Hoops Rumors Glossary

Hoops Rumors Glossary: Qualifying Offers

Players eligible for restricted free agency don’t become restricted free agents by default. In order to make a player a restricted free agent, a team must extend a qualifying offer to him — a player who doesn’t receive one becomes an unrestricted free agent instead.

The qualifying offer, which is essentially just a one-year contract offer, varies in amount depending on a player’s service time and previous contract status.

If a player reaches free agency with three or fewer years of NBA service time under his belt, his qualifying offer is worth 125% of his prior salary, or his minimum salary plus $200K, whichever is greater.

For instance, after earning $1,416,852 this season, Grizzlies guard De’Anthony Melton will be eligible for a qualifying offer worth a projected $1,907,576 this offseason, based on a $115MM cap — that’s calculated by adding $200,000 to his projected minimum salary for 2020/21 ($1,707,576).

The exact value of Melton’s qualifying offer will depend on where exactly the ’20/21 salary cap ends up, since minimum salary increase or decrease at the same rate as the cap. If the cap drops significantly, it’s possible he’d instead receive a QO worth $1,771,065 (125% of his previous salary).

Bogdan Bogdanovic is one example of a player whose qualifying offer will be 125% of his previous salary no matter where the cap lands. Bogdanovic is earning $8,529,386 in 2019/20, far above the minimum, so the Kings guard will receive a qualifying offer worth 125% of that figure: $10,661,733.

The qualifying offer for a former first-round pick coming off his rookie scale contract is determined by his draft position. The qualifying offer for a first overall pick is 130% of his fourth-year salary, while for a 30th overall pick it’s 150% of his previous salary — QOs for the rest of the first-rounders fall somewhere in between. The full first-round scale for the draft class of 2016, whose first-rounders will be hitting free agency this summer, can be found here, courtesy of RealGM.

Here are a pair of examples for this offseason: 2016’s second overall pick, Pelicans forward Brandon Ingram, is coming off a fourth-year salary of $7,265,485, so he must be extended a qualifying offer of $9,481,458 (a 30.5% increase) to become a restricted free agent. Meanwhile, the 19th overall pick, Timberwolves guard Malik Beasley, will be eligible for a qualifying offer of $3,895,424, a 42.6% increase on this season’s $2,731,714 salary.

A wrinkle in the Collective Bargaining Agreement complicates matters for some RFAs-to-be, since a player’s previous usage can impact the amount of his qualifying offer. Certain players who meet – or fail to meet – the “starter criteria,” which we break down in a separate glossary entry, become eligible for higher or lower qualifying offers. Here’s how the starter criteria affects QOs:

  • A top-14 pick who does not meet the starter criteria will receive a same qualifying offer equal to 120% of the amount applicable to the 15th overall pick.
    • Note: For the summer of 2020, the value of this QO will be $4,642,800.
  • A player picked between 10th and 30th who meets the starter criteria will receive a qualifying offer equal to 120% of the amount applicable to the ninth overall pick.
    • Note: For the summer of 2020, the value of this QO will be $5,087,871.
  • A second-round pick or undrafted player who meets the starter criteria will receive a qualifying offer equal to 100% of the amount applicable to the 21st overall pick.
    • Note: For the summer of 2020, the value of this QO will be $3,752,338.

Spurs big man Jakob Poeltl is one example of a player who falls into the first group, since he didn’t meet the starter criteria this year. The No. 9 overall pick in 2016, Poeltl will be eligible this offseason for a QO worth $4,642,800 instead of $5,087,871. Conversely, Suns forward Dario Saric (a former No. 12 overall pick) met the starter criteria and will be eligible for a QO worth $5,087,871 instead of $4,791,213.

A qualifying offer is designed to give a player’s team the right of first refusal. Because the qualifying offer acts as the first formal contract offer a free agent receives, his team then receives the option to match any offer sheet the player signs with another club.

A player can also accept his qualifying offer, if he so chooses. He then plays the following season on a one-year contract worth the amount of the QO, and becomes an unrestricted free agent at season’s end if he has at least four years of NBA experience. A player can go this route if he wants to hit unrestricted free agency as early as possible, or if he feels like the QO is the best offer he’ll receive. Accepting the qualifying offer also gives a player the right to veto trades for the season.

No restricted free agents accepted their qualifying offers during the 2019 offseason, but Rodney Hood did so with the Cavaliers in 2018. When Cleveland agreed to send him to the Trail Blazers prior to the 2019 trade deadline, Hood had to give his consent to be dealt, which he did.

Finally, while the details outlined above apply to players on standard NBA contracts who are eligible for restricted free agency, a different set of rules applies to players coming off two-way contracts. For most of those players, the qualifying offer would be equivalent to a one-year, two-way salary, with $50K guaranteed.

