Teams receive cap relief when a player is considered to have a "bona-fide long-term injury" — injuries that cause a player to miss at least 10 games or 24 days. This is one of the most commonly misunderstood aspects of the CBA.
Just because a player is on LTIR does not automatically grant the team extra cap space. In the event a player is placed on LTIR, his cap hit still counts toward the team's overall cap payroll. Relief only comes if replacing the player's salary pushes the team's cap payroll to date over the cap. The amount of relief is limited to the amount the team has gone over the cap, not the entire amount of the injured player's salary.
There is no designation of "replacement players" and performance bonuses are not used in the calculation of LTIR relief.
To further explain this, take the concept of a bank account from 'How is cap space calculated during the season?' The team continues to spend its daily "deposit" once a player goes on LTIR, even when it calls up a replacement or multiple replacements. But any day its "payroll room" drops below zero, the team effectively receives an LTIR "credit" to cover the difference.
Example: Team A starts 2009-10 with a healthy 23-man roster. If no moves are made all season, that roster would finish the season with a final cap payroll of $56,600,000 — $200,000 below the $56,800,000 upper limit.
Take the bank account example from "How is cap space calculated during the season?" question in this FAQ. For each of the first 10 days, the team uses $293,264 of its $294,300 deposit. That adds up to $2,932,640 of the $2,943,000 that has been "deposited," meaning $10,360 is sitting in the bank for future use, if required.
* On Day 10, Player 1, with a $1,000,000 cap hit, sustains a long-term injury.
* On Day 11, Player 1 is placed on long-term injured reserve.
* On Day 11, Player 2, with a $700,000 cap hit, is recalled from the minors.
* As a result, Team A's cap payroll on Day 11 has risen to $296,890, because the daily cap hits of Player 1 and Player 2 must be included in the total.
* Although Team A only has a daily deposit of $294,300 on Day 11, it has $10,360 banked for future use, or $304,660 total.
* At the end of Day 11, Team A is left with $7,770 banked [$294,300 + $10,360 ] - $296,890. No LTIR relief is required.
* At the end of Day 12, Team A is left with $5,180 banked [$294,300 + $7,770] - $296,890. No LTIR relief is required.
* At the end of Day 13, Team A is left with $2,590 banked [$294,300 + $5,180] - $296,890. No LTIR relief is required.
* At the end of Day 14, Team A is left with no money banked [$294,300 + $2,590] - $296,890. No LTIR relief is required.
* At the end of Day 15, Team A gets its $294,300 "deposit," but has no banked money, and has a cap payroll of $296,890 that day.
* As long as the excess, $2,590 [$294,300 - $296,890], is less than Player 1's daily cap hit [$5,181], the team receives an LTIR credit. If the excess were to exceed Player 1's daily cap hit, another player would need to be placed on LTIR or Team A would need to demote a player or make another transaction to be cap compliant.
* If Player 1 stayed on LTIR all season and no other moves were made, Team A would receive LTIR relief of $2,590 per day, for each remaining day, and would finish each day, and the season, with $0 in cap space. Their LTIR credit would be $463,610 [179 x $2,590], because they only started earning LTIR credits on Day 15.
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