Especially in the Free Agency, many technical terms are used in the NBA. We explain the most important of them around the transfer phase, salary cap and contract options.
Unrestricted Free Agent becomes a player when his contract expires and there are no further options in his contract. He can then freely decide on his new team.
If a player is Restricted Free Agent, his current team can match any offer from another team, i.e. keep up with the offer of the competition. In this case, the player must stay with his previous team.
The Qualifying Offer is an option that allows the team to make its player a Restricted Free Agent. A qualifying offer must be submitted by 30 June. If the team does not do this, the player automatically becomes an unrestricted free agent.
If a team wants to sign a Restricted Free Agent of another team, they must submit an offer sheet to the player. The previous team now has seven days to match the offer.
If a contract includes a player option, the player has the option to extend his contract for another season. If the player does not drag this option, he becomes Unrestricted Free Agent.
The same applies to the team option. If this option is included in the contract, a team has the option of extending a player’s contract for another season. If the team does not remove the option, the player becomes Unrestricted Free Agent.
The early termination option is basically the opposite of the player option. It allows a player to step out of his contract and become a free agent. All options are subject to time limits.
The salary cap is the upper salary limit and determines how much a team can spend on salary in a season. However, this limit is not fixed and can be extended by many exception rules. The main aim is to ensure that teams have the opportunity to renew with their existing players, even if they exceed the salary cap as a result. The salary ceiling for the 2018/19 season will be around 101 million dollars, and 108 million the following year.
Because the salary cap is soft, it can be broken by countless exceptions. However, in order to limit this, the NBA introduced the luxury tax. A complicated formula determines how far the teams may exceed the salary ceiling without having to pay the luxury tax. Currently, there is a key that determines the tax. For the first five million dollars that a team exceeds the limit, 1.50 dollars per dollar is due to the NBA. Up to 10 million dollars it is 1.75 dollars, up to 15 million dollars 2.50 dollars and up to 20 million dollars 3.25 dollars. The deadline is the day on which the team played the last Regular Season match of the season. Since the 2014/15 season, there has been an even stricter levy that penalises repeat offenders even more. The taxes paid are distributed among the teams that did not have to pay luxury tax or are withheld as reserves.
The mid-level exception allows teams that have already exceeded the salary cap but are not yet in the luxury tax range to commit players for 8.406 million dollars in the first year of the contract. It does not matter whether the sum is only used for one free agent or for several. The contract may have a maximum term of four years.
For teams that have already exceeded the salary cap and are already in the luxury tax range, there is the possibility of signing players with a Taxpayer Mid-Level Exception. The total for the 2017/18 season was $5.192 million and can be used for either one free agent or multiple players. The contract may have a maximum term of three years.
The room exception works similar to a normal exception, but is only available for teams that have already used up their capspace. This allows teams to engage players for a smaller amount, even though they no longer have a seat under the salary cap.
As the name suggests, this exception can only be used by teams every two years. However, franchises rarely use this option, as the luxury tax limit must not be exceeded if they are used.
Teams that are above the Salary Cap may engage players for the specified minimum salary. The contract term is fixed at a maximum of two years, whereby the salary in the second year depends on the fixed minimum salary in the second season. The minimum salary is linked to the player’s NBA experience. An undrafted rookie will receive 815,615 dollars in the coming season. A veteran with at least ten years of NBA experience will receive $2.328 million.
The rule is named after the Celtics legend, as Boston was the first team allowed to extend the contract with the then superstar, although the team had thus exceeded the salary cap. A Free Agent is eligible for this exception if he has played for the same team for at least three consecutive years without being dismissed or having changed team as a Free Agent. If the player is traded to another team, his bird rights are retained. The duration of the contract may not exceed five years. Free agents who have this option are called Bird Free Agents or Qualifying Veteran Free Agents.
The early bird rule is a weakened form of the larry bird rule and allows the team to offer the player a new contract at improved conditions after only two years on the team without dismissal or change as a free agent. The new contract must have a minimum term of two years and a maximum term of four years and must be either 175 percent of the old salary or the NBA average salary, whichever is higher. Early bird rights expire when a player is traded to another team. However, in this case the player has the right to veto the trade. These players are called Early Qualifying Free Agents.
Teams often use this rule to retain their drafted players in the long term. Rookies who were drafted in the first round usually sign contracts for 4 years. After the third year, teams can then offer the designated rookie extension, which may not exceed 25 percent of the salary cap. The team cannot offer more money, but an additional fifth year.
This rule was newly anchored in the CBA in 2017. It allows teams to offer their best players significantly more money than other franchises could. Players must have played in the NBA for seven or eight years if they are eligible for the extension. He’ll have to be under contract for another year or two. However, in order to be considered a designated veteran and receive up to 35 percent of the cap, one of three criteria must apply:
It allows teams to replace an injured player. The league determines whether the DPE may be used. If it does, the franchise can get a new player for the rest of the season. The maximum salary is 50 percent of the injured player or the amount of mid-level exposure for non-tax payers. What is worth less of both is the amount a team can offer to the new player.
A trade exception occurs when a team trades a player and the player being accepted has a lower salary than the player being traded. The team now has one year to accept players in other trades with a higher salary than the given players. However, the difference must not exceed the trade exception.
Not all contracts in the NBA are guaranteed for the entire amount or term. Often teams have the opportunity to buy a player in the final year of the contract for part of his or her salary. Only this part then counts for the salary cap. The player is in this case Unrestricted Free Agent.
A 10-day contract can give teams up to twice during the season to one player. The contract is valid for three games or ten days, whichever is longer. If the team wants to keep the player after the second short-term contract, they must give him a contract for the rest of the season. 10-day contracts cannot be signed before 5 January and may only be awarded until the 80th season game or ten days before the end of the regular season.
A team can renew the contract with one player and then trade it to another team within 48 hours. If no trade is concluded within this period, the contract is invalid. A sign-and-trade contract must be at least three years long. Bird rights may not be transferred. A sign-and-trade deal makes sense if it is already clear that the player does not want to stay with his team. This way the team receives at least a “compensation” in the form of players or draft picks. The host team can also make room under the salary cap.
The Two-Way-Contract-System should enable the NBA teams to gain more control over perspective players in the development area. Up to now, the teams have been able to retain young talent in the form of a G-League contract, but this did not prevent another NBA franchise from snatching away the same player during the season without restrictions. The new system addresses precisely this problem. It allows teams to implement a one-to-one involvement of up to two players who receive an NBA contract. Instead of the usual 15 places (minimum 12) in the roster, up to 17 are possible. The additional two places can only be used by Two-Way Contracts. In the 2018/19 season, a two-way player will receive a salary of $77,250.
Every year on July 1, the Free Agency starts at midnight. From there, the teams may contact and negotiate with the free agents. However, the contracts may only be signed after the moratorium has expired. The NBA first checks the balance sheets and sets the salary cap for the coming season. This year the moratorium ends on 7 July.
The NBA (represented by the Commissioner and the 30 team owners) and the NBA Players’ Union negotiate the Collective Bargaining Agreement (CBA). There all rules concerning transfer modalities, the salary cap, the player contracts etc. are defined.
Who would like to have a deeper look into the matter, can inform himself on the following page: http://www.cbafaq.com/salarycap.htm