Hoops Rumors Glossary

The NBA’s rookie scale, which determines how much first round picks earn during their first four NBA seasons, also dictates how much the qualifying offers will be worth for those players once they’re eligible for restricted free agency after year four. However, the value of those qualifying offers can fluctuate depending on whether or not a player has met the “starter criteria.”

Here’s how the starter criteria works:

A player who is eligible for restricted free agency is considered to have met the starter criteria if he plays at least 2,000 minutes or starts 41 games in the season before he reaches free agency.

A player can also meet the criteria if he averages either of those marks in the two seasons prior to his restricted free agency. For instance, if a player started 50 games in 2018/19 and 32 in 2019/20, he’d meet the starter criteria, since his average number of starts over the last two seasons is 41.

A player’s ability or inability to meet the starter criteria impacts the value of the qualifying offer he receives as a restricted free agent, as follows:

• A top-14 pick who does not meet the starter criteria will receive a qualifying offer equal to the amount the 15th overall pick would receive if he signed for 120% of the rookie scale.
  • Note: For the summer of 2020, the value of this QO will be $4,642,800.
  • Example: Spurs center Jakob Poeltl (2016’s No. 9 overall pick) won’t meet the starter criteria this season. As a result, he’ll be eligible for a QO worth $4,642,800 instead of $5,087,871.
    
• A player picked between 10th and 30th who meets the criteria will receive a qualifying offer equal to the amount the ninth overall pick would receive if he signed for 120% of the rookie scale.
  • Note: For the summer of 2020, the value of this QO will be $5,087,871.
  • Example: Suns forward Dario Saric (2014’s No. 12 overall pick, who signed his rookie scale contract in 2016) met the starter criteria by starting at least 41 games this season. As a result, he’ll be eligible for a QO worth $5,087,871 instead of $4,791,213.
• A second-round pick or undrafted player who meets the criteria will receive a qualifying offer equal to the amount the 21st overall pick would receive if he signed for 100% of the rookie scale.
  • Note: For the summer of 2020, the value of this QO will be $3,126,948.
    
  • Example: No second-round pick or undrafted player who can be an RFA this summer has met the starter criteria yet. In theory, players like Nuggets wing Torrey Craig (19 starts) and Pelicans forward Kenrich Williams (18 starts) could still get there.
• For all other RFAs, the standard criteria determine the amounts of their qualifying offers.

Extending a qualifying offer to a player who is eligible for restricted free agency officially makes that player an RFA, ensuring that his team has the right of first refusal if he signs an offer sheet with another club. It also gives the player the option of signing that one-year QO.

Generally, the value of a restricted free agent’s qualifying offer isn’t hugely important, since very few RFAs accept those offers outright. There are exceptions though.

During the 2018 offseason, for instance, Rodney Hood accepted his qualifying offer, which was worth $3,472,888. Hood was nagged by injuries during the two seasons prior to his restricted free agency and was limited to just 119 total games, including 78 starts. If he had started four more games during that two-year stretch, he would have met the starter criteria and bumped the value of his QO up to $4,749,591, which could have changed the way his free agency played out.

We’ll revisit the starter criteria at season’s end to see which potential restricted free agents will have their qualifying offers impacted by meeting – or failing to meet – the starter criteria. So far, of this year’s RFAs-to-be, only Saric and Brandon Ingram have met it.

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

An earlier version of this post was published in 2019 by Luke Adams.

Photo courtesy of USA Today Sports Images.

Once the NBA trade deadline passes, the league’s buyout season begins. What exactly are buyouts, and how do they work? Today’s Hoops Rumors glossary entry will examine those questions. Let’s dive in…

What is a buyout?

While the term “buyout” is often applied colloquially when any veteran is released after the trade deadline, it applies specifically to a player who gives up a portion of his salary to accommodate his release. Rather than waiving a player outright, a team will negotiate the terms of the player’s release. Then, once the player clears waivers, his guaranteed salary with his previous team will be reduced or eliminated altogether.