If a player coming off a two-way contract is ineligible to sign another one – either because he’s coming off a two-year, two-way deal, he has already been on two-way deals with his current team for at least two seasons, or he has four years of NBA service – his qualifying offer would be a standard, minimum-salary NBA contract. The guarantee on that QO would have to match or exceed what a two-way player would earn in the G League.

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 and salary information from Basketball Insiders was used in the creation of this post.

Earlier versions of this post were published in previous years. Photo courtesy of USA Today Sports Images.

Hoops Rumors Glossary: Maximum Salary

There are many NBA players technically on maximum salary contracts, but most of those players aren’t earning identical salaries this season, making the league’s “maximum salary” something of a misnomer. While each NBA player has a maximum salary that he can earn in a given season, that number varies from player to player, with a handful of factors playing a part in determining the exact figure.

The primary factor in determining a player’s maximum salary is his years of service. If a player has been in the NBA for no more than six years, he can earn up to 25% of the salary cap in the first year of his deal. Players with seven to nine years of experience can earn up to 30%, while veterans with 10 or more years in the NBA are eligible for up to 35% of the cap. In 2019/20, the salary cap is $109,140,000, meaning the maximum salaries are as follows:

Years in NBA Salary
0-6 $27,285,000
7-9 $32,742,000
10+ $38,199,000

The figures above help explain why nine-year veteran Kemba Walker, who signed a maximum salary contract as part of a sign-and-trade to the Celtics last July, is earning a salary of $32,742,000 this season. But they don’t explain why Lakers star Anthony Davis, who is also in that 7-9 year window and is on a max contract of his own, is earning just $27,093,018.

The reason Davis’ maximum salary is a few million shy of Walker’s is that those league-wide maximum salary figures only apply to the first year of a multiyear contract. When a player signs a maximum contract, he can receive annual raises of up to either 8% or 5%, depending on whether he signs with his previous team or a new team. So by the third, fourth, or fifth year of his contract, he could be earning significantly more or less than the updated max for that season.

Davis signed his maximum salary contract extension in 2015 and it went into effect in 2016/17, when he had fewer than six years of NBA experience. Although he has received annual 8% raises since then, those raises haven’t been enough to keep up with the annual cap growth and with his move into the 7-9 year window. As a result, he’s earning about $5.65MM less than his actual max in 2019/20, despite being on a “max contract.”

Davis will get to start over on a new max deal in ’20/21, assuming he turns down his player option this offseason. If he wants to maximize his earnings going forward, he’ll likely opt for a shorter-term deal that gives him the opportunity to sign a new contract in 2022 when he gains 10 years of NBA experience and qualifies for a starting salary of up to 35% of the cap.

Here are a couple more ways a player’s usual maximum salary can fluctuate:

  • A free agent’s maximum salary is always at least 105% of his previous salary. For example, Warriors star Stephen Curry is earning $40,231,758 this season. He’s under contract for two more years after 2019/20, but if he were eligible for free agency this offseason, he’d be able to sign for a starting salary of up to $42,243,346 (105% of this year’s salary), even if that figure exceeds 35% of the 2020/21 cap.
  • In certain situations, players eligible for new contracts can earn the maximum salary for the level above the one they’d typically fall into. For instance, a player receiving a designated rookie extension can earn up to 30% of the cap instead of 25% if he meets certain criteria. A veteran can become eligible to earn up to 35% of the cap instead of 30% if he meets the same criteria, which are related to MVP, Defensive Player of the Year, or All-NBA honors.

A player who signs a maximum salary contract can receive a trade kicker as part of his deal, but he can’t cash in on that bonus for any amount beyond his maximum salary in a given league year. For instance, Karl-Anthony Towns‘ max salary contract with the Timberwolves features a 5% trade kicker, but if he had been traded this season, he wouldn’t have been eligible to receive that bonus, since he’s already earning his maximum salary of $27,285,000.

Similarly, a maximum salary player whose team finishes the season below the minimum salary floor isn’t eligible to receive a share when the team distributes that money to its players, since his max salary for that year can’t be exceeded.

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 previously published by Luke Adams and Chuck Myron. Photo courtesy of USA Today Sports Images.

Hoops Rumors Glossary: Bi-Annual Exception

The most common tool over-the-cap teams use to sign free agents from other teams is the mid-level exception, but that’s not the only exception those clubs have to squeeze an extra player onto the payroll. The bi-annual exception is a way for a team to sign a player who may command more than the minimum salary, but less than the mid-level.

As its name suggests, the bi-annual exception can only be used every other season. Even if a team uses only a portion of the exception, it’s off-limits during the following league year.

During the 2019/20 league year, four teams – the Bucks, Pelicans, Knicks, and Spurs – were ineligible to use the bi-annual exception at all, since they used it in 2018/19. Four teams have used the BAE this season, with the Mavericks signing Boban Marjanovic, the Pistons signing Markieff Morris, the Grizzlies signing Marko Guduric, and the Raptors signing Stanley Johnson. Those four clubs won’t have the exception at their disposal during the 2020/21 league year.

