How the NBA Market Works: The Complete Guide

How many times do we find ourselves watching in awe as players are traded or waived, bombarded with terms like Salary Cap, Buyout, and Trade Exception?

So, it’s important to clarify once and for all the dynamics and workings of these mysterious elements, rules, or limits that dominate the current market and place restrictions or approvals on trades.

With this market guide, we want to explain briefly, simply, and clearly how the NBA market works and the more subtle developments behind player trades and signings.

When Does the NBA Market Start?

The market begins with the NBA Draft, an annual event where the 30 teams can select new players, usually coming from colleges.

The selection order of the teams depends on their placement in the previous season’s standings: the worst-performing teams have a higher chance of getting the top picks in the Draft. The final order is determined by the NBA Draft Lottery.

Furthermore, during the night of the draft selection, front offices are already at work to strengthen their teams. It’s not uncommon for teams to swap picks, exchanging their selection order, and even rookies who have just been picked (as happened with Luka Doncic, Scottie Pippen, or Kobe Bryant).

The next step comes with the opening of the actual market, which this summer begins on June 29: teams can sign Free Agents, i.e., players whose contracts have just expired or who are without a team, and make Trades with other franchises.

Before delving into Free Agency and Trades, it’s important to note that teams are required to respect a certain payroll cap.

Salary Cap and Luxury Tax

As for Trades, teams have several constraints to follow.

The first constraint is the Salary Cap, which is the maximum amount each team can spend on player salaries.

When a team exceeds the salary cap, they incur a Luxury Tax, a fine proportional to the number of dollars beyond the allowed threshold: the higher the excess, the steeper the fine. The amount of this fine is distributed to the teams that have stayed within the Salary Cap limits.

In the 2024/25 season, the Salary Cap is set at $140.588 million, while the Luxury Tax kicks in when exceeding $170.814 million.

Free Agency

Free Agents are divided into Unrestricted and Restricted: the former have no restrictions and are free to sign with any team they want, while the latter still have a priority with their original team.

Trades

Trades are simply the exchange of players between two teams. Every player traded brings along the salary terms of their previous contract, which means it’s up to the teams to carefully assess the moves to balance the books and avoid exceeding the Salary Cap.

There are, however, some exceptions: one of these is the Trade Exception, which has been frequently discussed in relation to Gordon Hayward’s departure from the Boston Celtics in 2020. This exception allows a team to acquire a player via trade even if they exceed the Salary Cap.

Additionally, a more common practice is the multi-team trade, which allows each team to balance their salary cap by moving more pieces across different teams. An example is the trade that sent James Harden to the Brooklyn Nets, involving four teams.

Contracts

Once a player has signed with a team, are they locked in without any way out? Absolutely not—there are several clauses that allow either the player or the team to terminate the contract and end the relationship at specific points during the market.

Team Option and Player Option

Team Option and Player Option are two contract conditions, one benefiting the franchise and the other benefiting the player, which determine whether the contract is extended or terminated in the penultimate year.

Buyout

The Buyout consists of an early separation agreed upon between the team and the player, where the player agrees to give up a large portion of their salary. This allows the player to sign with any team they wish, as in the John Wall situation.

Sign and Trade

The Sign-and-Trade is a tactic through which a team signs a player and then immediately trades him. This way, the traded player maximizes their earnings, and the team that trades them frees up salary space equal to the promised amount in the new team. It’s essentially a win-win situation.

10-Day Contract

The 10-Day Contract is a contract with a maximum duration of ten days or three consecutive games. This type of contract is usually signed for the minimum salary.

Two-Way Contract

The Two-Way Contract allows teams to sign two additional players beyond the 15 allowed. The contract duration is 45 days and is often used for undrafted players.

NBA Trade Deadline

The NBA Trade Deadline is the date that marks the end of the NBA market, after which no more trades can be made. After this date, only Free Agents can be signed.

Here we are at the end! By now, you should have a general understanding of the market and its specific mechanisms. Still not enough? No problem, you can dive deeper into each term by clicking on the links provided in the article.