So far this season, we’ve seen Hornets forwards Michael Kidd-Gilchrist and Marvin Williams agree to buyouts. Those two veterans each surrendered between $800K and $1MM to Charlotte in order to reach free agency.

What’s the motivation for a buyout?

The most common form of buyout involves a veteran player on a non-contending team being granted his release during the final year of his contract to join a playoff club down the stretch. It typically happens after the trade deadline because by that point there’s no other way for a player to change teams.

Kidd-Gilchrist and Williams fit this bill. The 18-36 Hornets aren’t going to make the playoffs and are focused on developing their young players. Buyouts for Kidd-Gilchrist and Williams gave those two players the opportunity to join the Mavericks and Bucks, respectively — now they’re both headed to the postseason.

For the player, the motivating factor is generally the desire to play for a winning team. In their buyouts with Charlotte, Kidd-Gilchrist and Williams gave up roughly the amount of money they’ll make on their new prorated minimum-salary contracts, so they won’t come out ahead financially — they’ll just get a chance to play in the postseason before returning to free agency in the summer.

As for the team, there’s little downside to letting a veteran go, since the player is usually in the final year of his contract and the club completing the buyout is rarely in contention for a playoff spot. Buying out that veteran can save the team some money, earn some goodwill with a player and an agent, and open up minutes for a younger player to take over.

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While relying on ESPN.com’s Trade Machine may be the simplest way for NBA fans to verify whether or not a trade will work under league rules, it’s worth examining the primary tool in the NBA’s Collective Bargaining Agreement that determines a trade’s viability — the traded player exception.

Teams with the cap room necessary to make a trade work don’t need to abide by the traded player exception rules. However, if a team makes a deal that will leave its total salary more than $100K above the salary cap, the club can use a traded player exception to ensure the trade is legal under CBA guidelines.

There are two different types of traded player exceptions used in NBA deals. One applies to simultaneous trades, while the other applies to non-simultaneous deals. In a simultaneous trade, a team can send out one or more players and can acquire more salary than it gives up. In a non-simultaneous trade, only a single player can be dealt, and the team has a year to take back the equivalent of that player’s salary, plus $100K.

Let’s look into each scenario in greater detail….

Simultaneous:

In a simultaneous trade, different rules applies to taxpaying and non-taxpaying clubs. A non-taxpaying team can trade one or more players and take back….

• 175% of the outgoing salary (plus $100K), for any amount up to $6,533,333.
• The outgoing salary plus $5MM, for any amount between $6,533,333 and $19,600,000.
• 125% of the outgoing salary (plus $100K), for any amount above $19,600,000.

Here’s a recent example of these rules in effect:

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While a rule like the Gilbert Arenas provision can flatter its namesake, the late Ted Stepien, former owner of the Cavaliers, may have preferred not to go down in history as the reference point for the Ted Stepien rule. Stepien owned the Cavs in the early 1980s, and made a number of trades that left the franchise without first-round picks for several years. As a result, the NBA eventually instituted a rule that prohibited teams from trading out of the first round for consecutive future seasons.

Because the Stepien rule applies only to future draft picks, teams are still permitted to trade their first-rounders each year if they so choose, but they can’t trade out of the first round for back-to-back future drafts.

For instance, since the Nuggets have traded their 2020 first-round pick to Oklahoma City, they aren’t currently permitted to trade their 2021 first-rounder. Following the 2020 draft, the Nuggets would regain the right to trade that 2021 first-round pick, since their ’20 first-rounder will no longer be considered a future pick.

The Stepien rule does allow a team to trade consecutive future first-round picks if the team has acquired a separate first-rounder from another team for either of those years. So if Denver were to trade for another team’s 2020 first-rounder, that would give the Nuggets the flexibility to move their 2021 pick without having to wait until after the 2020 draft.

Teams are permitted to include protection on draft picks. This can create complications related to the Stepien rule, which prevents teams from trading a first-round pick if there’s any chance at all that it will leave a team without a first-rounder for two straight years.