The bi-annual exception is available only to a limited number of clubs, even among those that didn’t use the exception during the previous season. Teams that create and use cap space forfeit the BAE, along with all but the smallest version of the mid-level (the room exception). Additionally, teams lose access to the bi-annual exception when they go over the “tax apron,” a figure approximately $6MM+ above the tax line. So, only teams over the cap and under the tax apron can use the BAE.

If a team uses all or part of the bi-annual exception, the tax apron becomes the club’s hard cap for that season. Teams that sign a player using the BAE can later go under the cap, but can’t go over the tax apron at any time during the season once the contract is signed.

[RELATED: NBA Teams With Hard Caps For 2019/20]

The bi-annual exception allowed for a starting salary of up to $3,623,000 in 2019/20. Under the NBA’s previous Collective Bargaining Agreement, the value of each season’s bi-annual exception was determined in advance. However, under the current CBA, the value of the BAE in future league years is tied to salary cap increases or decreases. If the cap goes up by 5%, the value of the bi-annual exception will also increase by 5%.

A player who signs a contract using the bi-annual exception is eligible for a one- or two-year deal, with a raise of 5% for the second season. For players who signed using the BAE in 2019/20, the maximum value of a two-year contract was $7,427,150. Teams also have the option of splitting the bi-annual exception among multiple players, though that happens much less frequently than it does with the mid-level exception, since a split bi-annual deal may not even be worth more than a veteran’s minimum salary.

The bi-annual exception starts to prorate on January 10, decreasing in value by 1/177th each day until the end of the regular season.

When the NBA went on hiatus last month, several teams remained eligible to use the bi-annual exception in 2019/20. However, it seems extremely unlikely that any will actually do so, even if the league is able to resume its season later in the spring. Assuming those BAEs go unused, they’ll be available to those teams in 2020/21.

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 by Luke Adams and Chuck Myron. Photo courtesy of USA Today Sports Images.

Hoops Rumors Glossary: Mid-Level Exception

The mid-level exception is the most common way for over-the-cap NBA teams to sign free agents from other clubs for more than the minimum salary. It ensures that each team heads into the offseason with a little spending flexibility, even if that franchise is deep into luxury-tax territory.

Each team is eligible to use a specific type of mid-level exception depending on its proximity to the salary cap. The most lucrative form of mid-level is available to teams that are over the cap but below the tax apron. Still, clubs deep into the tax, and even those under the cap, have access to lesser versions of the MLE. Here’s a breakdown of how all three forms of the exception are structured:

For over-the-cap teams:

  • Commonly called either the full mid-level exception, the non-taxpayer’s mid-level exception or simply the mid-level exception.
  • Contract can cover up to four seasons.
  • First-year salary is worth $9,258,000 in 2019/20.
  • Once used, the team cannot surpass the “tax apron” (approximately $6MM+ above tax line) for the remainder of the season.

For teams above the cap and the tax apron:

  • Commonly called the taxpayer’s mid-level exception.
  • Contract can cover up to three seasons.
  • First-year salary is worth $5,718,000 in 2019/20.

For teams with cap room:

  • Commonly called the room exception.
  • Contract can cover no more than two seasons.
  • First-year salary is worth $4,767,000 in 2019/20.

Each form of the mid-level allows for annual raises of up to 5% of the value of the first season’s salary. Last offseason, we broke down the maximum total salaries that players signed using the mid-level exception in ’19/20 could earn. Those numbers can be found right here.

While teams can use their entire mid-level exception to sign one player, as the Magic did this season with Al-Farouq Aminu, clubs are also allowed to split the mid-level among multiple players, and that’s a common course of action. For instance, the Raptors have used their MLE to complete four separate signings, devoting parts of it to Patrick McCaw, Rondae Hollis-Jefferson, Matt Thomas, and Dewan Hernandez)

Players drafted in the second round often sign contracts for part of the mid-level because it allows teams to give them contracts for more years and more money than the minimum salary exception provides. For example, the Mavericks used their mid-level to sign Isaiah Roby to a four-year contract that starts at $1,500,000.

Without the MLE, the Mavs would have been limited to a two-year deal starting at $898,310 for Roby, who was later traded to Oklahoma City. Plus, if Roby plays out his full four-year contract, he’ll have full Bird rights rather than just the Early Bird rights he’d have following a two-year deal.

Some front offices prefer to leave all or part of their mid-level exception unused in the offseason so it’s still available near the end of the regular season. At that point, a contender could use its MLE to try to sign an impact veteran on the buyout market.

