What Is A Cap Hold And Why Does It Matter?
July 20th, 2014

The calculation of a team’s cap space would, you would hope, be as easy as looking at their owed contracts to both current and waive players, and subtracting it from the salary cap amount for that year.

Nope, not close.

There are a few extra things that go into the determination of a team’s “team salary” amount, and by association that team salary amount’s proximity to the salary cap thresholds. And of these extra things, the most important, obvious and prevalent are things we know as “cap holds”. There are two types of cap hold – a free agent’s cap hold, and a draft pick’s cap hold.

The first one, the free agent cap hold, is the most common. A free agent’s cap hold is an amount of money that is charged to your team’s salary cap number, even though the player is not under contract. This is a deliberate ploy that exists to close a loophole; if free agent cap holds did not exist, it is theoretically possible for a team to have its entire roster become free agents at the same time, have their entire cap to spend on other team’s free agents, and then use Bird rights to re-sign their own ones afterwards. That would be disingenuous and would create a rather ludicrous situation whereby there would be no incentive to ever sign a long term deal. In having cap holds, your free agents eat into your cap room, forcing you to prioritise a bit better. The juggling of these priorities is a key component in team building and roster management.

There are multiple ways to get rid of a cap hold. Firstly, if you waive a player, they are automatically removed, and so will not have a cap hold. Secondly, if a player signs with another NBA team, they also no longer have a cap hold to their former team. Thirdly, if a player retires (by which it is meant that he properly retires, sending official retirement paperwork to the league, and not just informally saying that they have retired), then their free agent cap hold (or ‘free agent amount’) is removed too. And fourthly, teams can just ask for them to be removed, which is called ‘renouncing’ the cap holds.

Players often do not formally retire until they are eligible for their NBA pension, as there is no incentive to do so prior to that. This all can lead to a situation whereby players from years past can have cap holds outstanding to teams they have not played for for years – unless the team has had cap space which has meant renouncing these redundant cap holds for space, there is no reason to renounce them. There is also no reason not to renounce them, yet they gather up over time as archaic relics more than through any conscious effort to keep them around.

There used to be a reason to keep them around. Once upon a time, having a free agent’s cap hold, no matter when they were last with the team, meant that the team could still incorporate that player (if they were willing) into sign and trades as salary filler for trades. It would have been an extremely unlikely thing to imagine happening had it not happened twice at the 2007 trade deadline, when both the long-departed Aaron McKie and Keith Van Horn were both signed and traded to complete deals while being unofficially retired. And all they had to do to be eligible was never file the retirement paperwork.

This, however, is no longer permissible under the 2011 CBA. Now, only players who finished the season immediately prior can now be signed and traded, and the ancient the cap holds remain only as archaic relics. They are not automatically renounced unless the retirement paperwork is filed, which, as seen above, it rarely is. Similarly, if a player’s contract with an NBA team expires without him going through waivers, and he then signs with a non-NBA team, he will continue to have a cap hold until he is renounced. (Only if he signs with another NBA team, as mentioned in point two above, does it disappear.) As such, these things pile up and affect a team’s salary cap picture.

When teams have set themselves up for cap room, they renounce these basically useless free agent amounts to maximize how much room they have. For example, in the summer of 2007, Milwaukee, Orlando and Memphis all figured to have cap room, and so they renounced all their free agents who were not under contract. These included players from previous years; Orlando renounced Darko Milicic, Grant Hill, Andrew DeClercq, Stacey Augmon, Jaren Jackson, Mark Jones, Shawn Kemp, Sean Rooks, Bo Outlaw and Olumide Oyedeji; Milwaukee renounced Reece Gaines, Jermaine Jackson, Ervin Johnson, Toni Kukoc, Jiri Welsch, Ruben Patterson, Brian Skinner, Jared Reiner and Earl Boykins; and Memphis renounced Mahmoud Abdul-Rauf, Junior Harrington, Lawrence Roberts, Mike Batiste, Antoine Carr, Kevin Edwards, Antonis Fotsis, Dahntay Jones, Will Solomon and Doug West. This year, in their first pursuit of cap room for some years, the L.A. Lakers renounced a whole load of free agent cap holds, ranging from Pau Gasol and Kent Bazemore of last season all the back to Brian Shaw and John Salley from their three-peat days. As seen above, Shaw and Salley never played for another NBA team after the Lakers, never filed their retirement paperwork, were not waived in their last contract, and had never previously been renounced for cap space because the Lakers had not had any in the years since they left. And as such, their cap holds were still kicking around, despite how meaningless they become.

