The NBA salary cap bursts into prominence each year during the free agency period. Teams are often juggling returning players who are due for contract renewal with the ever-present desire to add quality new talent to bolster the squad. The NBA salary cap is so complex and layered that it can convolute many of the decisions teams are making. Generally speaking, the salary cap’s purpose is to create competitive balance by forcing the top players to be evenly distributed throughout the league. The NBA has struggled to balance teams desire to keep their own players in town with spreading the top players evenly throughout the league. The NBA’s soft cap provides more flexibility than some of the other major leagues, but is still not quite as open as a free market would be.
Soft Cap: A salary cap that allows teams to spend over the allotted amount while charging high spending teams a tax that then gets distributed evenly through the rest of the league.
Hard Cap: A cap that prevents and punishes a team that spends over the allotted cap amount.
Luxury Tax: Tax payable for spending above the allowable salary cap.
Savvy NBA teams such as the San Antonio Spurs have come under scrutiny for their players’ propensity to sacrifice salary for the good of the collective unit. With LaMarcus Aldridge rumoured to be interested it’s hard to fault their strategy. However, the NBA Players’ Association believes that it does not serve their purpose if players are choosing to sacrifice their fair market value in order to compete for a championship and thus generate more revenue for the team owner. The counter argument exists that the Spurs are reaping their just rewards for the winning culture they have created in San Antonio.
Compared to completely free market leagues like the English Premier League, the NBA is producing a more evenly competitive product with top teams in flux every few years. In England, the richest squads like Manchester United, Chelsea, Arsenal, Manchester City and Liverpool are constantly buying higher quality players resulting in sustained dominance. From a player perspective, the free market creates a better fair market value with players able to earn as much as a given team is able to offer them. The English Premier League remains a fairly competitive league week to week with the cream usually rising to the top over the duration of a 38 game season. Other European football leagues in Italy, Spain, France & Germany result in a larger gap between the top teams and the rest of the field. The NBA salary cap seems to even out the top end teams to a greater degree than free market leagues.
The NBA soft cap allows teams that can afford to spend the opportunity to pay above the salary cap if they are willing to reimburse the rest of the league’s teams through a luxury tax. However, teams are only able to go above the luxury tax to sign players already on the roster. Teams like the Nets and this years Cavs are showing the flaws of the soft cap, with luxury tax teams being hamstrung for several years without the freedom to bring in fresh players. Even though their players are receiving close to their fair market value, the model has not been proven to be successful with the luxury tax seemingly deterring teams from over spending. Ironically, the Spurs players have taken pay cuts which has culminated in enough cap flexibility to nab another big name free agent without having to dip into the luxury cap threshold.
If there was no salary cap whatsoever, a small market squad like the Milwaukee Bucks may not be afforded the opportunity to compete with a big market like the New York Knicks or Los Angeles Lakers and sign Greg Monroe. The fact that New York and Los Angeles based teams can only offer the same maximum contract as the Milwaukee Bucks means that free agents consider teams based on the coach, basketball record and potential of potential suitors rather than just how much money they can afford. This creates a better product for the fans with all 30 teams able to create quality squads.
The soft cap also has advantages over a hard cap by offering teams the flexibility to spend if they deem it fit. For example, the Golden State Warriors are not forced to part with Draymond Green due to salary cap restrictions and can choose to spend a year or two in the luxury tax to keep their winning unit together. The soft cap rewards smart front office staff who have acquired quality talent who has earned their big payday. Comparatively, the NFL often punishes teams for producing quality players by forcing them away due to salary cap issues. This increases the value of rookies at key positions to reduce the costs associated and allow the salaries to be distributed more evenly.
Although the NBA soft cap seems pretty logical and successful, improvements can be made. The NBA Players’ Association wants to have players rewarded for having long careers rather than pushed aside when teams are not willing to pay a “long service leave” salary. Players like Tim Duncan, Dirk Nowitzki and Dwayne Wade have all had to take reduced salaries or contract duration to stay with the teams that drafted them. The NBA could implement a “marquee player” slot allowing for certain players to be paid outside the salary cap. Thus rewarding a player like Tim Duncan for his loyalty without handcuffing his team to a losing record. The A-League implements a hard cap with a domestic and international marquee player slot and the NBA would benefit from implementing such a system.