Setoff Adjustment

Setoff Adjustment is the reduction in a player’s guaranteed salary due to rules of setoff (which may come into play after the player is waived).

When a team terminates a player’s contract (normally through the waiver procedure), but still owes that player protected compensation and the player goes on to sign another contract to play professional basketball, the team may choose to set-off a portion of the amount the new team pays the player against the unpaid protected compensation the team still owes them.

There are three key points about a team’s right of set-off. First, if a team chooses to exercise this right, the team’s Team Salary for Salary Cap purposes is reduced and (somewhat cruelly, depending on your perspective) the amount of money the team actually pays the player is reduced. Second, teams can elect to use their set-off rights when a player signs with an NBA team, with a team in a foreign basketball league, or even in the G league. Third, players and teams can agree to modify the set-off right or eliminate it altogether.

As a practical matter, the relative amount of savings (from the team’s perspective) that the set-off achieves is only significant for Salary Cap purposes. The set-off amount is calculated by taking the total compensation the player will earn from the subsequent team and subtracting from that an amount equal to the annual minimum player salary for a player with 0 years of service (if the player had 0 years of service at the time their contract was terminated) or 1 years of service (if the player had 1 or more years of service at the time their contract was terminated). If this results in a negative number, then the team has no set-off rights. But if the result is a positive number, then the team’s liability to the waived player is reduced by 50% of that positive number.