Cap ramifications for buy-out with more than a year left

[verbal8]

How is a buy-out allocated for a player that has a year left after this year(e.g. Bibby)?

He will make 5.5 for this year and his contract is 6.2 million for next year.

Say he has 1.3 million left this year, that makes his total owed 7.5 million. Say he and the Wizards agree on a 5 million dollar buyout. What is the hit for next year? Is it 4.13 million(ratio of buyout to remaining salary) or is it 4.75 million(ratio of money paid for both years to contract value)?

[nate33]

Ha. I just asked the same question.

[Dunkenstein]

As Larry Coon says in his FAQ "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."

In Bibby's case, it looks like he just agreed to forgo his $6.2M salary for next season. However, depending on the length of the lockout, the amount he will have actually forgone will likely be much less than that.

[nate33]

As Larry Coon says in his FAQ "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."

In Bibby's case, it looks like he just agreed to forgo his $6.2M salary for next season. However, depending on the length of the lockout, the amount he will have actually forgone will likely be much less than that.

Let me try to restate the question more clearly:

How do buyouts get charged to the cap if they happen in the middle of the season?

I understand that buyouts are prorated against the cap in proportion to the original contract. Assume Player A is owed $10M over the next two years, with $5.0M this year and $5.0M next year. 50% of his remaining contract is owed this year, and 50% is owed next year. If he is bought out at the beginning of this year for $5M, his buyout gets charged in the same percentages. The cap hit would therefore be $2.5M this year and $2.5M next year.

But what happens if he is bought out in the middle of the season?

Let's say, this season is half over. Player A has already been paid $2.5M of his $5.0M salary owed this year. He is still owed $2.5M for the remainder of this year plus $5.0M next year. So at the moment he is bought out, 33.3% of his total remaining salary is owed this year, and 66.7% of his total remaining salary is owed next year. If he is bought out for $5M, is that split up in a 33.3/66.6 ratio? Or is the buyout charged to the cap with the original 50/50 ratio? In other words, is the $5M cap hit charged at $1.67M this year and $3.33M next year? Or is it $2.5M and $2.5M?

[Dunkenstein]

never mind.

[answerthink]

In your example, the player is being bought out of the $7.5M he has yet to earn for $5.0M. The $2.5M reduction would be allocated $0.83M for this year and $1.67M for next year.

The player has already earned $2.5M, and he has a $5.0M buyout. He will earn $7.5M total. The cap hit for this year would be $4.17M and the cap hit for next year would be $3.33M.

The aggregate reduction in a bought out player’s compensation is allocated pro rata over the then-current and each remaining season on the basis of the remaining unearned protected base compensation in each season.

Bear in mind, however, that the original question suggested that the season was more than half over. After January 10, the current season salary in all contracts becomes guaranteed, and a player can only choose to eliminate this protection as part of a buyout if it is the last season of his contract. Therefore, in the case where a player is bought out after January 10 of a contract that contains at least one more season, the buyout would only relate to the following seasons.