Base year compensation (BYC) prevents another salary cap loophole. Without BYC, a team over the salary cap that wants to trade a player, but can't because of the Traded Player exception (which says teams can't take back more than 125% of the salary they trade away), could just sign the player to a new contract that fits within the desired range, then do the trade. BYC says "if you re-sign a player and give him a big raise, then for a period of time his trade value will be lower than his actual salary."
BYC defines the salary that's used to compare players for compliance under the Traded Player exception (see question number
71 for more information about the Traded Player exception). Usually the salary used for comparison is the player's actual salary. But under either of the following circumstances, a different salary is used when comparing salaries for trading purposes:
- The team is over the salary cap, used the Larry Bird or Early Bird exception to re-sign the player, and the player received a raise greater than 20% (unless it's the minimum salary).
- The team is over the salary cap, it extended the player's rookie scale contract, and the player received a raise greater than 20%.
If either of the above apply, then the player is considered a base year player. A player remains a base year player for six months, or until June 30, whichever comes later. When trading a base year player, the salary used for comparison is the player's previous salary, or 50% of the first-year salary in his new contract, whichever is greater.
Here is an example of a BYC calculation: A player earned $2 million in 2004-05, after which he became a free agent. He then signs a new contract (re-signing with his previous team, which is over the salary cap) starting at $9 million. This player qualifies for BYC, so his trade value is the greater of his previous salary ($2 million) or 50% of his new salary ($4.5 million), or $4.5 million. So this player, who actually earns $9 million, is worth $4.5 million for trading purposes.
When comparing salaries for trade, teams use their own player's BYC value and the other player's full salary, even if the other player is also BYC. Here is a simple example -- two $5 million players, both of whom are re-signed (by teams over the cap) for $10 million. Both players become base year players whose base year amount is $5 million (50% of the new salary). If the teams want to trade these players for each other they compare their player's base year amount to the other player's full salary. So each team can take back a maximum of 125% plus $100,000 of their player's $5 million base year amount, or $6.35 million. They compare $6.35 million to the other player's full $10 million. $10 million is way too high, so this trade can't be done, even though the players' actual salaries match exactly.
