The Complicated Case of NBA Bonuses, Taxes and Aprons

Keith Smith
Keith Smith, Resident NBA ExpertNovember 05, 2024
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#nba #bonuses #luxury tax #apron #new york knicks #dejounte murray #new orleans pelicans #cam johnson #brooklyn nets #cameron johnson #dejounte murray
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With all due respect to Agatha Christie, the greatest mystery going right now may involve the NBA and some obscure bookkeeping. No, Steve Ballmer didn’t commit the crime in the Intuit Dome with the Tax Apron. But it doesn’t make the whole sordid mess any easier to untangle that solving the murder in an Agatha Christie novel or a game of Clue.

It’ll be no surprise to anyone that the NBA salary cap and CBA is a complicated thing to figure out. That’s only been made even more complicated by the introduction of the first and second aprons, and all the associated restrictions that come with them.

Further compounding the issues are bonuses. On their face, NBA bonuses are super simple. If a player achieved the criteria for the bonus in the previous season, the bonus is deemed “Likely” and added to the player’s cap and tax number for this season. If the player didn’t achieve the criteria for the bonus in the previous season, the bonus is deemed “Unlikely”. It is then subtracted from the player’s cap and tax number for this season if it was previously “Likely”, or it is left off of their cap and tax number for this season entirely.

Simple enough right? Not so fast, my friend! Much like Wadsworth would say in the movie version of Clue (an all-time classic everyone should see!), it’s never quite that simple.

When we start figuring out the math for the first and second apron, which function as hard caps (if so triggered), then we have to add in all of the player’s bonuses. Let’s do an example to hopefully make this easier to understand!

  • Base Salary: $25,000,000
  • Likely Bonuses: $1,000,000
  • Unlikely Bonuses: $1,000,000
  • Cap/Tax Amount: $26,000,000 (Base Salary + Likely Bonuses)
  • Tax Apron Amount: $27,000,000 (Base Salary + Likely Bonuses + Unlikely Bonuses)

Simple enough, right? Again: Not so fast, my friend! Well…with a bit less emphasis this time. The math really is that simple. But how it gets applied is far more complicated.

To paraphrase our dear Wadsworth, the answer might be yes or no, but it really depends on the question you are asking.

To go forward, we have to go back. Let’s talk about the luxury tax and the first and second aprons and the hard caps that can be incurred at them. The pertinent figures are:

  • Salary Cap: $140,588,000
  • Luxury Tax: $170,814,000
  • First Apron: $178,132,000
  • Second Apron: $188,931,000

As of today, here’s where NBA teams fall within each grouping:

  • Under the cap: 1 team
  • Over the cap, under the luxury tax: 15 teams
  • Over the tax: 5 teams
  • Over the first apron: 5 teams
  • Over the second apron: 4 teams

So, we’ve got nearly half of the league over the tax, with a third over one apron or the other. And, of those 15 team that are over the cap and under the tax, seven of those teams are within $5 million of being over the tax.

Starting to understand why these various lines matter so much?

Now that we have an idea of where each team sits, let’s talk hard caps. Within the new CBA, there are 10 ways a team can become hard-capped: six at the first apron and four at the second apron.

First Apron Hard Cap Triggers

  • Signing a player to a contract via the Non-Taxpayer MLE that is greater than allowable via the Taxpayer MLE (years, salary or both)
  • Signing a player to a contract via the Bi-Annual Exception
  • Acquiring a player via Sign-and-Trade
  • Signing a player after a buyout if that player made more than the Non-Taxpayer MLE that season
  • Using more than 100% salary-matching in a trade
  • Using a TPE that was created in the prior season

Second Apron Hard Cap Triggers

  • Signing a player via the Taxpayer MLE
  • Aggregating two or more player salaries in a trade
  • Sending out cash in a trade
  • Acquiring a player using a TPE that was created in a prior Sign-and-Trade

In addition, if a team isn’t hard-capped but is above the First or Second Apron, they cannot do any of things that would hard cap them at that respective apron.

One last reminder: If you hard-capped, you can’t exceed that hard cap by even $1.

Teams currently hard-capped at the first apron:

  • Atlanta Hawks
  • Brooklyn Nets
  • Chicago Bulls
  • Dallas Mavericks
  • Golden State Warriors
  • Houston Rockets
  • LA Clippers
  • New Orleans Pelicans
  • Oklahoma City Thunder
  • Sacramento Kings
  • Toronto Raptors
  • Washington Wizards

Teams currently hard-capped at the second apron:

  • Charlotte Hornets
  • Denver Nuggets
  • Indiana Pacers
  • New York Knicks

Got all that? If not, take some time to read it again. Because we’re about to apply all of this to three real-world, real-time NBA situations.

New York Knicks and the 13th through 15th roster spots

The Knicks are hard-capped at the second apron. New York went to great lengths to make sure that their offseason machinations didn’t trigger a first apron hard cap. Their margins are already tight enough as it is.