A non-contending club, on the other hand, could use its MLE to lock up an intriguing developmental player to a long-term contract, like the Heat did at the end of the 2018/19 campaign with Duncan Robinson and Kendrick Nunn. Both players, who signed in the season’s final week, would be restricted free agents in 2020 if Miami had used the minimum salary exception to sign them to two-year contracts instead of using the MLE to negotiate three-year deals.

Unlike the bi-annual exception, the mid-level exception can be used every season. So whether or not a team has used its mid-level in 2019/20, each club will have the opportunity to use some form of the MLE when the 2020/21 league year begins.

Under the old Collective Bargaining Agreement, the mid-level exception increased annually at a modest, fixed rate. However, under the current CBA, the mid-level increases – or decreases – at the same rate as the salary cap, ensuring that its value relative to cap room remains about the same from year to year. We estimated 2020/21’s MLE figures in February, based on the NBA’s $115MM salary cap projection, but that projection is now very much up in the air due to the coronavirus pandemic.

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 and the Basketball Insiders salary pages were used in the creation of this post.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron. Photo courtesy of USA Today Sports Images.

Hoops Rumors Glossary: Cap Holds

The Lakers only have about $68MM in guaranteed money committed to player salaries for 2020/21, per Basketball Insiders. However, that doesn’t mean the team will begin the 2020 offseason with tens of millions in cap room to spend, even if the five veterans who hold player options turn them down.

In fact, the Lakers won’t open the new league year with any cap space at all. Each of Los Angeles’ own free agents will be assigned a free agent amount – or “cap hold” – until the player signs a new contract or the Lakers renounce his rights.

The general purpose of a cap hold is to prevent teams from using room under the cap to sign free agents before using Bird rights to re-sign their own free agents. If a team wants to take advantage of its cap space, it can renounce the rights to its own free agents, eliminating those cap holds. However, doing so means the team will no longer hold any form of Bird rights for those players — if the team wants to re-sign those free agents, it would have to use its cap room or another kind of cap exception.

The following criteria are used for determining the amount of a free agent’s cap hold:

  • First-round pick coming off rookie contract: 300% of the player’s previous salary if prior salary was below league average; 250% of previous salary if prior salary was above league average.
  • Bird player: 190% of previous salary (if below league average) or 150% (if above average).
  • Early Bird player: 130% of previous salary.
  • Non-Bird player: 120% of previous salary.
  • Minimum-salary player: Two-year veteran’s minimum salary, unless the free agent only has one year of experience, in which case it’s the one-year veteran’s minimum.
  • Two-way player: One-year veteran’s minimum salary.

A cap hold for a restricted free agent can vary based on his contract status. A restricted free agent’s cap hold is either his free agent amount as determined by the criteria mentioned above, or the amount of his qualifying offer, whichever is greater.

No cap hold can exceed the maximum salary for which a player can sign. For instance, the cap hold for a Bird player with a salary above the league average is generally 150% of his previous salary, as noted above. But for someone like Anthony Davis, who is earning $27,093,018 this season, 150% of his previous salary would be over $40MM, well beyond the projected maximum salary threshold.

Davis’ cap hold – assuming he turns down his 2020/21 player option – will be equivalent to the maximum salary for a player with between 7-9 years of NBA experience. That figure was projected to be $34.5MM based on a $115MM salary cap, but it won’t be that high if lost revenue further reduces the projected ’20/21 cap.

One unusual case involves players on rookie contracts whose third- or fourth-year options are declined, such as Harry Giles, who had his fourth-year option for ’20/21 turned down by Sacramento. Because they declined that option, the Kings wouldn’t be able to pay Giles a starting salary higher than what he would have earned in the option year ($3,976,510).

That rule is in place so a team can’t circumvent the rookie scale and decline its option in an effort to give the player a higher salary — the rule applies even if the player is traded, so if a team had acquired Giles before this year’s deadline, that team would have faced the same limit. Rather than coming in at 300% of this year’s salary (as would be the case with most players coming off rookie scale contracts) or at 190%, (the usual figure for unrestricted free agents with Bird rights), Giles’ 2020 cap hold will equal the amount of his option: $3,976,510.

If a team holds the rights to fewer than 12 players, cap holds worth the rookie minimum salary are assigned to fill out the roster. So, even if a front office chooses to renounce its rights to all of its free agents and doesn’t have any players under contract, the team wouldn’t be able to fully clear its cap. In 2019/20, an incomplete roster charge was worth $898,310, meaning a team with 12 of those charges would have had nearly $11MM on its cap even before adding any players.

Cap holds aren’t removed from a team’s books until the player signs a new contract or has his rights renounced by the club. For example, the Warriors are still carrying cap holds on their books for retired players David West and Matt Barnes, who never signed new contracts since playing for Golden State. Keeping those cap holds allows teams some degree of cushion to help them remain above the cap and take advantage of the mid-level exception and trade exceptions, among other advantages afforded capped-out teams.

