The NBA’s Collective Bargaining Agreement between the owners and players is so complicated that it’s often too much for a casual fan to wrap his head around. In fact, teams hire salary cap experts called “capologists” to help them clarify the nuances of the salary cap rules and how it affects trades or other deals. If these things seem too perplexing, this article aims to answer the question, “What is the NBA salary cap?” and how does it affect trades and other transactions?

Also, as you read this piece deeper, you will learn more about trade exceptions and what happens if a trade catapults a team to luxury tax territory.

How Does NBA Trade Work?

NBA trades are as complicated and tricky as they come. They range from ones that barely move the needle or blockbusters that could shake the league to its core. 

Using its most basic definition in the context of the NBA and sports, a trade is generally a swap of players and/or assets between two or more teams. Trades are only allowed in the league after a team’s season ends and the trade deadline. Knowing this information, non-playoff teams could theoretically begin trading right away, while the NBA Finals protagonists should wait until the series is over before making any trade. However, both of these scenarios rarely happen.

Speaking of the trade deadline, it has always been a part of the NBA since Day 1. Only the timing or the date of such events changed throughout the years. Currently, the NBA trade deadline is February 17 at 3 PM Eastern Standard Time. The original trade deadline established by the league was January 1.

Before the deadline, the NBA allows teams to trade or swap players, the rights of previously-drafted players, and future draft picks, to name a few. 

The front offices of all the relevant teams often negotiate the specifics of any trade transaction. A club’s general manager (GM) will often initiate trade conversations by inquiring about the availability of a player and which assets he is willing to part with to land the coveted prize. If there are no hiccups, the parties involved will call the league, to which a confirmation of all the details shall follow.

Teams must share all relevant information on the assets in the deal during this call, including the real health situation of the players. If one party finds out that the other deliberately withheld vital information, it could be a reason for the trade to be nullified. An example was when the OKC Thunder sent Tyson Chandler back to the New Orleans Hornets in 2009 after concerns about his big toe surfaced during routine medical exams.

Another massive factor during trade negotiations is the salary cap. It significantly affects which transactions may be performed and which cannot. A team must always have a roster that falls within the salary cap rules and restrictions, and a deal cannot occur if it falls outside of the parameters.

How Does the NBA Salary Cap Affect Trades?

The salary cap is basically the total amount of money NBA teams are allowed to pay their players. How does the salary cap work in the NBA? The NBA uses a “soft” cap, which means teams can still go over the threshold through various exceptions and by playing the luxury tax. Still, the salary cap is a major concern regarding trade transactions. 

Here are some of the things teams need to keep in mind:

• Teams below the salary cap can make any trade, provided they won’t be $100,000 over the cap afterward.
• If the team is above the salary cap, they should not acquire 125% plus $100,000 of the salary they just traded for. 
• A free agent signed in the offseason cannot be traded until December 15 or three months after, whichever comes later. Draft picks cannot be traded for 30 days after they are signed.
• Any player acquired in a trade may be traded for another player immediately. However, if a team wants to pair this said player with another and package them for a more expensive guy, the team should wait 60 days before doing so.
• Extra players included in a deal for salary-matching and then waived by their new teams later cannot re-sign with their original team until a year. This is to prevent wink-wink deals where salary fillers simply wait out the 30-day moratorium after getting waived and sign back with their original team. A classic example was the Antawn Jamison-Zydrunas Ilgauskas trade between the Washington Wizards and Cleveland Cavaliers in 2009-10. Ilgauskas was waived by the Wizards after a week, waited 30 days for the moratorium to pass, and signed with the Cavs.

What Happens if a Team Goes Over the Salary Cap in the NBA?

When a team goes over the salary cap, they may be subject to a luxury tax penalty. What is the NBA salary cap luxury tax? 

In the newest collective bargaining agreement, salary taxes for teams spending way above the tax threshold face harsher penalties. Franchises less than $7 million over the tax threshold pay tax and give up the annual benefit that non-taxpaying teams enjoy. Any team over the $7 million threshold enters the “first apron” of penalties. These include a lower MLE (mid-level exception) to sign free agents, the prohibition of signing buyout players, and stricter rules on trade salary matching.

And that doesn’t stop there. For teams deep into the luxury territory starting at $17.5 million, or in the “second apron” of penalties, they are not allowed to use their mid-level exception. They won’t be allowed to send away players in sign-and-trade agreements after 2024–2025 and spend cash in swaps. In the seventh season after the year they go over the second apron, they will not be permitted to trade their first-round selection.

The stiffer penalties have notorious repeat offenders in mind and completely discourage them from overspending. Golden State pulling the trigger on the Chris Paul trade may have these penalties in mind. Paul has a non-guaranteed salary in the 2024-25 season and could save them around $30 million of their books. On top of that, the Warriors traded Patrick Baldwin, Jr. for the 57th pick in the 2023 Draft to save more money.

What is a Salary Cap Trade Exception?

According to NBA rules, a trade exception is when a player sends out a player, along with his salary, but doesn’t receive any in return. Or, in another scenario, if the salaries of a player/s being sent out and the player/s received do not match, it creates a trade exception for the team receiving the lower salary, provided they are not over the cap.

The trade exception can then be utilized to trade for one or more players whose salaries add up to the exception’s amount without increasing the team’s salary cap or luxury tax obligations. These exclusions are accessible only to organizations lacking cap space and expire after one year.

A recent example was when the Celtics dealt Evan Fournier and his $17.1 million salary to the New York Knicks in 2021. The Knicks did not send out another player for Fournier, so this created a $17.1 million trade exception for Boston, which they ended up not using. Theoretically, the Celtics can acquire a player or multiple players (provided they are all under contract, not free agents) using that exception, but that obviously did not materialize, leading to the expiration of the TPE.

Do Trade Exceptions Count Against the Cap?

Do trade exceptions count against the cap? Yes, it does, but they do not count against the luxury tax. Teams below the luxury tax threshold will not go over by having a trade exception, while clubs already paying luxury taxes won’t be liable for more.

Wrapping Things Up: How Does the NBA Salary Cap Affect Trades?

The NBA experience is not complete without trades. Teams are allowed to trade from the season’s end until the trade deadline in February, and every once in a while, fans are treated to shockers that virtually change the league’s landscape.

However, one of the essential things to consider before a trade happens is how it impacts a team’s salary cap situation. So, how does the NBA salary cap affect trades? A team below the luxury tax threshold cannot trade for a player if acquiring his salary makes them go $100,000 over the cap. Furthermore, a franchise over the tax line cannot acquire 125% plus $100,000 of the salary they just traded for. 

In short, the salary cap affects everything an NBA team does, from trades to signing free agents. It also factors into their future decisions, especially now that the NBA salary cap luxury tax aprons employ more severe penalties for repeat tax offenders. The latest CBA prohibits teams in the second apron of penalties ($17.5 million over the tax) from using their mid-level exception, and they are not allowed to do sign-and-trades, either. It remains to be seen how these developments play out and which teams adjust better and quicker.

We hope you enjoyed this post! If you did, be sure to check out our other basketball FAQ articles here.

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