Following their offseason moves, the Knicks find themselves with just 12 players on standard contracts. The CBA dictates that teams can only dip below 14 players on standard contracts for 14 days at a time and up to 28 total days per season. As of this writing, New York is roughly $3.6 million below their second apron hard cap.

A non-prorated veteran minimum deal for this season was for $2.1 million. A non-prorated rookie minimum deal is for $1.2 million. As you can see, the Knicks had room to add one veteran minimum signing and one rookie minimum deal. Or they could have done a combination of two or three rookie minimum signings…kind of.

Remember how we said all of this stuff is complicated? Well, here’s another one of those pesky complications!

If a team signs a rookie or 1 Year of Service player who they did not retain draft rights for, that player actually counts against the luxury tax and the aprons at the veteran minimum or 2 Years of Service amount. If a team signs a rookie or 1 Year of Service player who they did retain draft rights for, that player counts at their actual salary amount.

So, the Knicks can’t just sign any rookie to a rookie minimum deal. That wouldn’t fit under the second apron hard cap, assuming they also sign a player to a veteran minimum.

As of this writing, there is reporting the Knicks plan to sign rookie center Ariel Hukporti to a two-year, minimum contract. Hukporti will hit the cap and tax at his prorated rookie minimum salary of just over $1 million. That’s the accounting , because he was a former Knicks draftee.

(Want some more cap nerdery? If you made it this far, you probably do! Hukporti’s two-year deal will include a team option for the 2025-26 season. That will allow the Knicks to decline that option this offseason, then sign to Hukporti to a longer deal than the two-year amount allowed by using the Minimum Exception.)

Taking it further, New York will likely sign a veteran to a prorated minimum deal too. That should land at about $1.9 million. If both of those signings take place on the last possible day to meet NBA roster requirements, the Knicks should have $595,873 in clearance under the second apron hard cap. That’s not enough to sign anyone else now, but on February 24, when there are 49 days left in the regular season, the Knicks would be able to sign a second prorated veteran minimum contract.

(Should New York make a salary-clearing trade between now and the trade deadline, all of this math changes, potentially to point of not really mattering. The Knicks can also play games with starting the 14-day clock again by waiving a player, but that can get really complicated and isn’t worth diving into now.)

Those are pretty tight margins, but they’re workable. A lot of teams will carry only 14 players on standard contracts until we get past the trade deadline and into buyout season.

As far as trades for New York the rest of this year? Keep in mind what we called out triggering a second apron hard cap. The Knicks are so tight to that figure, that making deals could be really difficult for the rest of this league year.

Dejounte Murray’s Bonuses and The New Orleans Pelicans Tricky Tax Timidity

The New Orleans Pelicans are one of two NBA franchises who have never paid the luxury tax. (The other is the Charlotte Hornets, for those interested in very niche NBA trivia.) Given that they aren’t exactly a title contender this year, the Pelicans probably aren’t jumping into paying the tax this season either. There’s also a matter of getting an $18-20 million check as part of the tax distribution if you aren’t a taxpaying team. 

But here’s the challenge: New Orleans is currently about $3.5 million over the luxury tax line.

Now, that’s not a big deal. Last year, the Pelicans were over the tax, but salary-dumped Kira Lewis Jr. at the trade deadline and ended up dodging the tax. It’s fair to expect a similar type of move this season. Waiving Jaylen Nowell before his contract guarantees, plus salary-dumping a minimum deal (Javonte Green, Jeremiah Robinson-Earl, Daniel Theis) will get them there.

But the Pelicans might have more wiggle room than it currently looks like. This is where Dejounte Murray’s bonuses come into play.

Dejounte Murray has a lot of bonuses in his contract. They add up to early $2.1 million in bonuses in fact. As of right now, almost $700,000 of those bonuses are considered likely. That bring Murray’s cap and tax hit to $29,517,134.

But, not is all that is seems here. Because of course it isn’t, right?

Some of Murray’s likely bonuses are tied to him playing 65 games. If he doesn’t hit 65 games played, the bonus flips over to unlikely. And, given that Murray is out for several more weeks, it’s becoming increasingly unlikely that he’ll hit the 65 games played marker.

This ends up mattering for the Pelicans, because even though his cap/tax hit of $29.5 million won’t adjust until after the season, that adjustment will factor into the tax calculation for New Orleans. So, removing nearly $700,000 in bonuses brings the Pelicans that much closer to dodging that tax.

That means as New Orleans makes their rest-of-season moves, they’ll probably working with Murray at a slightly different tax figure. That’s because he’s probably going to miss out on most of his bonuses for this season.

On the flip side, towards the first apron, at which the Pelicans are hard-capped, he counts for the full amount of his contract, including any likely AND unlikely bonuses. So, that would make trading Murray a potentially trick situation. But the Pelicans aren’t very likely to move a player they just paid a heavy price to acquire.