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 and the Basketball Insiders salary pages were used in the creation of this post.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron. Photo courtesy of USA Today Sports Images.

Hoops Rumors Glossary: Non-Bird Rights

Players and teams have to meet certain criteria to earn Bird rights and Early Bird rights, but Non-Bird rights are practically a given. They apply to a player who has spent a single season or less with his team, as long as he finishes the season on an NBA roster. Even a player who signs on the last day of the regular season and spends just one day with his club would have Non-Bird rights in the offseason.

Teams can also claim Non-Bird rights on Early Bird free agents if they renounce them. The primary motivator to do so would be to allow the team to sign the free agent to a one-year contract, a move that’s not permitted via Early Bird rights.

Teams are eligible to sign their own free agents using the Non-Bird exception for a salary starting at 120% of the player’s previous salary, 120% of the minimum salary, or the amount of a qualifying offer (if the player is a restricted free agent), whichever is greatest. Contracts can be for up to four years, with 5% annual raises.

The cap hold for a Non-Bird player is 120% of his previous salary, unless the previous salary was the minimum. In that case, the cap hold is equivalent to the two-year veteran’s minimum salary. If a Non-Bird free agent only has one year of NBA experience, his cap hold is equivalent to the one-year veteran’s minimum salary.

The salary limitations that apply to Non-Bird rights are more severe than those pertaining to Bird rights or Early Bird rights, so in many cases, the Non-Bird exception may not be enough to retain a well-regarded free agent. For instance, the Bucks held Brook Lopez‘s Non-Bird rights last summer, but were unable to realistically use them to re-sign the free agent center.

Because Lopez’s 2018/19 salary was only $3,382,000, the club’s ability to offer a raise using the Non-Bird exception was extremely limited — 120% of Lopez’s previous salary worked out to just $4,058,400, which wouldn’t have been a competitive starting point for an offer.

In order to bring back Lopez, who ultimately signed a new four-year, $52MM deal with Milwaukee, the team had to use cap room or another exception. The Bucks ended up making a series of moves that allowed them to carve out the cap space necessary to pay Lopez $13MM annually.

Holding Non-Bird rights on a free agent didn’t really help the Bucks in that scenario, but there are cases in which the exception proves useful. For instance, the Clippers will only have Non-Bird rights on Marcus Morris this offseason, but because his ’19/20 salary is $15MM, Los Angeles would be able to offer a starting salary worth up to $18MM. That should give the club plenty of flexibility to re-sign Morris without using cap room or another exception, if there’s mutual interest in a new deal.

Although no contracts signed during the 2019 offseason fit the bill, Luke Kornet‘s 2018 contract with the Knicks provides an example of a team using Non-Bird rights on a minimum salary player. Kornet, whose minimum salary would have been $1,349,383 in ’18/19, was eligible to sign for up to 120% of that amount via the Non-Bird exception. As such, his one-year deal with New York was worth $1,619,260.

Finally, it’s worth noting that a player who re-signs with his previous team on a one-year deal and will have Early Bird or Bird rights at the end of that contract would surrender those rights if he consents to a trade. In that scenario, he’d only finish the season with Non-Bird rights.

This happened to Rodney Hood in 2019, when he agreed to a trade that sent him from Cleveland to Portland. Because he lost his Bird rights by consenting to the deal, Hood only had Non-Bird rights during the 2019 offseason, so the Trail Blazers had to use their taxpayer mid-level exception to re-sign him.

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 by Luke Adams and Chuck Myron. Photo courtesy of USA Today Sports Images.

Hoops Rumors Glossary: Early Bird Rights

Bird rights offer teams the chance to sign their own free agents without regard to the salary cap, but they don’t apply to every player. Other salary cap exceptions are available for teams to keep players who don’t qualify for Bird rights. One such exception is the Early Bird, which applies to players formally known as Early Qualifying Veteran Free Agents.

While the Bird exception is for players who have spent three seasons with one club without changing teams as a free agent, Early Bird rights are earned after just two such seasons. Virtually all of the same rules that apply to Bird rights apply to Early Bird rights, with the requirements condensed to two years rather than three. Players still see their Bird clocks restart by changing teams via free agency, being claimed in an expansion draft, or having their rights renounced.

As is the case with Bird rights, a player’s clock stops when he’s released by a team and clears waivers, but it would pick up where it left off if he re-signs with that same team down the road without joining another club in the interim. For instance, if DeMarcus Cousins – released by the Lakers last month before the end of his one-year contract – were to sign a new one-year deal with L.A. during the 2020 offseason, the team would have his Early Bird rights in the 2021 offseason.

The crucial difference between Bird rights and Early Bird rights involves the limitations on contract offers. Bird players can receive maximum-salary deals for up to five years, while the most a team can offer an Early Bird free agent without using cap space is 175% of his previous salary (up to the max) or 105% of the league-average salary in the previous season, whichever is greater. These offers are also capped at four years rather than five, and the new contracts must run for at least two years (with no second-year options).

