How do buyouts work?
Teams are entitled to buy out player contracts for a portion of the remaining value of the contract — paid over a period of twice the remaining length of the contract. Following are the buyout amounts:
- Younger than age 26 at the time of buyout, 1/3 the remaining value
- Age 26 or older at the time of the buyout, 2/3 the remaining value
When a player is bought out, the team still takes a cap hit for the player over a period of twice the remaining length of the contract. The amount of the cap hit (by year) is determined as follows:
- Take the actual salary due for each remaining year
- Take the Averaged Player Salary (cap hit) for the current contract
- Calculate the buyout amount (as described above)
- Spread the buy-out amount evenly over twice the remaining years of the contract
- Take the number in No. 1 and subtract the number in No. 4. This is the "buyout savings."
- Take the cap hit from No. 2 and subtract the buyout savings from No. 5.
This calculation is done for each year, meaning the buyout cap hit is not necessarily the same for all years. It can even be negative, meaning a team can receive a credit.
This formula applies to the cap hit of 35-plus contracts, the league confirmed to CapGeek.com in 2013.
Please see our buyout calculator to see these formulas in action.
NOTE: During the ordinary course buyout periods in June 2013 and June 2014, teams will be permitted two compliance buyouts. Compliance buyouts follow the same formula as ordinary-course buyouts but do not count against the cap. For one season following a compliance buyout, the player is prohibited from rejoining the team that bought him out.
CBA reference: Section 50.5 (c-iii-A )(P. 205-208)