The poison pill provision is a rule that arises if 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 discrepancy between a player's current and future salary.
For salary purposes, if a player is traded between extending his rookie contract and the extension taking effect, the player's trade value for the receiving team is the average of his current salary and the annual salary in each year of his extension.
For instance, let's pretend the Timberwolves wanted to trade Kevin Love on draft night — an unlikely scenario, of course, but Love's an example of a player who extended his rookie scale contract earlier this year. Love's 2011/12 salary was about $4.61MM, while his four-year extension will be worth the maximum salary. The max salary figures for Love currently look like this:
Love's $62.11MM total divided by five years gives him an average annual salary of about $12.42MM. So if the T-Wolves were to trade him, the outgoing salary for their purposes would be his current salary ($4.61MM), but for the receiving team, it would be $12.42MM.
Trades in which the poison pill provision arises are extremely rare. Generally, young players who have just received extensions from their teams aren't trade candidates, and even if they are, the difference in incoming and outgoing salaries make it difficult to work out a deal. But if you see what appears to be some odd salary-matching in a trade involving a recently-extended player, now you know why.
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.