Christian Wood (Pistons), De’Anthony Melton (Grizzlies), Nerlens Noel (Thunder), and Brad Wanamaker (Celtics) are among the free agents who will have Early Bird rights at the end of the 2019/20 season.

In some instances, teams can benefit from having Early Bird rights instead of full Bird rights if they’re trying to preserve cap space. The cap hold for an Early Bird player is 130% of his previous salary, significantly less than most Bird players, whose cap holds range from 150-300% of their previous salaries.

That could help a team like the Pistons, who project to have cap space in the 2020 offseason. The cap hold for Wood, who is earning a minimum salary this season, will be worth the ’20/21 minimum, but the big man will be in line for a much more lucrative salary than that. If the Pistons reach an agreement to re-sign Wood near the start of free agency, they could wait to make it official, keeping his cap hold on the books until they use the rest of their cap room, maximizing that space. Then they could go over the cap to finalize Wood’s deal using the Early Bird exception.

Meanwhile, some players with limited NBA experience are subject to a special wrinkle involving Early Bird rights, called the Gilbert Arenas Provision, which applies to players who have only been in the league for one or two years. We cover the Gilbert Arenas Provision in a separate glossary entry, so you can read up on the details there. It would apply this offseason to a player like Melton.

Finally, one more distinction between Bird rights and Early Bird rights applies to waivers. Players who are claimed off waivers retain their Early Bird rights, just as they would if they were traded. Those who had Bird rights instead see those reduced to Early Bird rights if they’re claimed off waivers. This rule stems from a 2012 settlement between the league and the union in which J.J. Hickson was given a special exception and retained his full Bird rights for the summer of 2012 even though he had been claimed off waivers that March.

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 and salary information from Basketball Insiders was used in the creation of this post.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron. Photo courtesy of USA Today Sports Images.

Hoops Rumors Glossary: Bird Rights

The Bird exception, named after Larry Bird, is a rule included in the NBA’s Collective Bargaining Agreement that allows teams to go over the salary cap to re-sign their own players. A player who qualifies for the Bird exception, formally referred to as a Qualifying Veteran Free Agent, is said to have “Bird rights.”

The most basic way for a player to earn Bird rights is to play for the same team for at least three seasons, either on a multiyear deal or separate one-year contracts. Still, there are other criteria. A player retains his Bird rights in the following scenarios:

  1. He changes teams via trade. For instance, the Cavaliers would hold Andre Drummond‘s Bird rights if he opts for free agency this offseason, despite just acquiring him in February. His Bird clock didn’t reset when he was traded from the Pistons to Cleveland.
  2. He finishes a third season with a team after having only signed for a partial season with the club in the first year. Patrick McCaw finished the 2018/19 season on a contract with the Raptors, then re-signed with Toronto on a two-year deal in the summer of 2019. When that contract expires, McCaw will have full Bird rights because of the partial season he spent with the Raptors last year, which started his Bird clock.
  3. He signed for a full season in year one or two but the team waived him, he cleared waivers, and didn’t sign with another team before re-signing with the club and remaining under contract through a third season. This one’s a little confusing, but let’s use DeMarcus Cousins as an example. Partway through his one-year contract with the Lakers, Cousins was waived last month and has yet to join a new team. If the Lakers were to re-sign Cousins to a two-year contract in the offseason, without him joining a new team in the interim, they’d have his full Bird rights at the end of that deal.

A player sees the clock on his Bird rights reset to zero in the following scenarios:

  1. He changes teams via free agency.
  2. He is waived and is not claimed on waivers (except as in scenario No. 3 above).
  3. His rights are renounced by his team. However, his Bird clock resumes where it left off if he re-signs with that team without having signed with another NBA team. For example, Mike Scott had his rights renounced by the Sixers last July, as Philadelphia attempted to gain cap flexibility. Scott eventually signed a new two-year deal with the 76ers and will have full Bird rights at the end of it.
  4. He is selected in an expansion draft.

If a player who would have been in line for Bird rights at the end of the season is waived and claimed off waivers, he would retain only Early Bird rights. Meanwhile, a player with Bird rights who re-signs with his previous team on a one-year contract (or a one-year deal with a second-year option) would lose his Bird rights if he’s traded. As such, he receives the ability to veto trades so he can avoid that scenario.

[RELATED: Players with the ability to veto trades in 2019/20]

When a player earns Bird rights, he’s eligible to re-sign with his team on a maximum-salary contract for up to five years with 8% annual raises when he becomes a free agent, regardless of how much cap room the team has. The maximum salary will vary for each player depending on how long he has been in the league, but regardless of the amount, a team can exceed the salary cap to complete the deal.