Instead, let’s look at this situation through a different lens entirely.

Cam Johnson and The Apron Aggregation Anomaly

When it comes to trading players whose unlikely bonuses can cause an issue, there’s perhaps no better example than that of Brooklyn Nets wing Cam Johnson.

Let’s start with a simple question: Would the Nets trade Johnson?

The answer: Yes.

Brooklyn is just starting a rebuild. While Johnson’s contract is a fair value and declines from year to year, it runs for three years. That might be longer than a rebuilding Nets team really wants. And, arguably most importantly, Johnson has solid trade value. Teams are always looking for shooting with size and Johnson brings that. If Brooklyn can get assets for Johnson in the form of draft picks and younger talent, they’ll be interested.

So, what’s the challenge with trading Johnson? Again, those pesky bonuses come into play.

Johnson’s current cap/tax hit is $23,625,000. However, because of his bonuses, his apron hit sits at $27,000,000. That’s a difference of $3,375,000. While not a massive amount, it’s one that makes acquiring Johnson tricky for a team dealing apron issues.

For example, one popular NBA Trade Machine proposal features Johnson headed to the Los Angeles Lakers. In order to acquire Johnson in any reasonable trade construction, the Lakers have to aggregate salaries. That means they trigger a second apron hard cap. As it stands today, Los Angeles is only a scant $45,001 under the second apron. That’s almost no wiggle room, and there’s certainly not enough to bring in Johnson, given he’d account for the additional $3,375,000 towards the apron.

You can mess around with different combinations, but it gets tricky to find a match that makes sense for both the Nets and the Lakers. Given more than half the league is dealing with some form of hard cap, and a few more would be in trouble if they triggered one, finding a team that can easily absorb an additional $3.375 million is going to be somewhat difficult.

By no means does this make Johnson untradable. It just means that teams will have to get creative to find a workable deal, and may need to rope in a third team to get the trade done.

For years, bonuses have been a part of NBA contracts. The most altruistic reason to use them is as true incentives to spur better performance.

Sometimes teams use them to create additional cap or tax room. In 2019, the Brooklyn Nets were super creative in manufacturing some additional cap space by giving Kevin Durant and Kyrie Irving some easily achievable, but initially unlikely, bonuses. The Nets gave both players bonuses built around games played, which they knew they would eventually hit, given they were both coming off seasons with missed time.

Teams have also used bonuses as a way to give players a chance at more money, but without doing it directly. Sometimes this is for cap-manipulation reasons, while other times it’s just to give the player something to work for, while still feeling like they got a bigger deal. And, yes, sometimes it’s to win the press conference (or maybe win the tweet?) by putting an artificially larger number out into the world than the player will actually earn.

However, we’re starting to see a change in the tide when it comes to bonuses. This offseason, 16 players signed deals with bonuses attached. However, some of those were carryover situations in extensions. That’s a bit lower than usual. And there’s a chance that the number of players signing deals with incentives will lessen even further in the future.

“For as long as we think the apron might be an issue, we’re probably going to avoid bonuses,” a Western Conference GM told Spotrac. “It simply creates an unnecessary hamstring when you are trying to build out your roster.”

An Eastern Conference executive thinks the bonus issue is going to made trades too hard for teams dealing with a hard cap.

“Look, no one feels bad for you if you trigger a hard cap. You did it to yourself. But the reality is that the idea of a hard cap is to make it…well…hard to make moves. And it works!

But when it comes to bonuses, the hard cap and making a trade, that’s an extra level of difficulty. I likened it to playing a game, but you aren’t allowed to shoot threes. Can you win? Sure. But is it harder? No doubt. It’s just takes a lot more work to get done,” he said.

A longtime agent told Spotrac they’d be fine if bonuses became a thing of the past.

“Pay guys up front. Stop playing games. I get it. I really do. But it’s nice to see some of these rules coming back on those who think they are the smartest guys in the room,” the agent said.

Bonuses aren’t gone. Some deals that run out for several more years have them. And there will always be a real reason to put them in a deal. But now, because of the aprons and the ease with which a team can become hard-capped, teams have an extra level of consideration when adding bonuses into signings and making trades that didn’t fully exist previously.

When trade season unofficially opens in mid-December, don’t be surprised if you hear teams and players bemoaning the issues the aprons and hard caps are causing. As we approach the trade deadline, don’t be surprised if those moans and groans turn into full-blown loud complaints. This is especially true if a deal gets scuttled because fitting in a bonus under a hard cap is too difficult. And, remember, unlike a trade bonus, a player can’t waive a contract bonus to make a trade work.

 

RELATED:

NBA Apron Tracker

NBA Tax Tracker

NBA Trade Machine


#nba #bonuses #luxury tax #apron #new york knicks #dejounte murray #new orleans pelicans #cam johnson #brooklyn nets #cameron johnson #dejounte murray
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