Contract buyouts

When NBA teams sign a player, usually it is for a roster upgrade and hope it works out as the contract progresses. Sometimes, things don’t go according to plans, then team and player decide to end the partnership.

Trading is the usual pathway that makes headlines but there is also the buyout market where contending teams make moves to reinforce their rosters.

A buyout happens when a player, giving up a portion of his salary, and a team, mutually agrees to prematurely end a contract. Buyouts are situational – it can be for financial or lineup flexibility which allows a team to clear any remaining salary due to the player from their payroll thus opening more funds to acquire other players. Teams usually opt to focus more on the young talents on their roster, thus buyouts often happen to veterans with huge salaries. In the process, the bought out  player becomes a free agent.

It does not mean automatic free agency for the player as he will be placed on waivers. While on waivers, other teams then have 48 hours to submit a waiver claim on the player but if there are several teams with waiver claims, the team having the lowest standing will have the player. If unclaimed, he becomes a free agent and can sign with any team he wants to.

The difference between waiver and buyout is that when a player is waived, the team is still obligated to pay the remaining amount on the contract. If a buyout happens, the player surrenders a part of his salary and it gives teams cap relief, opens roster spots and sends veteran players to other franchises.

A buyout can be advantageous to a player if he can sign with a contending team. There are cases where players have disagreements with coaches or management and their playing times are diminished. A change in scenery will be beneficial to get back their minutes.

The amount that the player agrees to forfeit will be deducted from his salary cap hit. Klay Thompson agreed to leave behind almost $10 million of his original salary to finalize the contract buyout from Dallas, which in turn gave the Mavericks roster and financial flexibility. For the upcoming season, he was supposed to be paid $17+ million by the Mavs but forfeited a significant amount to join Miami for a 2-year, $11.5 million deal.

Unlike trades, there are no deadlines for buyouts but there are deadlines for players to participate in the playoffs.  To be cleared for the playoffs, a player’s contract must be bought out before the March 1deadline. A player can play in the regular season but not in the playoffs if buyouts happen after the deadline.