For example, the Jazz have traded a protected 2020 first-round pick to Memphis — it will only convey if it falls in the 8-14 range. That traded 2020 pick is protected all the way through 2024, and as long as there’s still a chance it won’t convey immediately, the Jazz are prevented from unconditionally trading any of their next few first-round picks.

Utah could trade a conditional 2022 first-round pick, but a team acquiring that pick would have to accept that it would be pushed back one year every time the pick Utah has traded to Memphis doesn’t convey.

[RELATED: Traded first round picks for 2020 NBA draft]

Teams will have to take the Stepien rule into account at this season’s trade deadline as they mull including draft picks in deals. Dallas, for instance, is one of the teams most significantly impacted by the rule at the moment. The Mavericks have committed their 2021 and 2023 first-round picks to New York, limiting their ability to move any other first-rounders up until at least 2025. Additionally, since the 2023 pick has protections, that 2025 first-rounder could only be traded conditionally.

Here are a few more rules related to trading draft picks:

• The “Seven Year Rule” prohibits teams from trading draft picks more than seven years in advance. For instance, during the 2019/20 season, a 2026 draft pick can be traded, but a 2027 pick cannot be dealt.
• The Seven Year Rule applies to protections on picks as well. If a team wants to trade a lottery-protected 2026 first-rounder at this year’s deadline, it can’t roll those protections over to 2027. For example, when the Rockets sent the Thunder a top-four protected 2026 first-round pick in the Russell Westbrook trade, they agreed that if the pick falls within that protected range, Oklahoma City would instead receive Houston’s ’26 second-round selection — picks in 2027 and beyond were off-limits.
• A team can add protection to a pick it has acquired as long as there wasn’t already protection on the pick. For instance, the Knicks currently control the Mavericks‘ unprotected 2021 first-round pick. If New York wants to include that selection in a trade, the team could put, say, top-three protection on it.
• For salary-matching purposes, a traded draft pick counts as $0 until the player signs a contract.

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 version of this post were published in 2012, 2018, and 2019 by Luke Adams.

An NBA team that want to re-sign a player before he reaches free agency can do so, but only at certain times and if his contract meets specific criteria.

Rookie scale extensions, which can be completed for former first-round picks between the third and fourth years of their rookie scale contracts, have typically been the most common form of extension. But in its 2017 Collective Bargaining Agreement, the NBA relaxed its criteria for veteran extensions, resulting in an increase in those deals in recent years.

[RELATED: 2019/20 NBA Contract Extension Tracker]

A veteran extension is any contract extension that tacks additional years onto a contract that wasn’t a rookie scale deal. Even if the player is still on his first NBA contract, he can technically receive a veteran extension if he was initially signed as a second-round pick or an undrafted free agent rather than via the league’s rookie scale for first-rounders.

Here’s a full breakdown of how players become eligible to sign veteran extensions, and the limits that come along with them:

When can a player sign a veteran contract extension?

A team that wants to sign a player to a veteran extension wouldn’t be able to simply complete that extension one year after the initial contract was signed. The team must wait a specified period of time before the player becomes extension-eligible, as follows:

• If the player initially signed a three- or four-year contract: Second anniversary of signing date.
  • Note: The second anniversary date also applies if the player previously signed an extension that lengthened his contract to three or four total seasons.
• If the player initially signed a five- or six-year contract: Third anniversary of signing date.
  • Note: The third anniversary date also applies if the player previously signed an extension that lengthened his contract to five or six total seasons.
• If the player previously renegotiated his contract and increased his salary by more than 10%: Third anniversary of renegotiation date.

This set of rules explains why Joe Ingles, who received a four-year contract with the Jazz on July 21, 2017 became extension-eligible this past offseason, on the second anniversary of signing that deal. He took advantage of his new extension eligibility by tacking on an extra year to his current contract. If Ingles had signed a five-year contract in July 2017, he wouldn’t have become extension-eligible until July 2020.

