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The NBA salary cap can be a tricky term for fans to understand. The salary cap is a limit placed on a team's ability to pay their players. The cap is decided based on the revenues generated by the league in the previous season.
It increases marginally yearly, directly resulting in changes for other exceptions and free agency flexibility.
The 'Collective Bargaining Agreement' or 'CBA' dictates the eventual salary cap for the year based on several factors. The CBA is a contract between the NBA's 30 owners and the NBA's Player Association or NBPA.
Looking back at the salary cap history
The first salary cap season was in the 1940s, but it was in place for only one season. The league reinstated the salary cap structure in the 1984-85 season to promote more competition by leveling the playing field. Prior to that year, teams didn't have limitations on the contracts they could offer players.
That all changed in 1985. Notably, the first salary cap was placed at $3.6 million per team.
Here's a breakdown of the league's salary cap each season since 1984-85:
NBA has a soft salary cap
All North American sports leagues have salary caps to limit the spending power of the bigger teams and level the playing field. However, the majority of them are hard-capped. The NBA, meanwhile, has a soft cap. This means that teams can exceed the salary cap, but they do have a price to pay for it.
Some penalties limit their spending ability in free agency and trade for players without matching salaries. The CBA also sets a tax line. Teams that go overboard with their salary caps and exceed the tax line have to pay a luxury tax. That amount goes to non-taxpaying teams.
The general cause of teams often exceeding the tax line is re-signing their own players in free agency or extending them to more expensive contracts to retain their core. Right now, the Golden State Warriors, LA Clippers and Milwaukee Bucks are examples of this.
Teams with no cap space are allowed to extend their players' max contracts or sign them to those deals when they are unrestricted free agents due to 'Bird Rights'.
Looking at the 2023-24 salary cap
The 2023-24 salary cap falls under the new CBA. The salary cap is set at $136,021,000 this season. The luxury tax threshold would be $165,294,000. Meanwhile, the luxury tax apron is set at $172,346,000. This means hard-capped teams will not be able to spend above the luxury tax line.
There's also a second tax-apron set at $182,794,000. Teams exceeding the first and second tax line will be handicapped with limitations on most exceptions coming into place as per the new CBA.
