the right sidebar under "Hoops Rumors Features." If there's a specific concept you'd like us to cover, please let us know. Here's what we have so far:

• 10-Day Contracts
• Amnesty Provision
• Bi-Annual Exception
• Bird Rights
• Cap Holds
• D-League Assignments
• Derrick Rose Rule
• Disabled Player Exception
• Draft Lottery
• Early Bird Rights
• Gilbert Arenas Provision
• July Moratorium
• Maximum Salary
• Mid-Level Exception
• Minimum Salary Exception
• Non-Bird Rights
• Poison Pill Provision
• Rookie Scale
• Roster Limits
• Qualifying Offers
• Salary Cap Exceptions
• Set-Off Rights
• Ted Stepien Rule
• Traded Player Exception
• Waivers

During NBA regular seasons, teams aren't permitted to carry more than 15 players on their rosters, except in rare instances. Generally, when a club with 15 players on its roster acquires a new player, it must waive someone to clear a spot.

In the offseason, however, teams are permitted to carry up to 20 players on their rosters. One club taking advantage of that extra flexibility this summer is the Houston Rockets — even after Houston hit the 20-man limit, it continued to pursue free agents. When the Rockets signed Carlos Delfino, they waived Josh Harrellson to remain at 20 players, and later waived Sean Williams to clear a roster spot for Scott Machado.

Many of the Rockets' players are on non-guaranteed deals, making it likely that those guys will simply be waived before the regular season begins so that the team can reduce its roster to the in-season limit of 15 players. However, Houston (or any other team) is allowed to carry more than 15 guaranteed contracts until the season starts, if it so chooses.

According to Doug Smith of the Toronto Star, for instance, the Raptors' deals with Jamaal Magloire and Dominic McGuire will both be at least partially guaranteed. Toronto already had 14 players on guaranteed contracts, meaning the Raptors will likely head into training camp carrying 16 players with some form of guarantee. So even if non-guaranteed camp invitee Chris Wright doesn't earn a roster spot, the Raps will have to either trade a player or eat some salary to reduce their roster to 15 players by opening night.

Before the season begins, teams like the Rockets and Raptors, who are carrying more than 15 players, will be required to make cuts. However, other clubs may have to worry about meeting the roster minimum, rather than getting below the maximum.

The 76ers are one of a handful of clubs that are only carrying 13 players, which is the fewest an NBA can have on its roster. Philadelphia's 13th man, Maalik Wayns, is on a non-guaranteed contract, but is currently in great position to make the team — the Sixers couldn't cut him without adding someone else.

A few more notes on NBA roster sizes:

• In the lockout-shortened 2011/12 season, NBA teams were allowed to have 13 active players, rather than 12 active players with at least one on the inactive list. This change is expected to become permanent starting in 2012/13.
• Teams are permitted to carry just 11 active players or zero inactive players for no more than two weeks at a time. A team can also temporarily place up to four players on its inactive list (for a total roster of 16 players) with league approval in the event of a hardship.
• Players assigned to a D-League affiliate are automatically placed on their NBA team's inactive list.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.

If you're wondering why you never hear about NBA rookies holding out for more money, or signing for massive salaries, your answer can be found within the Collective Bargaining Agreement. A first-round NBA draft pick is only eligible to sign a rookie scale contract, which limits a rookie's leverage and means his draft slot will dictate how much he gets paid.

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While many of us may prefer to simply rely on ESPN.com's Trade Machine to figure out whether or not a trade will work under NBA rules, it's worth examining the primary CBA detail that ESPN's tool uses to determine a trade's viability — the traded player exception. If a team makes a deal that will leave its total salary more than $100K above the salary cap, the club can use a traded player exception to ensure the trade is legal under CBA guidelines.

There are two different types of traded player exceptions used in NBA deals. One applies to simultaneous trades, while the other applies to non-simultaneous deals. In a simultaneous trade, a team can send out multiple players and can acquire more salary than it gives up. In a non-simultaneous trade, only a single player can be dealt, and the team has a year to take back up to that player's salary amount, plus $100K. Let's look into each scenario in greater detail….

In a simultaneous trade, different rules applies to taxpaying and non-taxpaying clubs. A non-taxpaying team can trade one or more players and take back….

• 150% of the outgoing salary (plus $100K), for any amount up to $9.8MM.
• The outgoing salary plus $5MM, for any amount between $9.8MM and $19.6MM.
• 125% of the outgoing salary (plus $100K), for any amount above $19.6MM.

Here's an example of the above rules in effect from this season's trade deadline:

The Blazers traded Gerald Wallace ($9.5MM) to the Nets for multiple players. Because the outgoing salary amounted to less than $9.8MM, Portland could have taken back up to $14.35MM in the deal — 150% (plus $100K) of Wallace's salary. The Blazers received Mehmet Okur ($10.89MM) and Shawne Williams ($3MM), whose salaries totaled $13.89MM, which fit in below the $14.35MM mark.

If Wallace's salary had been $10MM, the Blazers could have received up to $15MM in return (Wallace's salary plus $5MM). If his salary had been $20MM, Portland could have received up to $25.1MM in return (125% of Wallace's salary, plus $100K).

For taxpaying teams, the rules are simpler, albeit more restrictive: A taxpaying club can send out one or more players and take back 125% of the outgoing salary, plus $100K. For instance, when the Lakers traded Derek Fisher and his $3.4MM salary to Houston, they would have been allowed to take back up to $4.35MM.

In simultaneous transactions, the traded player exception is used to instantly complete the deal. There are no lingering loose ends in simultaneous trades. Our list of outstanding traded player exceptions comes as a result of non-simultaneous deals.

