The New-Look NBA Mid-Level Exception and Its Impact on Roster Construction

Summary:

How did the Mid-Level Exception impact the Luka Don?i?/Anthony Davis trade this past weekend? It has to do with the Jazz using the Room Mid-Level Exception to take on salary that would have made the Lakers/Mavs trade not work with the CBA salary matching rules. Read below for more info on the Mid-Level Exception and how its new version from 2023 made this trade, and other transactions, possible.

When a team is over the Salary Cap (or is signing a player whose salary will push them over the cap) they are limited to using what are called Exceptions, as defined in the CBA. One of the most common exceptions is known as the Mid-Level Exception (MLE). There are three varieties of Mid-Level Exceptions and where a team’s Team Salary sits in relation to the Salary Cap and Tax Aprons determines which one they may use. The three kinds of Mid-Level Exceptions include the Room, Non-Taxpayer, and Taxpayer Mid-Level Exceptions. A team is limited to using one of these per year and may trigger other restrictions based on which of the Mid-Levels they use. Teams can use this exception to sign one or more players and, due to the 2023 CBA, may in some cases be able to acquire a player via trade using the Room or Non-Tax MLE.

To determine which MLE, if any, a team may use see where the Team Salary sits in relation to the Salary Cap Thresholds (see Figure 1).

Room Mid-Level Exception

Exception Limits (2024-25 Season):

• Starting Salary: $7,983,000
• Maximum Years: 3
• Annual Raise Limit: 5%

Starting with the Room MLE, if a team is under the Salary Cap ($140,588,000) by more than the Room MLE, the ability to use the exception goes away as it defeats the purpose of an exception. An exception allows a team to process roster transactions that end with a team being over the salary cap. If a team has more cap space than the amount of the exception, the exception is not needed.

When a team’s Team Salary is within $7.983M of the Salary Cap, they are able to use the Room MLE to either sign and/or acquire one or more players with a total salary up to the Room MLE limit. The ability to use this exception to acquire players via trade is new as of the 2023 CBA and allows the Room MLE to be used like a trade exception. If using the Room MLE to acquire a player, the remaining years and salary must be less than or equal to the maximum salary and years applicable to the Room MLE.

To sign a player using the Room MLE, the contract starting salary may not exceed $7,983,000 (including Unlikely Bonuses) and may have a maximum term of 3 years with a 5% increase each year. The 5% is not compounded and is based only on the year one salary ?

A team may not use the Room MLE if they have already used the NTMLE, TPMLE, or Bi-Annual Exception during the current Salary Cap Year.

Examples of using the Room MLE:

Signing: On July 7, 2024 Kelly Oubre signed a 2 year, $16.4 million contract with the 76ers, the second year being a player option. He was signed for the full Room MLE amount of $7,983,000 and was given the max 5% raise leading into year two salary of $8,382,150. The maximum years the 76ers could have singed him for was three.

Trade: This past Sunday, February 2nd, the Utah Jazz acquired Jalen Hood-Schifino via the Room MLE in the Luka Don?i?/Anthony Davis trade. As Hood-Schifino’s contract was only for one year, $3,879,840 it easily fit into the Room MLE conditions. In this article's final section I go into greater detail about how this trade was made possible by the Jazz utilizing the Room MLE.

Non-Taxpayer Mid-Level Exception

Exception Limits (2024-25 Season):

• Starting Salary: $12,822,000
• Maximum Years: 4
• Annual Raise Limit: 5%

A team has access to the Non-Taxpayer MLE (NTMLE) when they are over the cap and below the First Apron. Like the Room MLE, the NTMLE may be used to sign and/or acquire one or more players that, in the aggregate, don’t exceed the $12,822,000 limit (including Unlikely Bonuses).

If signing a player, the contract may not exceed four seasons and may have up to 5% salary increases each year. If acquiring a player via trade, the remaining salary and years on the contract must be less than or equal to the same limits as if singing a player.

By using the NTMLE a team can trigger a hard cap at the First Apron if they use more than the Taxpayer Mid-Level amount, which during the 2024-25 season is $5,168,000. A hard cap at the First Apron means that a team will not be allowed to exceed the First Apron, even if using other exceptions. Due to this restriction, for a team to use the full NTMLE they need to be below the first apron by the full amount of the NTMLE. For the 2024-25 season that means their Team Salary needs to be at or below $165,310,000 so as not to exceed the First Apron threshold of $178,132,000.

Another way a team may utilize the NTMLE is to match an Offer Sheet of their own Veteran Free Agent with one or two years of service (AKA the Arenas Provision). The Arenas Provision could see an article of its own, so for an example of how this almost impacted Austin Reaves Free Agency in 2023 read this article by Keith Smith of Spotrac. Essentially, it gives the players current team the ability to match competing offers they otherwise wouldn't be able to match.

A team may NOT use the NTMLE if they already used the Room MLE.

