I need a detailed explanation of "the buyout"

[Vegas Green]

Could someone please explain how the buyout is used in trades...Everyone keeps talking about Allen getting traded then that team buying him out and he then return to the Celtics.  I somewhat understand the rule.  I know he has to sit for 30 days, but how much is the buyout usually for?  Does he sign a new contract with the C's? Seems a bit unfair, not that I am complaining in this instance, but why does the league allow it?

[xmuscularghandix]

I'll take a stab at it.


When you trade for a player because you value his expiring contract more than the actual player, it's usually for two reasons....

A) You don't require his talent because you are trying to rebuild with younger players. In this case you agree to a deal where you give him his money, maybe less than he's owed, then he can go out and try to get a job elsewhere.

B) You could use him, but because you are over the cap you buy him out thus avoiding some money in taxes. (because for every dollar your over the cap you pay another dollar towards the tax)

correct me if I'm wrong anybody.

[sk7326]

Could someone please explain how the buyout is used in trades...Everyone keeps talking about Allen getting traded then that team buying him out and he then return to the Celtics.  I somewhat understand the rule.  I know he has to sit for 30 days, but how much is the buyout usually for?  Does he sign a new contract with the C's? Seems a bit unfair, not that I am complaining in this instance, but why does the league allow it?

The buyout = the team who inherits the player owes him the prorated portion of the rest of his salary.  A team who landed him for cap relief really has no use for him. 

As of Feb 19, there will be 2 more months to go (roughly). 30 games = 37.5% of the season.  So a 16,000,000 player still has 6 million due.  If the team only wants the cap relief, they can offer the player his freedom for some negotiated number below 6 million. 

Think of it this way, the league allows those teams to cut the player outright.  But they would still owe that full salary if they cut him.  But negotiating a divorce, the team can save money.

[More Banners]

My understanding of buyouts and the tax is that team's tax figure is based on their payroll at the end of the season, so midseason trades that save a few hundred thou, like what N'Owlins did, help at the end.  If a team just waives a player with a guaranteed deal, the salary stays on their books, so the buyout is preferable to the wave.

For buyouts, a $10 million player gets bought out and the team saves whatever the player would make playing elsewhere, say the league minimum of $1 million (or prorated, whatever).  The team's number for tax purposes is $9 mil instead of 10, saving them that much in taxes in addition to the actual salary saved.

In Ray's case, though, teams may want to keep him for summertime sign-and-trades, so we shouldn't presume teams will want to buy him out.  Our other expirings would probably be strong buyout candidates.

Keep in mind teams still need to carry a minimum of 13 players, too, so they can't buy out everyone they don't want.

[droopdog7]

Not really sure about the cap implications but buyouts cam happen with any player, whether traded or not.  Players that are bought out usually have less than a year left on the deal.  Buyouts happen after the trading deadline (when they can no longer be traded) and before the deadline to be on the playoff roster (otherwise, the player to be bought out has no incentive to give up money). 

For the team, it is basically a cost saving move.  They are going nowhere and can save some money.  In these cases, players usually give up a lot less than many fans think.  For example, a player with say 15 million left on his contract might give up a million.  That's about it.  But for the team, a million is a million so there is incentive.

[rav123]

Yeah, these guys have pretty much nailed it. I'll add one thing: many times, teams will give the team taking on the expiring contract cash, as part of the trade 9they are often known as "cash considerations"), so that the receiving team can buyout the expiring player.