The cap hold that each free agent has varies, and is dependent on how much the salary in the final year of their last NBA contract was. The cap hold is a percentage of that salary, and is also dependent on what kind of free agent rights the team has on that player. The exact parameters can be found in question 38 of Larry Coon’s eternally beautiful CBA FAQ.

When a free agent is renounced, the team can still re-sign that player. However, they do lose the ability to re-sign them with Bird rights. This means that to re-sign them, they need to use cap space or a cap exception. And this, of course, makes it difficult to re-sign them. Normally, then, if a player is renounced, they are not coming back. What you do sometimes however see is a player with a big cap hold be renounced so as to accommodate other players into the cap room, then re-sign for a smaller amount of it later, or via the new Room Exception (an exception that teams get as well as cap space, as opposed to all other exceptions, which are instead of cap space). An example of that this year would be Kirk Hinrich, whose $5.7 million cap hold was an obstacle to Chicago’s cap space plans, but who agreed to re-sign for the amount of the room exception, and who they thus renounced even though they intend to keep him.

The other type of cap hold is the draft pick cap hold. Specifically, it is the first round draft pick cap hold, as second round draft picks do not have them.

Back in the day, first round picks were allowed to sign for whatever they could get. This, however, started to get ridiculous as negotiations (aided by the very real threat of holdouts) started to reach 10 years and tens of millions of dollars. So starting with the 1995 CBA, the league and players union collectively bargained the rookie salary scale. Depending on where they are drafted, first round picks now have a set contract amount that they can sign for, the actual amount changing slightly year by year. The only allowed variance is that players can sign for between 80% and 120% of the amount. In practice, almost everyone takes the full 120%, and on only a handful of occasions has that not been true.

Almost every first round pick signs in the year they were drafted. There are currently only four first round picks from drafts prior to 2014 that have never signed their rookie deals, one of whom (Lucas Nogueira) is about to. The other three are Fran Vasquez (Orlando, 2005), Petteri Koponen (Dallas, 2007) and Livio Jean-Charles (San Antonio, 2013). When a first round pick does not sign their rookie scale deal, however, their team nevertheless still have a cap hold charged to their cap number. And that amount is equal to 100% of that season’s rookie scale salary amount.

This means, then, that Koponen are Vasquez were eating into their team’s cap space. This is why you sometimes see numbers for these players you were not expected to see numbers for, players you had long forgotten about. They are still there and present in the maths, if not the hearts and minds.

Note also the difference between the cap hold and the usually-signed-for amount. Cap holds are always 100% while signed contracts are almost always 120%, and while this difference is negligible in the lower amounts, it can mean much more at the top. The #1 pick this year, for example, has a cap hold of $4,592,200, while 120% of that figure would be $5,510,640. That difference of $918,440 is a pretty significant amount of cap room, and is why Andrew Wiggins has still yet to sign with the Cavaliers. It is custom for teams with cap room and aspirations to use a lot of it to not sign their draftees until after they have completed their cap space wrangling. And such, if a team with cap room signs their draftees early, it is often a sign they do not intend to use the cap space fully.

What teams can do under the 2011 CBA is sign a written agreement between themselves and the unsigned drafted player that they will not sign in the NBA in the upcoming season. If they sign this agreement and submit it to the league, that player’s cap hold is expunged from the team’s salary cap number, and this is what Dallas (who valued every dollar of space they could get) did with Koponen. Phoenix have also done that this season with Bogdan Bogdanovic. And while Orlando have not done so with Vasquez, maybe they will do once they get nearer the limit.

So if you see a calculation of a team’s salary figure that includes this seemingly inexplicable numbers to otherwise irrelevant players, now you know why they are there, and what can be done about it.

And if you see a calculation of a team’s salary figure that does not include these things, you now know to add them.

Posted by at 4:38 PM