Generally
Summary of Payment Arrangements
The UPC contains a default Payment Schedule, where the Player’s Compensation is paid on semi-monthly installments over each Season.
Subject to limitations, the CBA has tools to allow the Team and Player to agree to different Payment Arrangements to receive his Compensation sooner, or defer payments to a later date. Those tools include the following (discussed in more detail below):
- Adjust the Payment Schedule – Can be paid twice as fast over the Salary Cap year, or extend payments over an 18-month period.
- Advances – Can receive a portion of his current Season’s salary earlier than the standard monthly payments.
- Signing Bonus – Can receive a portion of his total Contract as soon as it’s signed.
- Deferred Compensation – Player can defer his payments to be paid after the Season it’s earned.
- Loans – Team can lend a Player his guaranteed Salary to be repaid over the term of his Contract.
- Premium Reimbursement – A Team can reimburse a Player’s premiums paid toward term life insurance.
- Dead Salary – If a Player is waived, then the payment arrangement is altered for the remaining Protected Compensation owed.
Effect on Team Salary
When a Player is paid (via the Payment Arrangement), and how Compensation is treated as Salary for Team Salary purposes, have to be viewed separately.
Below are two examples:
- Trade Bonus – The entire amount of a Trade Bonus is paid to the player when traded, but the Trade Bonus is applied as Salary proportionately over the length of the Contract for Team Salary purposes.
- Deferred Compensation – A Team and Player can agree to Deferred Compensation, meaning a percentage of his Base Compensation earned in the current year is paid at a later date. For Team Salary, the amount is applied to the year he earns the Base Compensation rather than when he is paid.
Limitations Generally
No matter what tools the Team and Player want to use to alter the Payment Arrangement, 10% of a Player’s Salary (excluding Likely Bonuses and Trade Bonuses), must be paid in monthly installments agreed upon via the Payment Schedule below.
Due to this overarching limitation, when agreeing on payment arrangement terms, one must revisit this limitation and ensure the Player is receiving at least 10% Salary via a regular pay schedule after all Signing Bonuses, Advances, etc. are agreed upon.
Payment Schedule
Default Payment Schedule
The default schedule of payments is 24 equal semi-monthly payments beginning with the first payment on November 1st of each year covered by the Contract.
Payments continue on the 1st and 15th of every month until Compensation is paid in full.
Payment Schedule Adjustment
Allowable Terms
The pay schedule can be amended to 12 or 36 equal semi-monthly payments rather than 24, until the Compensation is paid in full.
Contract Limitations
Minimum Contracts and Two-Way Contracts cannot adjust the default payment schedule above.
Note that both these contracts do permit Advances (discussed in more detail below).
Advances
Advances Generally
In addition to adjusting the monthly payment schedule (above), a Player can negotiate receiving a certain amount of his current Season’s Compensation prior to the first payment on November 1st as an Advance.
Amount of Advance
The amount of an Advance depends on if the Contract is a Two-Way Contact, Minimum Contract, or any other Standard Contract.
Standard Contract (Non-Minimum)
The Maximum Advance Amount is the lesser of:
- 80% of the Amount of the Player’s Compensation that is protected; or
- 50% of the Player’s Base Compensation for such Season.
However, no more than 25% of the Player’s Base Compensation can be paid prior to the October 1st immediately preceding the first day of the Regular Season.
Minimum Contracts
If protected for lack of skill and injury/illness, then the Minimum Player Salary Advance Limit is the lesser of:
- 80% of the Player’s Compensation that is protected; or
- 7.5% of the Player’s Base Compensation for such Season.
The Advance will be deducted in full from the Player’s first installment of Base Compensation on November 1st, and then from the second installment if needed.
Two-Way Contracts
If protected for lack of skill and injury/illness, then the Two-Way Contract Advance Limit equals 50% of the amount of the Player’s Base Compensation the season that is protected.
The Advance shall be deducted in full from the Player’s first installment of Base Compensation on November 1st, and then from the second installment if needed.
