NBA salary cap

• 1. Introduction

  ›

  The NBA salary cap is the rule that decides how much every professional basketball team in North America can spend on player salaries. For the 2025-26 season, that number sits at $154.647 million. Yet despite that ceiling, some of the league's richest franchises spend far above it every year. How is that possible? The answer lies in a system so layered with exceptions, loopholes, and informal nicknames that it has spawned its own language. There is the "Larry Bird exception," the "Derrick Rose Rule," the "Kevin Durant Rule," and a provision derisively called the "Allan Houston Rule" after a player whose team didn't even use it on him. What started as a simple attempt to level the playing field in 1984 has grown into one of the most intricate financial frameworks in professional sports. The story of how that happened, and who shaped it, is also the story of how the NBA transformed from a struggling league into the global business it is today.

• 2. A Cap Abolished, Then Revived

  ›

  The NBA first tried a salary cap in the mid-1940s, but abandoned it after a single season. For decades, teams could spend whatever they wanted on players, and the richer franchises used that freedom aggressively. By the start of the 1984-85 season, the league had seen enough of the imbalance and reinstated the cap. In that first season back under the new rules, every team was limited to $4.6 million in total payroll. The goal was straightforward: ensure competitive balance so that small-market franchises could realistically compete with the biggest cities. The 2005 collective bargaining agreement tied salaries to 57 percent of basketball-related income, a figure known in league circles as BRI. That arrangement lasted six years, ending on the 30th of June 2011. The next CBA, taking effect in the 2011-12 season, lowered the players' share to 51.2 percent of BRI, with a band of 49 to 51 percent in later years. To protect the players' floor, teams have been required to spend at least 90 percent of the salary cap each year, a threshold the 2023 CBA moved forward to the start of preseason training camp.

• 3. Soft Cap, Hard Cap

  ›

  Half of the major North American sports leagues, specifically the NFL and the NHL, operate under hard salary caps: if a team reaches the limit, it stops there, with very few exceptions. The NBA chose a different path. Its cap is described as "soft," meaning teams can exceed it under a defined set of circumstances. Major League Baseball sits at the other extreme, allowing teams to spend as much as they want and simply taxing the excess. The NBA and Major League Soccer occupy the middle ground, with more leeway than the NFL or NHL but less than baseball. The logic behind the NBA's soft approach is partly civic: allowing teams to keep their own stars, rather than being forced to release them the moment payroll climbs too high, is thought to sustain loyalty in each franchise's home city. The price teams pay for going well above the cap comes in the form of the luxury tax. In 2005-06, the New York Knicks carried a payroll of $124 million against a tax threshold of $61.7 million, leaving them $62.3 million above the tax line. Owner James Dolan paid that bill directly to the league. Tax revenues are normally redistributed evenly among non-tax-paying teams, which creates a financial incentive of several million dollars per season for owners to stay under the threshold.

• 4. The Larry Bird Exception

  ›

  Perhaps the most famous rule in the NBA's cap framework takes its name from a Boston Celtics forward. The Boston Celtics were the first team allowed to exceed the salary cap in order to re-sign one of their own players, and that player was Larry Bird. Free agents who qualify are called "Bird free agents" or "qualifying veteran free agents" in the collective bargaining agreement. To earn Bird rights, a player must spend three seasons with the same team without being waived or changing teams as a free agent. The right can be accumulated through three one-year contracts, a single contract of at least three years, or any combination. Crucially, when a player is traded, his Bird rights travel with him, and his new team inherits the ability to use the exception. Since the 2011 CBA, Bird-exception contracts can run up to five years, one year shorter than the six allowed under the 2005 agreement. Below the full Bird exception sits the "early Bird" exception, available after just two seasons with one team. Under it, a team can re-sign its own player for either 175 percent of his previous salary or the NBA's average salary, whichever is greater. One notable moment involving the early Bird exception came during the 2007-08 season, when Devean George vetoed a trade from the Dallas Mavericks to the New Jersey Nets because accepting the deal would have cost him his early Bird rights.

