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Exceeding the Salary Cap

Given the constraints imposed by the number $56.1 million, we’re all searching for ways in which the collective bargaining agreement would allow the Heat to exceed the salary cap.

There are four primary mechanisms which the Heat will be able to utilize to exceed the cap:

1. Cap Holds. Cap holds are placeholder charges against team salary for a team’s free agents it is expected to sign in the future. The amount of the cap hold depends upon the player’s previous salary and what kind of free agent he is but is no less than, and in some cases as much as 3x, the player’s previously salary. To release such cap holds and free up the cap space, a team can either renounce the free agent — at which point the team no longer retains his Bird rights — or re-sign him — at which point his cap hold is replaced with his new salary. If the team has in mind to sign its free agent to a contract with a first year salary larger than the value of his cap hold, the team can exceed the salary cap by up to the amount of the difference.

This is a concept that could serve the Heat well in its negotiations with Joel Anthony. If Anthony declines his player option, as he is expected to do, he will carry with him a cap hold of just $854,389. Therefore, the Heat can retain his rights at this low cost throughout the offseason and then re-sign him after all cap space is utilized to a contract of up to the maximum for his tenure in the league.

The Heat is not as fortunate as it relates to its other key free agents. Jermaine O’Neal, Quentin Richardson, Udonis Haslem and Dorell Wright will carry cap holds in the amounts of $24,166,800, $13,050,000, $10,650,000 and $5,774,330, respectively. The Heat will not be willing to offer a contract with a first year salary larger than any of these amounts.

2. First round draft picks. First round draft picks are paid based upon a predetermined salary scale. Unsigned first round draft picks are included in team salary immediately upon their selection in the draft (i.e., even before they are actually signed). They count at 100% of the scale salary for that pick. For the Heat, with the 18th overall pick, that amount will be $1,237,500.

A team may ultimately sign the player for as little as 80% or as much as 120% of the scale salary figure. In most cases, the contract that is actually signed is for the maximum 120% figure. So if the Heat winds up keeping its 18th overall pick, he will likely be signed for $1,485,000 (120% * $1,237,500). The Heat would be able to exceed the cap by the amount of the difference ($247,500).

3. Minimum salary exception. This is the perhaps the most commonly known mechanism in which teams can exceed the salary cap. The minimum salary exception allows teams to acquire players that earn the minimum salary either via trade or in free agency. There is no limit to the number of minimum salary players that can be acquired. Therefore, the Heat can and most likely will first utilize all of its cap space and then circle back to its minimum salary contributors.

4. Traded player exception. This is perhaps the least commonly known mechanism in which teams can exceed the salary cap. That’s probably because its rarely utilized by teams below the cap.

The traded player exception is an exception designed for, and generally utilized by, teams that already exceed the salary cap. Utilizing the exception, teams can acquire up to 125% plus $100,000 of the salaries they are trading away.

In lieu of pursuing a trade utilizing cap space, the Heat can choose to structure a deal to take advantage of this exception. This would only apply if the trade in question would cause the Heat to go from below the cap before the trade to above the cap after it.

While the rationale for doing so would be clear, the practical implications make it all but impossible for the Heat to utilize this exception given its current roster.

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So there you go.

Forecasting just what total team salary Miami will wind up with is a difficult task, due in large part to the unlimited number of potential scenarios. But if they are to exceed the cap, it would be by utilizing one or all of the above exceptions.

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  1. Ben
    June 25th, 2010 at 00:03 | #1

    So we can’t exceed the cap by the amount of Wade’s salary because his salary is already a cap hold of ~$16.5M. Then how do we get enough for 3 max free agents ($49.5M+ in cap space) when the projected cap ($56M) minus Wade’s cap hold ($16.5) is only about $39.5M?

    • June 25th, 2010 at 00:54 | #2

      Wade’s cap hold of $16.6 million will eventually get replaced by his $16.6 million contract. At that point, the Heat would need an additional $33.1 million of available cap room to sign two more max contract players.

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