The NBA, unlike the NFL and NHL, has a “soft” salary cap. The basic rule of the NBA’s salary cap is that a team can’t sign a player (or make a trade) that leaves the team’s team salary above the cap, unless the team is using an exception.
In a system with a soft cap, exceptions are the mechanisms that allow teams to function while above the cap. Some exceptions are available only for making trades while other exceptions are available for signing players.
The most commonly used, and most widely known, exception is the Larry Bird exception. This exception allows teams to exceed the cap in order to re-sign their own free agents, up to the player’s maximum salary. Teams are said to have “Bird rights” to players who qualify.
LARRY BIRD EXCEPTION — To be qualified for this exception, a player must play for three seasons without being waived or changing teams as a free agent. This means a player can qualify by playing under three consecutive one-year contracts, a single contract of at least three years, or any equivalent combination. It also means that when a player is traded, his Bird rights are traded with him, and his new team can use the Larry Bird exception to re-sign him. These contracts can be up to six years in length, with raises up to 10.5% of the salary in the first season of the contract. Read more…