The NBA Offseason Dictionary Series: Minimum Salary Exception, Disabled Player Exception & Traded Player Exception

 

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For this week’s edition of “The NBA Offseason Dictionary Series,” I’ll be diving into a few more terms that are exceptions to teams exceeding the NBA luxury tax. If you need a quick reminder on luxury tax, click here: Explaining the NBA Luxury Tax. For a brief refresher on one of the exceptions already discussed in this series, click here: The NBA Offseason Dictionary Series: Bird Rights.

The three terms I’ll be breaking down today are:

1. Minimum Salary Exception
2. Disabled Player Exception (Not technically an "offseason" term, but fits the theme too perfectly not to include)
3. Traded Player Exception

1. Minimum Salary Exception

What It Is: Allows teams to sign players to veteran’s minimum contracts. These contracts do not count against the team's salary cap.

How It Works: Every NBA season, there is a set minimum salary scale based on a player’s years of experience. For example, this past season, a rookie’s minimum salary was $1,119,563, a 5th-year player's salary was $2,346,614, and a 10-year player's salary was $3,196,448. Teams can use the Minimum Salary Exception to sign players to minimum contracts without counting against their salary cap.

Strategic Use: Teams often use this exception to sign veteran players or young players to minimum deals, helping to maintain roster depth without facing luxury tax penalties.

Limitation: None. There’s no limit on how many players a team can sign using the Minimum Salary Exception as long as the contracts are for the minimum salary amount based on the player's experience.

Example: Back on June 24th of this year, 16-year veteran Eric Gordon signed a veteran’s minimum contract to become a member of the Philadelphia Sixers. For the upcoming season, the veteran’s minimum for a player with 10+ years of experience is $3,303,771.


2. Disabled Player Exception (DPE)

What It Is: The Disabled Player Exception allows a team to replace a player who has a season-ending injury.

How It Works: A team can apply for this exception if a player has a season-ending injury. The exception allows the team to sign or trade a player to replace the injured one. The salary of the replacement player can be up to 50% of the injured player's salary. The exception must be used by a specific deadline (from the start of the season to usually around mid-March) or it expires.

Limitations: The player signed or acquired using this exception can only be signed for the remainder of the season. They would need to sign a new contract at season's end to stay with the team.

Strategic Use: Teams use the DPE to replace key players without significantly impacting their luxury tax situation.

Example: Memphis Grizzlies point guard Ja Morant suffered a labral tear in his right shoulder in January of this past season and was ruled out for the remainder of the season. The NBA granted the Grizzlies a $12.4 million Disabled Player Exception. Ja Morant made just over $34 million for the 2023-2024 season.


3. Traded Player Exception (TPE)

What It  Is: The Traded Player Exception allows a team to acquire a player (or players) via trade without sending out an identical salary in return, as long as the player’s salary fits within the exception amount.

How It Works: This exception is created when a team trades a player to another team and receives less salary in return. The difference between the outgoing salary and the incoming salary becomes the TPE. The Traded Player Exception has a one-year expiration from the time it’s created. If the team does not use the TPE within that time frame, it expires and cannot be used.

Limitations: The TPE can only be used in a single transaction to acquire one or more players whose combined salaries do not exceed the value of the exception. If the team uses only part of the TPE, the remaining balance is forfeited. Additionally, the TPE cannot be used to sign free agents directly; it is strictly for acquiring players via trade.

Strategic Use: Teams use the TPE to add talent without needing to match salaries in a trade, providing flexibility in roster building. It’s particularly valuable for teams that are over the salary cap, as it allows them to improve their roster through trades without taking on additional cap space directly. 

Example: If a team trades a player with a $10 million salary and receives a player with a $6 million salary, they create a $4 million TPE. Teams can then use that $4 million to acquire players via a trade. 

Bottom Line:

All three exceptions are commonly used in managing teams’ luxury tax situations each season. Understanding these exceptions is crucial for teams to manage their budgets effectively.