Signing Bonus
Signing Bonuses Generally
Definition
A Signing Bonus allows a Player to be paid a portion of the total Compensation in his Contract up front, subject to restrictions.
Note that under the CBA, a Trade Bonus and payments in excess of the EIPPA are also defined as Signing Bonuses.
Signing Bonuses vs. Advances
Note that Signing Bonuses pay a percentage of all Compensation due under the entire Contract up front, while Advances pay a percentage of the Player’s current Season’s Compensation up front.
Amount of Signing Bonus
Original Contract or Extension
Signing Bonus cannot exceed 15% of the Compensation (excluding Incentive Compensation) called for by the Contract.
If it’s an Extension, it can’t exceed 15% of the Extended Term of the Contract.
Offer Sheets
No Offer Sheet may provide for a Signing Bonus exceeding 10% of Compensation (less Incentive Compensation).
Prohibition of Signing Bonus
Renegotiation
A Renegotiated Contract cannot contain a Signing Bonus unless accompanied by an Extension and would otherwise be permitted under the rules for Extensions.
Prohibited Contracts
Rookie Scale Contracts (other than an EIPPA) and Two-Way Contracts do not permit Signing Bonuses.
Extensions and Signing Bonus
A Signing Bonus can’t exceed 15% of the Extended Term of the Contract.
If a Signing Bonus is agreed upon in an Extension, it cannot be payable until the July 1st of the first year of the Extension, unless the Team is below the Salary Cap.
If the Team is below the Salary Cap:
- Signing is treated as a Renegotiate and Extend;
- Signing Bonus cannot exceed the Salary Cap for existing years;
- The first Season of the Extension cannot exceed 140% of the Renegotiated final Season;
- Paid in two installments:
- First, paid on a day prior to the Extended Term for an amount equal to the portion of the Signing Bonus allocated to the Salary Cap Years covered under the original term;
- Second, paid once the Extended Term is in effect, an amount covering the Extended Term.
Salary Proration
The Signing Bonus is paid up-front, but is allocated on a pro rata basis over the length of the Contract.
Visit the Salary page for more detail on Salary calculations.
Maximum Salary Adjustment
See Maximum Salary to learn how Signing Bonuses are adjusted when a Player’s Salary exceeds his applicable Maximum Salary amount.
Suspension – Return of Signing Bonus
If a Player is suspended for an intentional failure/refusal to perform under his Contract, the team is entitled to a return of a portion of the Signing Bonus.
Calculation: The number of games suspended divided by the total number of Regular Season games covered in the Contract (excluding Option Years).
Sign-and-Trades
Any payment made by the Signing Team (i.e. the Team sending the Player) shall be treated as a reimbursement via cash-in-trade of the Receiving Team.
Loans
Loans Generally
A Player and Team can agree that the Team Loan the Player money up to the amount he is guaranteed in Protected Compensation for lack of skill to be repaid over the remaining guaranteed Seasons.
Loan Terms
Amount
No Loan (including any existing loan) can exceed the Player’s Salary for then-current Salary Cap Year that is protected for lack of skill.
Repayment
Any loan must be deducted in equal amounts from the Player’s remaining Protected Compensation over the length of the contract that is fully protected for lack of skill (not including Options/ETOs).
Loan Reduction
If a loan is made at a time of the Season when the Base Compensation is less than what would be owed on the loan, the maximum loan amount for that Season shall be reduced appropriately.
Loan Forgiveness
If a Team forgives any loan, it is considered a Renegotiation and such rules will apply.
Interest Rate/Player Salary
The difference between the interest rate provided in the loan and the Target Rate shall be considered as the Player’s Salary.
- Target Rate – The Prime Rate plus 1% as of the date the loan is agreed upon, but never lower than 7% and never higher than 9%.
- Prime Rate – The prime rate reported in the “Money Rates” column or any successor column of the Wall Street Journal.