A team with a Bird free agent is assigned a “free agent amount” or cap hold worth either 190% of his previous salary (for a player with a below-average salary) or 150% of his previous salary (for an above-average salary), up to the maximum salary amount. For players coming off rookie scale contracts, the amounts of those cap holds are 300% and 250%, respectively.

The Pelicans, for instance, will have a cap hold worth $21,796,456 for Brandon Ingram on their 2020/21 books — 300% of his $7,265,485 salary for 2019/20. New Orleans could renounce Ingram and clear an extra $21MM+ in cap space, but the Pelicans would lose the ability to re-sign him using Bird rights in that scenario, which would force them to use either cap room or a different cap exception to re-sign him. As such, the club figures to keep that cap hold on its books until Ingram is officially re-signed.

Ultimately, the Bird exception was designed to allow teams to keep their best players. The CBA ensures that teams are always able to re-sign them to contracts up to the maximum salary, assuming the player is interested in returning and his team is willing to go over the cap.

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 and salary information from Basketball Insiders was used in the creation of this post.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron. Photo courtesy of USA Today Sports Images.

Hoops Rumors Glossary: Luxury Tax Penalties

Although some NBA teams can become hard-capped during a given league year if they use specific exceptions or make certain transactions, the NBA doesn’t have a set hard cap for all teams. In addition to its soft cap though, the league does have a luxury tax threshold, which serves to discourage excessive spending. When a team’s total salary ends up over that line at season’s end, the NBA charges a tax for every extra dollar the club spends.

[RELATED: Recent History of NBA Taxpaying Teams]

The formula to determine the luxury tax line is a complicated one, related to the NBA’s projected basketball related income (BRI) and projected benefits. Generally though, it comes in around 20-22% above the salary cap line. For instance, in 2019/20, the league’s salary cap is set at $109,140,000, while the luxury tax threshold is at $132,627,000. So any team whose total ’19/20 salary exceeds $132,627,000 on the last day of the regular season is subject to a tax bill.

The NBA’s luxury tax system is set up so that the penalties become more punitive if teams go further beyond the tax line. Here’s what those penalties look like:

  • $0-5MM above tax line: $1.50 per dollar (up to $7.5MM).
  • $5-10MM above tax line: $1.75 per dollar (up to $8.75MM).
  • $10-15MM above tax line: $2.50 per dollar (up to $12.5MM).
  • $15-20MM above tax line: $3.25 per dollar (up to $16.25MM).
  • For every additional $5MM above tax line beyond $20MM, rates increase by $0.50 per dollar.
    • Note: This would mean $3.75 for $20-25MM, $4.25 for $25-30MM, etc.

For instance, if a team is over the tax by $12MM, its tax bill would be $21.25MM: $7.5MM for the first $5MM over the tax, $8.75MM for the $5-10MM bracket, then $5MM for the final increment in the $10-15MM bracket.

While those are the rates that apply to most taxpayers, including the Trail Blazers, Heat, and Timberwolves this season, a team can become subject to a “repeater” penalty if it paid the tax in three of the previous four seasons. This scenario currently applies to Oklahoma City — the Thunder were a taxpaying club in 2016, 2018, and 2019, which means they’ll be a repeat offender this season. Here are the penalties that apply to repeat taxpayers:

  • $0-5MM above tax line: $2.50 per dollar (up to $12.5MM).
  • $5-10MM above tax line: $2.75 per dollar (up to $13.75MM).
  • $10-15MM above tax line: $3.50 per dollar (up to $17.5MM).
  • $15-20MM above tax line: $4.25 per dollar (up to $21.25MM).
  • For every additional $5MM above tax line beyond $20MM, rates increase by $0.50 per dollar
    • Note: This would mean $4.75 for $20-25MM, $5.25 for $25-30MM, etc.

If the hypothetical team we described in our first example, over the tax by $12MM, was a repeat taxpayer, its bill would increase to $33.25MM.

Generally speaking, luxury tax penalties are calculated by determining a team’s total cap hits at the end of the regular season. So a team that starts the year above the tax line could get under it before the end of the season by completing trades or buyouts. The Warriors did just that in February, slipping below the luxury tax threshold by completing a series of trades that reduced their overall team salary.

[RELATED: Projected Taxpaying Teams For 2019/20]

However, team salary for tax purposes is calculated slightly differently than it is for cap purposes. Here are a few of the adjustments made at season’s end before a team’s tax bill is calculated:

  • Cap holds and exceptions are ignored.
  • “Likely” bonuses that weren’t earned are removed from team salary; “unlikely” bonuses that were earned are added to team salary.
  • If a player with a trade bonus is acquired after the final regular season game, that trade bonus is added to team salary.
  • If a player with 0-1 years of NBA experience signed a minimum-salary free agent contract, the minimum-salary cap charge for a two-year veteran is used in place of that player’s cap charge.
    • Note: This only applies to free agents, not drafted players. For example, Raptors rookies Dewan Hernandez (second-round pick) and Terence Davis (UDFA) are each earning $898,310 in 2019/20. Hernandez would count for $898,310 for tax purposes, while Davis would count for $1,620,564.

