NBA Contract Buyout FAQ: Key dates, salary cap impacts and more

Dwyane Wade has reportedly agreed to join the Cavaliers. (David Zalubowski/AP)

Over the next week a number of NBA players will be seeking buyout agreements with their current teams. But what is a buyout, exactly? And how does it affect the player, their original team and their new club?

Reading and understanding the NBA’s collective bargaining agreement can be like studying a new language. So to save time, here are some frequently asked questions (and answers) when it comes to the NBA’s brief, but frenzied, buyout season.

So…what is a buyout?

A contract buyout takes place when a team and player mutually agree to part ways. Most commonly — at least at this time of year — buyouts tend to occur when a veteran player finds himself without playing time, or on a lottery-bound team, and wants an opportunity to play for a contender. From the team’s perspective, orchestrating a buyout with a player in this scenario can open up a roster spot, create playing time for a young auditioning player or rid the team of an unhappy member without having to absorb a new player’s contract like if they had traded the veteran.

Joe Johnson and Brandon Wright, who spent this season with the Utah Jazz and Memphis Grizzlies, respectively, and both reached deals with the championship-contending Houston Rockets, are the most recent examples.

When can a buyout take place?

At any time in the season, but in order for a player to be eligible to compete in the playoffs for his new team a buyout and subsequent signing must take place by March 1.

How does the buyout process begin and what are the financial ramifications?

The player and team agree to a split. At that point, a player’s agent and the team will essentially negotiate how much salary a player is willing to forfeit in order to be granted a release. For example, a player earning $3 million dollars can agree to give up $1 million of salary.

When a player is waived, their remaining salary — which in the NBA is guaranteed if a player sticks on his team past Jan. 10 — remains on the books for their original team.

If a player is especially motivated to leave his current situation, they can forfeit salary in order to make a buyout more appealing for the team. These deductions — in some cases a player’s original salary can be cleared outright if that was the agreement made — happen once the player clears waivers.

The key is that both sides have to agree that the buyout route is best. For example, centre Jahlil Okafor requested a buyout from the Philadelphia 76ers earlier this season, but the Sixers preferred to move him via trade in order to get assets back in return. Similarly, a player like Joakim Noah, who is on leave with the New York Knicks after reported run-ins with head coach Jeff Hornacek, is unlikely to be bought out because the Knicks would be foolish to absorb anywhere close to the more than $38 million on his contract remaining for two years after this season.

One of the more costly buyout deals reported occurred prior to the start of this season, when Dwyane Wade agreed to leave $8.3 million on the table in order to be released by the Chicago Bulls and sign with the Cleveland Cavaliers.

Wade had more than $23 million owed to him on his contract this season, meaning his cap hit for the Bulls this season was over $15 million despite playing for another team. It’s one of the many ways a bad contract can have major repercussions on a team and it’s cap situation.

So once a buyout deal is reached the player is a free agent?

Not yet. Once a player and team agree to a buyout, the player is then placed on waivers. During the two-day waiver period, teams can bid on a player’s rights provided they have the necessary cap space to sign them to a new deal. When more than one team is bidding for a player, the team with the worst record is given priority (Kind of like how it works in your fantasy league).

If a player clears waivers then he becomes an unrestricted free agent and can sign with any team, again, provided they have available cap space.

Teams often have extra available cap space that can — and is often — used to sign free agents mid-season due to provisions like the “disabled player exception.” The Boston Celtics, for example, were granted an $8.4 million disabled player exception (DPE) following Gordon Hayward’s injury on the opening night of the NBA season. They have since used five million of that money to sign centre Greg Monroe, who reached a buyout agreement with his previous team, the Phoenix Suns.

Can a player re-sign with his original team?

Eventually, yes. But following a buyout the team isn’t allowed to re-sign the player or make a waiver claim to sign him until the waived contract term ends or for one year, whichever comes later.

Who are some notable players who made an impact after negotiating a buyout?

In 2008 the Boston Celtics signed veteran big man P.J. Brown and point guard Sam Cassel, who had been bought out by the Los Angeles Clippers. Both came off the bench as part of the Celtics rotation in the playoffs that season, and the team won the championship with those two in the fold. Brown, in particular, came through in the clutch.

In 2012 DeMarre Carroll negotiated a buyout with the Denver Nuggets and signed with the Utah Jazz, where his playing time tripled and he began to make a name for himself, paving the way to a successful stint in Atlanta with the Hawks and a lucrative free-agent deal with the Raptors three years later.

Generally speaking, players who switch teams after the trade deadline via buyout haven’t made a significant impact on their new club.

A surefire potential exception to that rule would be if 28-year-old Memphis Grizzlies guard Tyreke Evans, who was being heavily shopped at the deadline and is averaging 19 points per game this season, reaches a buyout agreement and finds his way to a playoff team.

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