Examples of using the Non-Taxpayer MLE:

The Memphis Grizzlies used the NTMLE to sign two players, Scotty Pippen Jr. and Jay Huff. Both of them had their Two-Way Contracts converted to standard contracts. Pippen Jr. was signed to a 4 year, $9.6 million contract and Huff was signed to a 4 year, $10.1 million contract with both players having year four as a Team Option. The first year of Pippen Jr.'s contract is for $2,087,519 and Huff's first year is for $2,088,033 which, in the aggregate, fall within the limits of the NTMLE as the amount is able to be split among multiple players. By using the NTMLE to sign players for four seasons, the Grizzlies are hard capped at the First Apron this season.

Taxpayer Mid-Level Exception

Exception Limits (2024-25 Season):

• Starting Salary: $5,168,000
• Maximum Years: 2*
• Annual Raise Limit: 5%

*Used to be 3 years under the previous CBA?

A team can use Taxpayer MLE if the team’s Apron Team Salary immediately following their use of the TMLE is above the First Apron. The TPMLE is limited to signings only and cannot be used to acquire players via trade. The TPMLE may be used to sign one or more players to a maximum of two seasons and that, in the aggregate, don’t exceed the $5,168,000 limit (including Unlikely Bonuses).

A team may not use the Taxpayer MLE if they have already used the Room MLE in the same Salary Cap Year. By using the Taxpayer MLE, the team becomes hard capped at the Second Apron.

There is a part of the 2023 CBA that gives some flexibility to teams approaching the First Apron that use a portion of the Non-Taxpayer MLE. If a team uses the Non-Taxpayer MLE to sign (NOT acquire via trade) one or more players to contracts of one or two years, with total first-year salaries (including unlikely bonuses) not exceeding the Taxpayer MLE, the team can retroactively have these signing(s) treated as having used the Taxpayer MLE instead. This allows the team to exceed the First Apron but eliminates their ability to use the Non-Taxpayer MLE for the rest of the season. Essentially, if a team uses the Non-Taxpayer MLE in the same way you can use the Taxpayer MLE, the team can retroactively treat the transaction as if they had used the Taxpayer MLE and then be allowed to exceed the first apron since the Taxpayer MLE only triggers a Second Apron hard cap, not a First Apron hard cap.

Examples of using the Taxpayer MLE:?

Dario Saric signed a two year, $10.6 million contract with the Denver Nuggets for the full Taxpayer MLE as it started at $5,168,000 and gave a 5% raise going into year two. The Nuggets were over the First Apron after this signing and are hard capped at the Second Apron throughout the remainder of the season.

How will this impact Front Office moves??

See below two examples of transactions that were, I believe, influenced by the new Mid-Level Exception rules.

Utah Jazz – Jalen Hood-Schifino acquired via the Room MLE

While it may seem like a footnote to the massive Luka Don?i?/Anthony Davis trade, the Utah Jazz's acquisition of Hood-Schifino was crucial in making the salary-matching math work. For the Lakers, being over the First Apron meant they could not take in more salary than they sent out in a trade. To offload additional salary, a third team needed to step in—enter the Utah Jazz.

The Utah Jazz acquired Hood-Schifino via the Room MLE (see Spotrac's Keith Smith Tweet). By using a portion of the Room MLE, the Jazz acquired Hood-Schifino’s $3,879,840 contract without needing to send matching salary in return.

The Lakers used the minimum to acquire Morris, as being over the First Apron meant they could not take back more salary than they were sending out. Without Morris they lowered their overall cap hit, and then in a subsequent move acquired Morris via the minimum exception.

Washington Wizards - Richaun Holmes declines PO and signs 2 yr/$25.9M Extension

This past offseason, we saw Richaun Holmes decline a $12,876,780 Player Option for 2024-25 and proceed to sign a two-year, $25.9 million contract with the Wizards, with the following salaries:

• 2024-25: $12,648,321 (Fully Guaranteed)
• 2025-26: $13,280,737 ($250,000 Guaranteed)

Why would Holmes agree to a salary decrease in 2024-25? Why would the Wizards care about having Holmes decline his option and sign for about $225k less than his original 2024-25 salary, and then guarantee $250k of his 2025-26 salary (a net increase for Holmes of about $21k)?

In exchange for a little over $21k in additional guaranteed salary over the contract, the Wizards decreased Holmes’ 2024-25 salary to fall just under the $12,822,000 Non-Taxpayer MLE. This move increased the number of teams that would be available to acquire Holmes via trade as any team with access to their full Non-Taxpayer MLE would be able to trade for him, not just teams with sufficient cap space or players to include for salary matching purposes.

Holmes declining his player option and signing for a lower amount, as well as a potential acquisition via the NTMLE, would not have been allowed under the previous CBA. The combination of a lower salary and a new way to use the NTMLE influenced Holmes’ contract negotiations with the Wizards.

With the trade deadline this Thursday (2/6) we'll see if any other teams use their Mid-Level to make a trade and acquire players.