Question regarding Buyouts, 35, and Cap hits..
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07-06-2008, 09:54 PM
Join Date: Aug 2006
Teams were given a one-time chance to buy-out players for 2/3rds of the remaining value of the contract between July 23 and July 29, 2005 without the buy-out counting against the salary cap. In future years, teams may still buy-out player contracts for a portion of the remaining value of the contract paid over twice the remaining length of the contract. If the player is
-- Under the age of 26 at the time of termination, the buyout amount is 1/3rd the remaining value
-- 26 or older at the time of termination, the buyout amount is 2/3rd the remaining value.
This is set forth in 13(d) of the Standard Player Contract (Exhibit 1 in the CBA). The remainder of this explanation applies to buyouts that took place after July 29, 2005, and assumes the player was not 35 or older when signing his SPC (in which case a buyout does not reduce the cap hit).
When a player is bought out, the team still takes a cap hit for the player over twice the remaining length of the contract. The amount of the cap hit (by year) is determined as follows:
1. Take the actual salary due for each remaining year.
2. Take the Averaged Player Salary (cap hit) for the current contract
3. Calculate the buy-out amount (as described above)
4. Spread the buy-out amount evenly over twice the remaining years of the contract
5. Take the number in #1 and subtract the number in #4. This is the “buyout savings”.
6. Take the cap hit from #2 and subtract the buyout savings from #5.
NOTE: This calculation has to be done for each year - meaning that the cap hit on a buyout will not necessarily be the same for all years (see examples below). It can even be negative (meaning the team gets a credit). However, it’s critical to have the correct information for #1 and #2 to get the correct cap hit. The cap hit on a buyout is only the same for all affected years if the remaining yearly salary is the same for all years. If it varies, then the cap hit on a buyout will vary.
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