quick question about the rockets salery cap

Lucas and Butler are (as of July 1) officially off the Rockets' cap. Justin Reed is still owed ~$1.5M this season, and his salary counts fully towards both the salary cap and the luxury tax. And, no, his contract cannot be traded, since he was released.

 

$500k and ~$2.6M, respectively. But that doesn't matter. The Rockets are already WAY over the salary cap, so those salaries do not offer the team any added flexibility in signing free agents.

 

It gives the Rockets NO cap relief.

Those contracts coming off the books lowers the total player salaries as it relates to the luxury tax, but the Rockets are still very close to the luxury tax threshhold even without them.

 

the only advantage to cutting a player is to fill their roster spot with another player.

financially you are still picking up the full tab, regardless of who they play for.

I believe there are certain health exceptions, but by and large this is the case.

 

I believe a lot of people gets confused and think that salary cap and luxury tax threshold are the same thing *raises hand.

BimaThug since you seem to know the deal pretty well, salary cap has to do with the amount of money teams can offer to free agents, while luxury tax threshold applies to the overall team contract $ right?

I think a lot of people mistakenly blaming our front office for been cheap because they think that the Rockets won't spend more then the MLE because they don't want to pay the luxury tax.

 

The salary cap is a set limit of money that can be spent in signing players.

The luxury tax is a set limit of money (above the salary cap) that if met, requires you to pay $1 for every $1 you go over.

Let's look at a simple example...

If the salary cap is $50,000,000 and the luxury tax limit is $60,000,000 then the Rockets can go above $50,000,000 using exceptions (MLE, LLE, vet minimum, 1st round rookie contracts, etc.) or through trades. So if they have $55,000,000 in salary, then they are over the cap and have no money to sign a free agent outright. However, they are still $5,000,000 below the luxury tax limit and therefore they are not penalized.

Using that same example, let's say the Rockets have $55,000,000 in cap and then they sign someone to the entire MLE of $5,600,000 (they can do this because it's an exception). They would end up with a salary total of $60,600,000 which is now over the luxury tax limit. As a result, Les has to pay $1 for every $1 they are over. In this case, Les would be paying $600,000.

Does that clear things up?

Note: The real luxury tax limit is around $71,000,000 and the Knicks have $94,000,000 on the cap. That means they have to pay $23,000,000 extra. That's more than the salary of a max player, and they get NOTHING for it

 

The SALARY CAP is a limit on the amount teams can spend on player contracts. The salary cap for the 2008-09 season is $58.68M. However, the NBA has several exceptions to the salary cap, primarily in order to enable teams to retain their own players. It is through the use of these exceptions (such as Bird Rights, the Mid Level Exception and the Biannual Exception) that most teams are currently over the salary cap.

The LUXURY TAX is a dollar-for-dollar (i.e., 100%) tax on teams who are way over the salary cap and exceed a certain total salary number. The luxury tax threshhold for the 2008-09 season is $71.15M.

Therefore, a team that currently has $50M in total player salaries is "under the cap". It can sign outside free agents to contracts totaling up to $8.68M in the first year.

A team with $65M in total player salaries is "over the cap" (and, thus, can only acquire outside free agents using a salary cap exception) but is not subject to the luxury tax. This means that the team could still use the full MLE (which for 2008-09 is $5.585M) in be just under the luxury tax threshhold.

A team with $75M in total player salaries is both "over the cap" AND subject to the luxury tax. In this case, the team would have to pay $3.85M in luxury tax to the league.

The reason that most teams do not want to spend over $1 of luxury tax is that, at the end of the year, all luxury taxes are collected and then re-distributed to all the other teams who did not have to pay the tax, who each get 1/30th of the total tax collected. The remainder is kept by the league to fund various programs.

This means that if a team goes over the luxury tax threshhold by $5M, and the total luxury taxes collected around the league that year ended up being $60M, then the team would have essentially lost out on a total of $7M, being the $5M paid in tax, plus the $2M (1/30th of $60M) that it missed out on. Even for a team that goes over the luxury tax threshhold by $1 in this scenario, that extra $1 would basically cost them an additional $2,000,001 in lost revenues.

I hope this explains both (a) the difference between the salary cap and the luxury tax and (b) why teams are usually unwilling to go even $1 over the luxury tax threshhold.

For more (and much better) information, go to Larry Coon's Salary Cap FAQ at:

http://members.cox.net/lmcoon/salarycap.htm#1

 

Who gets paid for the luxury tax payments? The league? What do they do with that extra 100 million or so? Charity?

 

I believe the revenue is to be shared by the teams who are under the cap. Can anyone confirm this?

 

Read Bima's post, right above yours.

 

Whoops, noticed that right after I posted. What are "league purposes" though?

 

Yeah, I was just looking at that and it confused me. That figure is without Barry, Landry, Greene, Dorsey, and Mutombo (potentially).

With Barry = $70,177,521
With Greene = $71,148,681 (just $1,319 under the tax limit?)
With Dorsey = ~$71,548,681 (over tax limit by $398,681)
With Landry = ~$74,548,681 (over tax limit by $3,398,681)

So...even without signing Dikembe, those players would put us over the tax limit by more than $3 million dollars. Am I looking at this wrong or something?

 

BimaThug one more question, HOW DO TRADE EXCEPTIONS WORK. PLEASE EXCUSE THE CAPS MY CAP KEY SEEMS TO BE STUCK!

THANKS FOR YOUR TIME!

 

Should explain everything you need to know about trade exception.

BTW you should notice a trade exception is NOT "free money", think of it as more of a gift card you already paid for, you don't get the money back if just keep it.

And notice that there are many restrictions towards the way it could be used.

 

I think if you cut a player you have to pay them but you don't have to play luxury tax.