Hoops Rumors Glossary: Poison Pill Provision

The poison pill provision isn’t technically a term defined in the NBA’s Collective Bargaining Agreement. However, the concept of a “poison pill” has colloquially come to refer to a pair of NBA concepts.

The first of those concepts relates to the Gilbert Arenas Provision, which we’ve explained in a separate glossary entry. When a team uses the Arenas provision to sign a restricted free agent with one or two years of NBA experience to an offer sheet, that team can include a massive third-year raise that’s often referred to as a “poison pill,” since it makes it more difficult for the original team to match the offer.

The second meaning of the “poison poll” is the one that has become more common – and more frequently relevant – in recent years. It relates to players who have recently signed rookie scale extensions.

The “poison pill provision” applies when a team extends a player’s rookie scale contract, then trades him before the extension officially takes effect. It’s a rare situation, but it features its own set of rules, since extensions following rookie contracts often create a large gap between a player’s current and future salaries.

For salary-matching purposes, if a player is traded between the time his rookie contract is extended and the following July 1 (when that extension takes effect), the player’s incoming value for the receiving team is the average of his current-year salary and the annual salary in each year of his extension.

His current team, on the other hand, simply treats his current-year salary as the outgoing figure for matching purposes.

Let’s use Knicks guard Immanuel Quickley as an example. Quickley is an extension candidate and could also be a trade candidate if the right opportunity arises for New York. He’s set to earn $4,171,548 in 2023/24, the final year of his rookie scale contract.

Any extension Quickley signs before the season begins would be significantly more lucrative than his current-year salary. To illustrate our point, let’s assume he and the Knicks agree to a four-year, $110MM rookie scale extension that would begin in ’24/25.

If the Knicks decide after signing Quickley to that extension that they want to trade him, the poison pill provision would complicate their efforts.

From New York’s perspective, Quickley’s current-year cap hit ($4,171,548) would represent his outgoing salary for matching purposes. However, any team acquiring Quickley would have to view his incoming value as $22,834,310 — that’s the annual average of the five years and $114,171,548 he has left when accounting for both his current contract and his (hypothetical) new extension.

As we explain in our glossary entry on the traded player exception, NBA rules dictate that over-the-cap teams must send and receive approximately the same amount of salary in any trade. So applying the poison pill provision to a player like Quickley and creating a difference of nearly $19MM between how two trade partners account for him would make salary-matching far more difficult than usual.

The poison pill provision is one key reason why the Knicks are unlikely to extend Quickley unless they’re fairly certain they won’t use him in a blockbuster deal before the 2024 trade deadline. Without an extension in place, his current-year salary of $4,171,548 would be both his outgoing and incoming cap hit for matching purposes.

Of course, extending Quickley now would make him easier to trade in the 2024 offseason than if he were a restricted free agent. For instance, signing Tyler Herro to a rookie scale extension prior to the 2022/23 season made it extremely difficult for the Heat to trade him during the season, but makes him a prime candidate to be included in a Damian Lillard trade now — that may not have been the case if Miami had let him reach restricted free agency.

Trades involving a player who recently signed a rookie scale extension are already pretty infrequent. After all, those players are generally young, and a player who signed an extension is promising enough to have warranted a long-term investment. Those aren’t players that teams often trade. The poison poll provision further disincentivizes a deal involving one of those recently extended players by complicating salary-matching rules, making those trades that much more rare.

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.

Earlier versions of this post were published in previous years.