Ingles signed a one-year extension when he had two years remaining on his contract. Because he still had multiple years left on his deal, he was only eligible to sign an extension up until the last day before the 2019/20 regular season began. A player with one year left on his contract remains eligible to sign an extension all the way up until June 30, the day before he reaches free agency.

In other words, if Ingles hadn’t signed his extension in September, he would’ve become ineligible to sign one as of the first day of the ’19/20 regular season. His eligibility window would’ve opened again during the 2020 offseason and would’ve extended all the way through June 30, 2021.

How many years can a player receive on a veteran extension?

A veteran extension can be for up to five years, including the year(s) remaining on the previous contract. The current league year always counts as one of those five years, even if an extension is agreed to as late as June 30.

For instance, when CJ McCollum signed an extension earlier this season with the Trail Blazers, he had two years left on his current contract, which ran through 2020/21. He added three extra years via the extension, maxing out at five years overall.

If a player signs a “designated” veteran extension, he can receive more than just five total years, as we cover in a separate glossary entry.

How much money can a player receive on a veteran extension?

The first-year salary in a veteran extension can be worth up to 120% of the salary in the final year of the player’s previous contract or 120% of the NBA’s estimated average salary, whichever is greater. Annual raises are limited to 8% of the first-year extension salary.

For instance, Draymond Green signed an extension with the Warriors earlier this season, adding four extra years to the one year and $18,539,130 remaining on his previous deal. Because that $18.5MM+ figure greatly exceeds the estimated average salary, Green was eligible to earn up to 120% of his final-year salary in the first year of his extension. As such, his next contract will begin with a salary of $22,246,956, with 8% annual raises from there.

Spencer Dinwiddie, on the other hand, was only on a minimum-salary deal when he signed an extension with the Nets a year ago. A 20% raise on that amount wouldn’t have been worth Dinwiddie’s while, but he was eligible to receive 120% of the NBA’s estimated average salary, which was $8,838,000 in 2018/19. As a result, Dinwiddie’s three-year extension with Brooklyn began this season at $10,605,600.

In 2019/20, the NBA’s estimated average salary is $9,560,000, so an extension-eligible player earning less than that amount – such as Kings swingman Bogdan Bogdanovic – would be able to sign an extension with a starting salary of up to $11,472,000.

A contract extension can’t exceed the maximum salary that a player is eligible to earn, so there are some instances in which a player won’t be able to get a full 20% raise on a new extension. For example, Stephen Curry will become eligible to sign a new contract next July, but his final-year cap hit is $45,780,966. A full 120% raise on that figure would be $54,937,159, which will certainly exceed his maximum possible salary for 2022/23. If Curry were to sign a maximum-salary extension, his salaries on that new deal would be amended downward once that season’s max salaries were defined.

Designated veteran extensions and renegotiated contracts have slightly different rules for salaries and raises than standard veteran extensions. You can read about those differences in our glossary entries on those subjects.

Can a player sign a veteran extension as part of a trade?

The NBA’s Collective Bargaining Agreement does allow for extend-and-trade transactions, but the rules governing them are more limiting than for standard veteran extensions.

A player eligible for an extension can sign one in conjunction with a trade, but he would be limited to three overall years and a starting salary worth 105% of the final-year salary on his previous deal. Subsequent annual raises are limited to 5% as well.

A player who receives an extension that exceeds those extend-and-trade limits becomes ineligible to be traded for six months. That’s why players like Bradley Beal, Eric Gordon, and Cedi Osman can’t be traded before the 2020 deadline. Conversely, a player who is involved in a trade becomes ineligible to sign an extension for six months if the extension would exceed the extend-and-trade limits.

Kyle Lowry‘s one-year extension with the Raptors is worth just $30,500,000, which is less than his $34,996,296 cap hit for 2019/20. That deal didn’t exceed the extend-and-trade limits, so Lowry doesn’t face any trade restrictions this season, though Toronto is unlikely to move him.

