Buyout Market Guidelines

February 26 at 10:29am CDT By Chuck Myron

Player movement in the NBA certainly doesn’t cease following the passage of the trade deadline. This year’s robust buyout market is testament to that, with names like Danny Granger, Glen Davis, Metta World Peace, Jimmer Fredette and Ben Gordon either having already reached buyout agreements or having engaged in talks with their teams about doing so. All of it leads up to yet another deadline.

No player waived after March 1st is eligible to play for another team in the postseason. That means anyone who wants off his team must find a way to make it happen no later than Saturday. Such players can remain free agents right up until the playoffs, but as long as they’re on waivers no later than Saturday, they’re postseason-eligible. Playoff-bound teams have made late-season signings in the past, as the Spurs did with Tracy McGrady last year, though most of the notable names generally land on new teams soon after they become free agents.

When a player and a team reach a buyout agreement, it’s the player, not the team, who gives up money. It’s common for reports to suggest that Team X bought out Player Y, but such wording is inaccurate. Commonly, players agree to relinquish a portion or the entirety of whatever the team still owes them. Often, the player is a veteran on a non-contender who wants a shot at a title, like Granger and Caron Butler. Sometimes, the buyout candidate is simply dissatisfied with his playing time, like Fredette, who’s nearing release from his rookie scale contract. It’s a calculated risk, since there’s no guarantee a player can find a new team and recoup the money he’s giving up, but most of the time agents won’t push for a buyout unless they’re certain another NBA offer is forthcoming.

Teams get to deduct the amount of the buyout from their books, and removing a player who doesn’t want to be around can help locker room dynamics. Still, teams are often reluctant to give a player up, particularly when it’s someone who’s still productive, as is the case with Granger. The Sixers have reportedly held interest in seeking a sign-and-trade that would allow them to collect assets for Granger this summer, when he’d become a free agent if he plays out the rest of his contract. Philadelphia can’t sign-and-trade Granger if there’s a buyout, so that’s probably slowed negotiations. Teams and players may also haggle over the amount of the buyout, further delaying an agreement.

Another point of negotiation may be over set-off rights, which allow teams to recoup a portion of the money they owe a player when he signs his next contract. Teams can withhold the amount of the new deal a player signs minus the one-year veteran’s minimum, divided by two. So, if a team owes a player $4MM and he signs a new deal for $2MM, the set-off amount is $2MM minus $788,872, or $1,211,128, divided by two, which comes to $605,564. The team would then subtract that amount from $4MM and owe the player $3,394,436.

In this scenario, the player collects $5,394,436, which is still more than he would have received if he hadn’t found a new deal. The amount the team could collect via set-off would be higher if the player signed a new contract for $3MM, and the player would also earn more in that case. So, there’s still financial advantage for the player to seek as lucrative a deal as possible. There have been reports suggesting that a club with extra money to spend on free agents has no financial advantage when it comes to signing buyout players, on the premise that set-off rights would force those guys to forfeit whatever they get in a new deal, but that’s not accurate. A larger new contract means the old team indeed collects more, but the player collects more, too.

Of course, if a player agrees to forgo all of the money he’s owed as part of the buyout, set-off isn’t a factor, and teams can give up their set-off rights as part of the buyout agreement.

Players can re-sign with teams that they’ve just bought their way off, but it’s highly unlikely that anyone would elect to do so. It used to be fairly common for players to be traded at the deadline, buy out their contracts with their new teams, and re-sign with their original teams, but the current collective bargaining agreement curbed that practice. Once a team trades a player, it can’t re-sign him or claim him off waivers for one year or until his contract was due to expire, whichever is earlier. So, even if a team trades a player on an expiring contract, it can’t re-sign him until July.

All players who agree to a buyout must go through waivers first, and usually the buyout agreement hinges on the player clearing waivers. Should a team put in a waiver claim, that typically means the buyout is null and void, and the new team is on the hook for the player’s entire guaranteed salary. There’s no rule against a player negotiating a buyout with a team that claims him off waivers, but that would be an unusual practice, and waiver claims are rare to begin with.

Larry Coon’s Salary Cap FAQ was used in the creation of this post.

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