How Do Teams Add Incentives to Contracts?

[Domejandro]

Hey, I have a quick question: How do teams add incentives to contracts?

For example, this season Andrew Bogut received an extra, 15% pay increase...

If that happens, Bogut will get a bonus of 15 percent of his salary — more than $1.9 million. The bonus will be added to the three-year, $36 million extension he signed in October 2013.

So, this led me to wonder what the limit would be on, for example, a four year maximum contract? How would a team structure the deal? What different incentives can teams add? Can a team add these to a deal in restricted free agency? Is there a certain number that a player can definitely obtain?

Thanks in advance!

[bondom34]

Hey, I have a quick question: How do teams add incentives to contracts?

For example, this season Andrew Bogut received an extra, 15% pay increase...

If that happens, Bogut will get a bonus of 15 percent of his salary — more than $1.9 million. The bonus will be added to the three-year, $36 million extension he signed in October 2013.

So, this led me to wonder what the limit would be on, for example, a four year maximum contract? How would a team structure the deal? What different incentives can teams add? Can a team add these to a deal in restricted free agency? Is there a certain number that a player can definitely obtain?

Thanks in advance!

Per Coon:

http://www.cbafaq.com/salarycap.htm#Q74

There are three categories of allowable incentives: performance, academic/physical achievement, and extra promotional. The latter two categories are always included in the player's salary and team salary amounts. Performance incentives are classified as either "likely to be achieved" or "not likely to be achieved," with only the likely incentives included in the player's salary and team salary amounts. The determination of whether an incentive is likely or unlikely is based on whether the criterion was achieved in the previous season. For example, if a player had seven assists per game the previous season, then an incentive based on seven assists per game would be classified as likely to be achieved, but one based on eight assists per game would be classified as not likely.

If either the league or players association feels that the previous season does not fairly predict the performance in the current season, then a jointly-selected expert determines whether the default classification should be overruled. This can happen when the player was injured the previous season.

Unlikely bonuses in any season are limited to 15% of the player's regular salary in that season. In the first season of a contract the base salary, likely bonuses and unlikely bonuses must all fit within the salary cap or exception. The league determines a team's available room under the cap or an exception by adding in the unlikely bonuses for all players who signed that season. This prevents a team from signing multiple players to lower salaries but with lots of unlikely bonuses that collectively exceed the cap room it has to offer. For example, if the Non-Taxpayer Mid-Level exception is $5 million and this exception is used to sign a player to a contract with $2 million in base salary and $200,000 in unlikely incentives, then only $2.8 million of their Non-Taxpayer Mid-Level exception can be used to sign other players.

So at least for unlikely bonuses, 15 percent.

[Smitty731]

My favorite part of incentives is how "likely" vs "unlikely" are determined solely by what happened the previous season. I have no better idea on determining it, but it always struck me as interesting as that is how they determine it. And the part of an expert being selected has always struck me as really fun too. Is that a job you can apply for?

[andyhop]

I'd also like to know if the incentives have to be whole numbers or if you could have 7 assists per game as likely but bump it to 7.1 and have it become unlikely.