Please explain to me how buyouts work

[Bourne]

Does the amount of the buyout hit the salary cap in that year? I.e. would you have to pay luxury tax on the buyout if you go over the cap?

Obviously my idea won't work (because it would be a broken system), but someone with knowledge please explain to me: Why can't Miami buy out Lebron's contract for say, 80% of its value, then give him a contract for the remaining 20%, and now you have that 80% off the salary cap for the Heat to sign better players. Lebron has his money up front and the Heat can sign better roleplayers.

Why not? I assume paying massive luxury tax on the buyout isn't the only reason. Can't buyout a player and resign him?

[niko]

Buyouts are cash savings only, they don't give you any salary cap savings. So you don't have the space to resign a new player. Secondly, you can't resign the player you bought out until the contract would be done normally.

[bagelred]

Secondly, you can't resign the player you bought out until the contract would be done normally.

I don't think that's true. That IS true for amnestied players, but not normal buyout, I don't think.

A buyout hits the salary cap for the actual amount of the buyout.

Let's say Lebron has 3 years, $45 million remaining on his contract and Heat buy him out for $21 million cash. Although Lebron gets his $21 million right away, the buyout is spread out over the remaining years. So each year would have a $7 million cap hit against the books.

So honestly, makes no sense to buyout a player and resign him to gain cap space. Won't work.

[niko]

I don't think that's true. That IS true for amnestied players, but not normal buyout, I don't think.

A buyout hits the salary cap for the actual amount of the buyout.

Let's say Lebron has 3 years, $45 million remaining on his contract and Heat buy him out for $21 million cash. Although Lebron gets his $21 million right away, the buyout is spread out over the remaining years. So each year would have a $7 million cap hit against the books.

So honestly, makes no sense to buyout a player and resign him to gain cap space. Won't work.

you don't get any cap savings for buyouts. If you have 3 years $45 million and do a buyout, you get cash savings from the buyout, but cap hits of 3 years $15M each year. you might get luxury tax savings, not sure, But you get NO cap space from a buyout

[Whoah10115]

you don't get any cap savings for buyouts. If you have 3 years $45 million and do a buyout, you get cash savings from the buyout, but cap hits of 3 years $15M each year. you might get luxury tax savings, not sure, But you get NO cap space from a buyout

Are you 100% cuz I don't think that's true. I think that's why so many people get bought out, so that the player can move on and the salary comes off the books sooner for the organization.

[2LeTTeRS]

you don't get any cap savings for buyouts. If you have 3 years $45 million and do a buyout, you get cash savings from the buyout, but cap hits of 3 years $15M each year. you might get luxury tax savings, not sure, But you get NO cap space from a buyout

The bolded portion is not true.

62. What is a contract buy-out?

Sometimes players and teams decide to divorce each other. They do this by mutually agreeing that:

The team will waive the player;
If the player clears waivers, the compensation protection for lack of skill (see question number 94) will be reduced or eliminated;
Optionally the payment schedule for the remaining salary may be shortened or lengthened.
Optionally the team's set-off rights (see question number 57) may be waived.

For example, the Celtics did this with Dino Radja prior to the 1997-98 season. They mutually agreed to reduce Radja's compensation protection to 50% of its value, and then the Celtics waived him. When he cleared waivers he was paid the 50% he was owed, and he was then free to return to Europe.

But there's a twist, which needed an arbitrator's ruling during the 1999-00 season to resolve. As detailed in question number 94, on January 10 all contracts become guaranteed for the rest of the season. Compensation protection insures the player against loss of salary after being waived for lack of skill. But if he is waived after January 10, then he doesn't lose his salary, so the compensation protection does not kick in. Even though the team & player can mutually agree to reduce or eliminate the player's compensation protection, he is still owed his full salary if waived after January 10.

This was challenged by John Starks during the 1999-00 season. Starks had been traded to the Bulls, and wanted to sever ties with the team after January 10. The arbitrator ruled that in the last season of a player's contract, the team and player could choose to eliminate the contract guarantee that kicked in on January 10. Starks and the Bulls were therefore free to agree to a divorce (with no money owed to Starks) as described above.

There is one other type of buyout described in the CBA. When a contract contains an option year, a buyout amount for the option year can be written into the contract. The buyout amount may be up to 50% of the salary for the option year, and is payable with the exercise of an ETO or the non-exercise of an option.

==============================================

63. How do buy-outs affect a team's salary cap?

The agreed-upon buy-out amount (see question number 62) is included in the team salary instead of the salary called for in the contract. If the player had more than one season left on his contract, then the buy-out money is distributed among those seasons in proportion to the original salary. For example, say a player had three seasons remaining on his contract, with salaries of $10 million, $11 million and $12 million. The player and team agree to a buyout of $15 million. The $15 million is therefore charged to the team salary over the three seasons. Since the original contract had $33 million left to be paid, and $10 million is 30.3% of $33 million, 30.3% of the $15 million buyout, or $4.545 million, is included in the team salary in the first season following the buyout. Likewise, 33.33% of $15 million, or $5 million, is included in the team salary in the second season, and 36.36% of $15 million, or $5.455 million, is included in the team salary in the third season.

The distribution of the buy-out money is a matter of individual negotiation. Changing the number of years in which the money is paid does not change the number of years in which the team's team salary is charged. In the above example in which the player's contract is bought out with three seasons remaining, the buyout amount is always charged to the team salary over three seasons. It does not matter if the player is actually paid in a lump sum or over 20 years (a spread provision).

[Whoah10115]

The bolded portion is not true.

[B]

Does the amount of the buyout hit the salary cap in that year? I.e. would you have to pay luxury tax on the buyout if you go over the cap?

Obviously my idea won't work (because it would be a broken system), but someone with knowledge please explain to me: Why can't Miami buy out Lebron's contract for say, 80% of its value, then give him a contract for the remaining 20%, and now you have that 80% off the salary cap for the Heat to sign better players. Lebron has his money up front and the Heat can sign better roleplayers.

Why not? I assume paying massive luxury tax on the buyout isn't the only reason. Can't buyout a player and resign him?

To buy him out means they have to waive him because you can't restructure contracts. That means he can't rejoin the Heat for one year and that's only if the team that picks up his remaining balance waives him. So in effect what your asking is for the Heat to pay him to play for somebody else for the life of his current contract which is what 4 years while having the buyout amount still on the Heats books. Brilliant plan

[Xiao Yao You]

I think that's why so many people get bought out, so that the player can move on and the salary comes off the books sooner for the organization.

Has more to do with saving some money, opening up a roster spot and getting rid of someone from the locker room I think.