• 5. The Supermax Era

  ›

  Stephen Curry was the first player to sign a supermax contract, agreeing to a five-year deal with the Golden State Warriors worth $201 million once the league's free-agency moratorium ended on the 6th of July 2017. The provision behind that contract, officially the Designated Veteran Player Extension, entered the 2017 CBA as a direct response to a wave of star players leaving their teams in free agency, with Kevin Durant's departure from the Oklahoma City Thunder to the Warriors in the summer of 2016 serving as the final catalyst. To qualify, a veteran entering his eighth or ninth NBA season must have made an All-NBA team, won Defensive Player of the Year, or been named MVP in the recent prior seasons. Additionally, the offering team must have originally drafted the player or acquired him while he was still on his rookie contract. James Harden agreed to his own supermax extension with the Houston Rockets shortly after Curry, adding $170 million over four seasons to a contract that already had $59 million remaining. John Wall signed a four-year, $170 million extension in the same offseason. Russell Westbrook became the fourth supermax signee of 2017, agreeing to a five-year, $205 million extension. Giannis Antetokounmpo added a five-year, $228 million extension with the Milwaukee Bucks in the 2020 offseason. Jaylen Brown pushed the record further in the 2023 offseason, signing a five-year, $304 million supermax with the Boston Celtics, only to see that mark broken the following offseason by his teammate Jayson Tatum, who signed with the Celtics for five years and $315 million. Sports Illustrated writer Andrew Sharp, surveying the supermax landscape by the end of the 2018-19 season, opened one piece with a blunt assessment: that the NBA's supermax contracts had been, in his words, "a failure" at keeping star players anchored to small-market teams.

• 6. Rules Named After Cautionary Tales

  ›

  The "Derrick Rose Rule" was named for the 2011 MVP, because when its criteria were written into the 2011 CBA, Rose was the only active player who met them. The rule allows a Designated Player coming off his rookie contract to earn 30 percent of the salary cap rather than the standard 25 percent, provided he has been voted to start in two All-Star Games, named to an All-NBA team twice, or won the MVP award. Paul George was the first player outside of Rose to pursue the full 30 percent threshold under the 2011 CBA. He signed a provisional contract with the Indiana Pacers in September 2013 and qualified by earning All-NBA third-team recognition in consecutive seasons. James Harden and Anthony Davis each had a similar provisional clause in their extensions but both failed to meet the criteria. The 2017 CBA revised the qualification standards going forward and, under the new framework, Luka Doncic became the first player to have been eligible before signing rather than qualifying on a provisional basis. He had made the All-NBA first team in both 2019-20 and 2020-21 before signing with the Dallas Mavericks in the 2021 offseason. The "Allan Houston Rule," by contrast, is remembered mainly for being misnamed. The amnesty clause under the 2005 CBA was tagged after Houston because it seemed tailor-made for his situation, but the New York Knicks applied it instead to Jerome Williams. Houston retired for medical reasons that same season, and Williams himself retired just two days after being amnestied. Anthony Davis became notable in a different way: he was the first player to publicly turn down a supermax offer, notifying the New Orleans Pelicans during the 2018-19 season that he would not accept a five-year extension worth up to $230 million, and requesting a trade. He was ultimately sent to the Los Angeles Lakers.

• 7. Trading Restrictions and Tax Aprons

  ›

  The 2023 CBA introduced a second tax apron, expected to be triggered at approximately $17.5 million above the tax line for the 2023-24 season. Teams that cross that threshold face a set of restrictions designed to limit their ability to improve their rosters. They cannot send cash out in trades, cannot take in more salary than they send out, and cannot trade draft picks more than six years into the future (other teams can trade picks up to seven years ahead). One practical consequence of the new rules appeared immediately: the Boston Celtics had previously been prevented under older rules from trading for Anthony Davis because Kyrie Irving's presence on their roster triggered a restriction around two "Derrick Rose Rule" players. The 2023 CBA removed that restriction, opening the possibility for teams to hold multiple supermax-eligible contracts without the same limits as before. The Sacramento Kings played a role in another corner of the new rules, executing the first-ever second-round pick exception by signing No. 34 overall pick Colby Jones under a mechanism that allows teams to sign their second-round selections without counting the salary against the cap until July 31 of the player's first season. The luxury tax brackets themselves, which had been fixed dollar amounts since 2013-14, now shift each season in line with the percentage change of the salary cap, meaning the thresholds move dynamically rather than sitting still while team payrolls grow.