What rules apply to contract variability and what's the 100 percent rule?
Under the collective bargaining agreement struck in 2013, new contract variability rules came into play for front-loaded contracts.
For front-loaded contracts where the average of salary plus bonuses over the first half of the contract exceeds the cap hit, variability rules apply. Year-to-year variability is limited to 35 per cent of the first-year compensation. If a player earns $10M in Year 1, the contract cannot subsequently increase/decrease by more than $3.5M from year to year. Meanwhile, the lowest year’s compensation cannot be less than 50 per cent of the highest year’s compensation. If a player earns $10M in his highest year, he can never earn less than $5M any other year.
The 2005 CBA's 100 per cent rule, outlined as follows, applies to any other multi-year contract.
The difference between player salary and bonuses in each of the first two years of a contract cannot exceed the amount of the lower of the two league years. In all subsequent years, increases in player salary and bonuses from one year to another cannot exceed the amount of the lower of the first two years of the contract and decreases from one year to another may not exceed 50 percent of the lower of the first two years of the contract.
It is important to note this does not mean decrease in salary is limited to 50 percent of the prior year's salary. It's 50 percent of the lower of the first two years of the contract.
100 PER CENT RULE EXAMPLES (min <> max listed for Year 3)
Example 1 Year 1: $2,000,000 Year 2: $4,000,000 Year 3: $3,000,000 <> $6,000,000 Example 2 Year 1: $1,000,000 Year 2: $2,000,000 Year 3: $1,500,000 <> $3,000,000 Example 3 Year 1: $1,000,000 Year 2: $1,000,000 Year 3: $500,000 <> $2,000,000 Example 4 Year 1: $750,000 Year 2: $1,100,000 Year 3: $725,000 <> $1,850,000 Example 5 Year 1: $2,500,000 Year 2: $1,500,000 Year 3: $750,000 <> $3,000,000
CBA reference: 50.7 (P. 282-284)