The NBA introduced the Gilbert Arenas provision in the 2005 Collective Bargaining Agreement as a way to help teams to keep their young restricted free agents who aren't coming off rookie scale contracts. It was named after Gilbert Arenas, an Early Bird free agent for the Warriors in 2003, who signed an offer sheet with the Wizards starting at about $8.5MM. Because Golden State could only offer Arenas a first-year salary of about $4.9MM using the Early Bird exception, the Warriors were unable to match the offer sheet and lost Arenas to Washington.
The Arenas provision limits the first-year salary that teams can offer restricted free agents who have only been in the league for one or two years. The starting salary for an offer sheet can't exceed the amount of the non-taxpayer mid-level exception, which allows the player's original team to use its MLE to match it. Otherwise, a team without the necessary cap space or exceptions would be powerless to keep its player, like the Warriors were with Arenas.
A rival offer sheet can still have an average annual salary that exceeds the non-taxpayer MLE, however. The annual raises are limited to 4.5% between years one and two, and 4.1% between years three and four, but a significant raise can be included between the second and third years of the offer. A team's cap space dictates the average annual salary limit for the entire contract, since the average salary still has to fit under the cap. Let's take a look at a practical example to see the Arenas provision in action.
Jeremy Lin will be a restricted free agent this summer, coming off his second season in the league. The Knicks will own Lin's Non-Bird rights, but the Non-Bird exception certainly won't be enough to match rival offers. Let's say a team with $7MM in cap space wanted to make Lin a four-year offer using all of its cap room. Due to the Arenas provision, an offer sheet could only start at $5MM rather than $7MM, but the overall amount of the offer could total $28MM over four years -- the deal would just have to be backloaded, as follows:
Because the first-year salary of the offer sheet doesn't exceed the non-taxpayer mid-level exception, the Knicks can use their MLE to match it, even though that big a third-year raise wouldn't typically be permitted when using the mid-level. If the Knicks chose to match the offer, their cap hit for the next four years would equal the actual salaries above; if they chose not to match, the cap hit for Lin's new team would be $7MM annually.
Of course, just because a club is given the opportunity to use the Arenas provision to keep its restricted free agent doesn't mean it will necessarily have the means. Here are a few situations in which the Arenas provision wouldn't help a team keep its restricted free agent:
In addition to Lin, Landry Fields will also be eligible for restricted free agency this summer, following his second season. If both Knicks guards sign backloaded offer sheets with rival teams, the Arenas provision would allow New York to match and keep both; the team would have to use its mid-level exception on Lin and the Early Bird exception for Fields. But doing so could be dangerous. Lin's and Fields' third-year raises would go into effect in 2014/15, a year in which the Knicks will already owe a combined $62MM+ to Carmelo Anthony, Amare Stoudemire, and Tyson Chandler.
Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.