Limitations on Loans
Payment Schedule Requirement
The requirement to be paid 10% of the Season’s Salary in current Base Compensation in accordance with the allowable payment schedule still applies.
Contract Limitations
Two-Way Contracts, Rookie Scale Contracts, and Minimum Contracts are all prohibited from including loans.
Premium Reimbursement
Premium Reimbursements Generally
If a Player procures term life insurance for his benefit, the Team may reimburse him each season for the premiums paid.
Limitation
Amount
The amount of coverage for which the premiums are reimbursed cannot exceed the lesser of:
- Aggregate unearned Base Compensation (excluding Option Year); and
- $85 million less Aggregate unearned Base Compensation (excluding Option) Year protected for death.
The reimbursement shall not exceed the cost for 10-year guaranteed term coverage at preferred rates.
Minimum Contracts
Premium reimbursement is not permitted for Minimum Contracts that either (i) signed after the Regular Season or (ii) is not fully protected for lack of skill and injury/illness in first season of Contract.
Premium Reimbursement and Team Salary
The reimbursement of premiums does not count as Salary, and therefore does not contribute toward Team Salary against the Salary Cap.
Deferred Compensation
Deferred Compensation Generally
Definition
The Team and Player can agree that Compensation earned in a particular Season is paid after the May 1st of such Season, and is therefore considered Deferred Compensation subject to the rules below.
Note that the determination of whether Compensation is defined as “deferred” is only based upon the terms of the Contract (i.e. when does the Contract say the Compensation is to be paid), and not when the Compensation is actually funded or secured in any fashion.
Requirements and Limitations
Terms
No Contract can provide for Deferred Compensation exceeding 25% of the Player’s Compensation for such Season.
All Contracts shall specify the Season to which Deferred Compensation is attributable.
Salary Calculation
Deferred Compensation shall be included in a Player’s Salary in the Season it was earned, not in the year it was paid.
Visit the Salary page for more details on Salary calculations.
Contract Limitations
Two-Way Contracts are prohibited from including Deferred Compensation.
The “Over 38” Rule
The “Over 38” Rule is a separate type of Deferred Compensation rule applying to the calculation of a Player’s Salary.
Visit the Salary page for more details on when to apply this rule.
Dead Salary
If a Contract is terminated and includes Compensation Protection, then the Compensation remains owed to the Player as Dead Salary. There is an automatic Payment Schedule for Dead Salary discussed below called the Mandatory Stretch Provision.
Keep in mind this is when payments are made to the Player and has nothing to do with when/how the Compensation Protection affects Team Salary. Visit the Waiver page to review the Team’s ability to stretch Dead Salary for Team Salary purposes.
$500k or Less Owed
If $500,000 or less is owed in Protected Compensation, then the Player will be paid in accordance with the Payment Schedule already set forth in the Contract.
Each installment will equal the amount of Base Compensation that was due per pay period for the applicable Season immediately before termination until the aggregate amount due is paid in full.
More than $500k Owed
Current Season Paid per Terms of Contract
The Protected Compensation for the current Season (September 1st through June 30th) is paid in the same manner as above.
Remaining Seasons Paid in Equal Semi-Monthly Installments
The remaining Base Compensation is paid in equal amounts over the remaining Seasons (including any Player Option Year), plus one. If the waiver is made between September 1 and June 30, then the current Season is not included in the number of remaining Seasons.
The rescheduled payments are then paid in equal semi-monthly installments per the default payment schedule in the UPC.
This example is directly from the CBA:
Player signs a Contract with the following Protected Compensation:
Year 1 – $4 million
Year 2 – $4.3 million
Year 3 – $4.7 million
Year 4 – $5 million
The Player is waived on December 1st of Year 1. More than $500k is owed. Year 1 is the “current season” and is therefore paid per the terms of the Contract. The remaining $14 million is paid over 7 seasons (twice the remaining seasons, plus one) in equal amounts of $2 million. The payments are then made in semi-monthly installments under the default payment schedule in the UPC.