In non-simultaneous deals, a team can trade away a single player without immediately taking salary back in return. The team then has up to one year in which it can acquire multiple players whose salaries amount to no more than the traded player's salary (plus $100K).

For instance, when the Lakers traded Lamar Odom and his $8.9MM salary to the Mavericks in December for a first-round pick, it created a traded player exception worth $8.9MM. The Lakers have until next December to acquire one or more players whose salaries total up to $9MM ($8.9MM + $100K). If Los Angeles doesn't use the full trade exception within a year, it expires.

When evaluating an NBA trade, it's worth noting that the two teams can view the deal entirely differently. For example, one team could consider a trade simultaneous, while the other team breaks the transaction down into two separate trades, one simultaneous and one non-simultaneous. Let's take a look at a real-life example from this year's trade deadline: the Bucks' trade of Andrew Bogut and Stephen Jackson to the Warriors for Monta Ellis, Ekpe Udoh, and Kwame Brown.

From the Bucks' perspective, the trade broke down as follows:

• Bogut ($12MM) for Ellis ($11MM) and Udoh ($3.29MM). As a nontaxpayer, the Bucks could have absorbed up to $17MM (100% of Bogut's salary + $5MM) in a simultaneous deal for Bogut, so Ellis' and Udoh's $14.29MM fits comfortably.
• Jackson ($9.26MM) for Brown ($6.75MM). This segment of the deal is non-simultaneous, meaning the Bucks received a traded player exception for the difference between the two salaries ($2,506,500). They'll have until next March to use it.

And here's how it looked from the Warriors' perspective:

• Ellis ($11MM) for Bogut ($12MM). The Warriors could have taken back up to $16MM for Ellis (100% of his $11MM salary + $5MM), so they can easily absorb Bogut's $12MM salary.
• Brown ($6.75MM) for Jackson ($9.26MM). In this case, the Warriors could take up to 150% of Brown's salary, plus $100K, which would have been nearly $10.23MM, more than enough to absorb Jackson's $9.26MM figure.
• Udoh is left over and is essentially going to the Bucks for nothing, from Golden State's perspective. So the Warriors received a traded player exception worth Udoh's salary ($3,294,960), which they'll have until next March to use.

For salary-matching purposes, draft picks and players on minimum-salary contracts aren't taken into consideration. For instance, if a non-taxpaying team was sending out $5MM in a simultaneous deal, it could take back $7.6MM (150% of $5MM, plus $100K), and receive one or more minimum-salary players or draft picks in the deal.

The traded player exception is one of the CBA's trickier details, and makes it challenging for over-the-cap teams to navigate the trade market. It's undoubtedly simpler to use ESPN's Trade Machine to determine whether a deal is legal, but examining the rules and figuring out exactly how a blockbuster trade breaks down can provide rewarding insight into an NBA club's management of its cap.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.

While a rule like the Gilbert Arenas provision can flatter its namesake, the late Ted Stepien, former owner of the Cavaliers, may have preferred not to go down in history as the namesake for the Ted Stepien rule. Stepien owned the Cavs in the early 1980s, and made a number of trades that left the franchise without first-round picks for several years. As a result, the league eventually instituted a rule that prohibited teams from trading out of the first round for consecutive future seasons.

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The poison pill provision is a rule that arises if a team extends a player's rookie scale contract, then trades him before the extension officially takes effect. It's a rare situation, but it features its own set of rules, since extensions following rookie contracts often create a large discrepancy between a player's current and future salary.

For salary purposes, if a player is traded between extending his rookie contract and the extension taking effect, the player's trade value for the receiving team is the average of his current salary and the annual salary in each year of his extension.

For instance, let's pretend the Timberwolves wanted to trade Kevin Love on draft night — an unlikely scenario, of course, but Love's an example of a player who extended his rookie scale contract earlier this year. Love's 2011/12 salary was about $4.61MM, while his four-year extension will be worth the maximum salary. The max salary figures for Love currently look like this:

Love's $62.11MM total divided by five years gives him an average annual salary of about $12.42MM. So if the T-Wolves were to trade him, the outgoing salary for their purposes would be his current salary ($4.61MM), but for the receiving team, it would be $12.42MM.

Trades in which the poison pill provision arises are extremely rare. Generally, young players who have just received extensions from their teams aren't trade candidates, and even if they are, the difference in incoming and outgoing salaries make it difficult to work out a deal. But if you see what appears to be some odd salary-matching in a trade involving a recently-extended player, now you know why.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.

The July moratorium is a period at the start of each NBA season during which teams aren't permitted to make trades or sign free agents. The specific dates vary from season to season, but for 2012, the moratorium will last from July 1st to July 10th. As of July 11th, teams can resume business as usual.

Each new NBA season officially begins on July 1st, which is also the day that free agents are freed from their previous contracts. However, before players can sign with new teams, the NBA must complete its audit, which establishes figures like the salary cap, luxury tax threshold, and average salary. Free agents are allowed to negotiate with clubs during the moratorium, and can agree to terms on new contracts, but they are unable to officially sign a new deal until the moratorium ends.

There are a number of types of signings that are permitted during the July moratorium, as follows:

• A first-round draft pick can sign a standard rookie scale contract with the team that drafted him.
• A second-round draft pick can accept the required tender, which is a one-year contract offer that allows a team to retain its rights to a drafted player.
• A restricted free agent can accept a qualifying offer from his team.
• A free agent can sign a minimum-salary contract for one or two seasons.

When the July moratorium ends, all free agents can officially sign contracts. Additionally, the new salary cap figures for the year take effect, and the seven-day amnesty period begins.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.