So let’s say that five teams finish the season owing a total of $50MM in taxes. Where does that money go? Currently, the NBA splits it 50/50 — half of it is used for “league purposes,” while the other half is distributed to non-taxpaying teams in equal shares. In that scenario, the 25 non-taxpaying teams would receive $1MM apiece.

As cap expert Larry Coon explains in his CBA FAQ, “league purposes” essentially covers any purpose the NBA deems appropriate, including giving the money back to teams. In recent years, the NBA has used that money as a funding source for its revenue sharing program. Coon also notes that the CBA technically allows up to 50% of tax money to be distributed to non-taxpaying teams, but there’s no obligation for that to happen — in other words, the NBA could decide to use 100% of the tax money for “league purposes.”

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 was published in 2012 and 2018.

Hoops Rumors Glossary: Minimum Salary Exception

The minimum salary exception is something of a last resort for capped-out teams looking to add players, as well as for players seeking NBA contracts, but it’s one of the most commonly used cap exceptions. It allows an over-the-cap team to sign a player to a one- or two-year minimum-salary deal, as its name suggests.

Teams can use the exception multiple times in a league year, giving clubs that have used all of their cap room and other exceptions an avenue to fill out their rosters. The exception also accommodates teams’ acquisitions of minimum-salary players via trade, as players signed via the minimum salary exception don’t count as incoming salary for salary-matching purposes.

Players are entitled to varying minimum salaries based on how long they’ve been in the NBA. In 2019/20, a player with no prior NBA experience was eligible for a $898,310 minimum salary, while a player with 10 or more years of experience was eligible for $2,564,753.

[RELATED: NBA Minimum Salaries For 2019/20]

Over the course of the current Collective Bargaining Agreement, the minimum salary will be adjusted each season to reflect the year-to-year salary cap change. For instance, if the cap increases by 5%, so will minimum salaries.

There’s a wide disparity between the minimum salary for rookies and for long-tenured players, with a minimum-salary veteran of 10+ seasons earning nearly three times as much as a rookie making the minimum next season. The NBA doesn’t want those pricier deals to discourage clubs from signing veterans, however, so the league reimburses teams for a portion of a minimum-salary player’s cost if he has three or more years of experience, as long as the contract is a one-year deal.

For example, when the Lakers signed 15-year veteran Dwight Howard to a one-year pact for 2019/20 using the minimum salary exception, the contract called for a salary of $2,564,753, but the team’s cap hit was just $1,620,564. The league would reimburse the Lakers for the remaining $944,189 at season’s end.

Most salary cap exceptions can only be used once each season. For example, when a team uses its full mid-level exception to sign one or more players, the club can no longer use that exception until the following season. Unlike the mid-level and other cap exceptions though, the minimum salary exception can be used any number of times in a single season. The Lakers, for instance, used the minimum salary exception to sign Jared Dudley and Troy Daniels in addition to Howard.

While many exceptions begin to prorate on January 10, the minimum salary exception prorates from the first day of the regular season. The season is typically 177 days long, so if a player signs after 28 days have passed, he would only be paid for 149 days.

That’s what happened this season with Carmelo Anthony, who joined the Trail Blazers via the minimum salary exception on November 19, the 29th day of the regular season, making his salary and cap hit 149/177ths of their usual amounts. Instead of a $1,620,564 cap charge for Portland, Anthony’s cap charge is $1,364,204. His salary is $2,159,029 instead of $2,564,753.

Here are a few more notes on the minimum salary exception:

  • Players signed using the minimum salary exception are eligible for trade bonuses, but not incentive bonuses. A minimum-salary player with a trade bonus cannot be acquired in a trade using the minimum salary exception unless he waives that bonus.
  • A minimum-salary player also can’t be acquired in a trade using the minimum salary exception if his contract is for more than two years or if his salary exceeded the minimum in any previous year of the contract.
  • When a minimum-salary player is traded during the season, any reimbursement from the NBA is split between his two teams. It’s prorated based on the number of days he spends with each club.
  • If a minimum-salary player with a non-guaranteed salary is waived before he exceeds the minimum for a two-year veteran, his team won’t be reimbursed for any portion of his salary.
  • Virtually every 10-day contract is for the minimum salary — often the minimum salary exception is the only way for clubs to accommodate any 10-day deals. The NBA also reimburses teams for a portion of the 10-day minimum salary for veterans with three or more years of experience. We have more details here.

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 and the Basketball Insiders salary pages were used in the creation of this post.

Earlier versions of this post were published in previous years by Luke Adams and Chuck Myron. Photo courtesy of USA Today Sports Images.