Salary Cap Update: With the CBA signed, what’s new?

There are some big changes coming to the salary cap and the related rules this coming summer. Let’s dive right in, looking specifically at upcoming changes I think will directly impact the Raptors.

Maximum Salaries

One of the big changes is in the calculation of the maximum salary for each player. Let’s start with the basics.

Players have a maximum salary they are allowed to earn, based on how much experience they have in the league. The maximum salary is defined as a percentage of the salary cap. Younger players with between 0 and 6 years of experience in the NBA can earn up to a maximum of 25% of the cap. Players with 7 to 9 years of experience can earn up to 30%. And players with 10 or more years of experience can earn up to 35% of the cap.

The problem, is that due to a relic of older CBAs, the calculation was not so simple. The salary cap is calculated by taking roughly half of revenue and splitting it between the 30 teams, then adjusting down a bit to allow that the average team will actually end up a little over the cap. The percentage of the revenue that is used to calculate the cap ends up at 44.74%. To make things confusing though, in the last CBA, the maximum salary calculation was tied to an older version of the calculation, so the number used was different — 42.14%.

So long story short, maximum salaries were commonly referred to as 25%, 30% and 35% of the cap, but in reality they were slightly less than that. Turned out to be more like 23.5%, 28% and 33%.

All that to say, they fixed it! Now maximum salaries will be tied to the 44.74% calculation, in other words, directly to the cap. So they actually will be 25%, 30% and 35% of the cap.

So, they will be even higher than predicted. How does this affect the Raptors? Well, they happen to have a certain all-NBA point guard heading to free agency this summer (assuming he opts out of his player option, which he most certainly will). And now he’s eligible for even more money.

With a projected salary cap of $103 million, and Kyle Lowry having veteran status (10 or more years of experience), he’ll be eligible for a starting salary of $36.05 million. There are also new higher raises allowed. The maximum annual raise is now 8% for Larry Bird Exception free agents (players who have been with your team for 3 straight years) compared to 7.5% before, and 5% for other free agents (versus 4.5% before). Lowry is a Bird rights free agent, so he is eligible for the 8% raises. That means a full five year maximum salary would come to 5 years, $209 million ($42 million per year). That’s... significant.

Mid-Level Exception

The mid-level exception, typically an exception for teams over the cap to be able to sign a free agent to a deal at close to league average salary, has been falling by the wayside of late, with its value stuck at roughly $6 million per year, when average salaries have been skyrocketing. Well, that’s getting fixed. The MLE, as well as the other various smaller exceptions (like the Bi-Annual exception, and the tax-payer’s MLE) is going up by 45% this summer. This means the Raptors have a little more spending money, since they are almost certain to be over the cap and will need to use exceptions to add salary.

Although, the Raptors are also very likely to be over the tax, so we’ll see just how much salary they will want to add anyway.

Minimum Salaries

Here’s another group getting a pay raise — and this will include players who are already signed, in all likelihood. The minimum is actually a scale of minimums, based on experience in the league, with varying amounts from rookies to 10 year veterans. For our purposes, though, the only minimum values are for rookies, sophomores, and then anyone with 2 or more years experience. The league pays for part of the salary of older veteran players, so for cap purposes all players with 2 or more years experience make the same minimum salary. Rookies and sophomores make a bit less.

What’s changed is the pay raise — minimum salaries will also be going up 45% in the new deal. So, for example, Norman Powell was going to make his minimum salary of $1 million next year. Because his minimum salary is going up, he’ll instead make about $1.5 million. Still an incredibly good deal.

If Fred VanVleet sticks around he’ll see a similar pay raise as well. You can see how these might add up quickly.

Rookie Scale Salaries

This one is a little fuzzy on details yet. What we do know is that the rookie scale (a set of salaries for first round draft picks based on draft position) is going to increase by the same 45% all other salaries are increasing by, but they are rolling it out more slowly than the other raises. Scale salaries will increase by 15% this summer, an additional 15% (of the original scale salary) next summer, and finally another 15% the following summer, to get to a 45% increase. There are other, smaller increases to the latter years of the scale as well.

These scale increases will apply to players currently on rookie scale deals as well. What is unclear is exactly how. There’s the straightforward approach, where their salary simply increases 15% next summer, which is possible. There’s also the thought that since the rule is that rookies must be signed to deals between 80% and 120% of the scale salary, so long as their current salary falls above 80% of the new scale amount, the contract can stay as is.

An additional complication is that although almost all rookie scale salaries are signed at 120% of the scale amount, quite often those deals are made up of 80% (of scale) guaranteed salary and the remaining 40% as bonuses (that are typically very easy to achieve, community involvement and press events, etc) — that would mean the guaranteed portion would need to stay above the new 80% of scale.

I haven’t seen any concrete confirmation one way or the other, so to be conservative we’ll assume that rookie scale guys like Lucas Nogueira, Bruno Caboclo, Delon Wright, Jakob Poeltl and Pascal Siakam will be getting a simple 15% raise this summer.

One other note on rookie scale salaries — the Raptors have two first round draft picks this summer. Typically a team will hold off on signing their first round picks because they only count as 100% of the scale salary, but will sign for 120%, meaning you save that 20% in cap space by waiting. To get rid of this delay for rookies, the league is changing the rule so rookies count as 120% as soon as summer starts. So even in the event that the Raptors find some cap space this summer, it will be that much less due to a) the increased scale for those two draft picks and b) the increased cap hold even before they are signed.

Next week, we’ll go into detail on what the salary situation looks like for next summer with these new rules in mind. You’ll notice there are several well publicized new rules not covered here, most notably the new Designated Veteran Extension, but they weren’t covered because right now they don’t really apply to the Raptors or any of their players (meaning, no, Lowry does not qualify for the designation). Once the Collective Bargaining Agreement is out in full we’ll go over some of the new rules we didn’t cover here (and clarify anything off about what we assumed above).

Make sure to follow Eric Pincus, Albert Nahmad and Tim Bontemps, who are all invaluable resources for this sort of thing, and have been great at parsing these early looks at the negotiated deal.