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The Poison Pill Misconception

With another free agency period underway, the phrase "poison pill" has popped up again in NBA discussions, but in many cases, the term is being misused or misunderstood. Here's a quick recap on what the "poison pill provision" actually refers to, how it's misinterpreted, and where it's applicable:

As outlined in Hoops Rumors' glossary, the poison pill provision is actually a concept that arises when a team decides to trade a player after signing him to a rookie-scale extension, but before that extension officially takes effect. For instance, if the Raptors had decided to trade DeMar DeRozan in a deal for Eric Bledsoe on draft night, the poison pill provision would have been in play, since DeRozan's new extension (signed last October) wasn't set to begin until July 1st.

Typically, however, the phrase "poison pill" is used to refer to a component of the Gilbert Arenas provision, which is also explained in our glossary. The Arenas provision arises when a player who has been in the league for one or two years hits restricted free agency. Because the player's current team only holds his Non-Bird or Early Bird rights, the club would typically be unable to match a big offer sheet. However, the Arenas rule limits the amount a rival suitor can offer in the first two seasons of a deal, allowing the player's current team to match an offer using the full mid-level exception or the Early Bird exception.

The catch? While a rival team's offer can't exceed the MLE amount for the first two years, a huge salary bump is permitted for the third year, as long as that rival team can fit the average annual salary of the whole offer into its cap space. This is what we saw last summer from the Rockets, when Houston took advantage of the Arenas provision to sign Jeremy Lin and Omer Asik to three-year offer sheets that the Knicks and Bulls decided not to match. Both offers included a maximum raise in year three, which was referred to as the "poison pill."

This year, however, the Arenas rule and that so-called "poison poll" are unlikely to be a factor in free agency. As our free agent tracker shows, of the 12 restricted free agents on the market this summer, only three have just one or two years of experience: Robert Sacre, Pablo Prigioni, and Chris Copeland. Of those three, Sacre and Prigioni are unlikely to get the kind of huge offers that would trigger the Arenas provision.

Could Copeland get one of those offers? It's possible, but so far, his price tag has been rumored to be in the four-year, $16MM range. Since the Knicks don't hold Copeland's Early Bird rights and don't have the full MLE available, the team won't be able to match an offer that starts at more than $3.18MM (the taxpayer MLE), making the need for a so-called third-year "poison pill" unnecessary.

Meanwhile, circling back to Lin and Asik, that third-year "poison pill" in their deals has been discussed again recently, as they've surfaced as potential trade candidates. However, once the Knicks and Bulls decided not to match their respective offer sheets, those third-year raises became less of a factor. While the duo will still be paid significantly more in 2014/15 (about $14.9MM, compared to $5.2MM in '13/14), the cap hit for each player will be the same for both seasons — about $8.37MM. So for a team acquiring either player via trade, a big third-year cap hit wouldn't be a concern.

Essentially, if you read about a poison pill offer or contract this summer, take it with a grain of salt. Neither the actual poison pill provision nor the Gilbert Arenas provision should be a real factor this July.

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