An extension-eligible player can’t be extended-and-traded after the season if there’s a chance he could become a free agent that July. That rule applies to both veterans on expiring contracts and veterans with team or player options that have yet to be exercised.

What are the other rules related to veteran extensions?

There are many more minor rules and guidelines related to veteran extensions, including several involving bonuses and option years. A full breakdown can be found in Larry Coon’s CBA FAQ, but here are some of the notable ones most likely to come into play:

• A contract with an option can be extended if the player opts in or the team picks up the option.
• A contract with an option can also be extended if the option is declined, as long as the extension adds at least two new years to the deal and the first-year salary isn’t worth less than the option would have been. The only exception to this rule involves an early termination option — a contract with an ETO can’t be extended if the ETO is exercised, ending the contract early.
• A newly-signed extension can contain a player or team option, but not an early termination option.
• If a contract contains incentive bonuses, a veteran extension must contain the same bonuses. The bonus amounts can be increased or decreased by up to 8%, but they must still be part of the deal. An extension also can’t contain bonuses that weren’t part of the original contract.
• If a contract includes an unearned trade bonus, it doesn’t necessarily have to be applied to the extension. If the team and player elect not to carry over the trade bonus to the extension and the player is dealt before the extension takes effect, the application of the bonus would ignore the extension.

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

Photos courtesy of USA Today Sports Images.

Throughout the offseason and preseason, NBA teams are permitted to carry 20 players, but that total must be cut down to 15 (plus a pair of two-way players) in advance of opening night. However, up to four players waived by a team prior to the season can be designated as “affiliate players” and assigned to that team’s G League squad.

The players have a say in this decision. If they’d prefer to sign with a team overseas, or if they get an opportunity with another NBA club, they’re under no obligation to become affiliate players. But if the player’s NBA team has designated him as an affiliate player and he signs a G League contract, he is automatically assigned to that team’s NBAGL roster.

Since most NBA and international teams aren’t looking to bring in extra players by late October, the opportunity to continue playing in the same system appeals to many of those preseason cuts — especially since many of them will be in line for bonuses worth up to $50K after having signed Exhibit 10 contracts. Plus, they’ll continue to be NBA free agents while they play in the G League.

There are a few other rules related to G League affiliate players. A player whose returning rights are held by a G League team can’t become an affiliate player for another club, which is why undrafted rookies typically make up a substantial portion of the annual league-wide list of affiliate players.

Additionally, an affiliate player must have signed with his team during the current league year, which explains why we often see players signed and quickly waived in the days leading up to the regular season. He also can’t have had a partial guarantee worth more than $50K on his standard contract — a larger guarantee would make him ineligible to join his club’s NBAGL affiliate for the rest of that league year.

Finally, not every NBA team has a G League affiliate, so there are two teams – the Nuggets and Trail Blazers – with no place to send affiliate players.

In 2018/19, a total of 26 NBA teams designated 77 affiliate players. That number could easily be matched or exceeded this season.

An earlier version of this post was published in 2015 by Chuck Myron. Photo courtesy of USA Today Sports Images.

When a star player like Zion Williamson enters the NBA, his new team – in this case, the Pelicans – can rest assured that there will be little to no chance of him holding out for a larger contract. That’s because a first-round NBA draft pick is only eligible to sign a rookie scale contract, which limits his leverage and ensures that his draft slot will dictate how much he gets paid.

A rookie scale contract for first-rounders is always for two guaranteed seasons, with team options for the third and fourth seasons of the deal. The scale amount is strictly set by draft position for the first three years of the contract, with the amount of the fourth year determined by a percentage raise on the third-year salary, as RealGM’s rookie scale chart for 2019 picks shows.

Players are eligible to sign for as little as 80% or as much as 120% of the scale amount, though almost every player signs for the full 120%. Cavaliers first-round pick Kevin Porter Jr. became the first player in several years to sign for just 80% of his rookie scale amount this year, and even that rate only applies to his rookie season — he’ll get the full 120% in years two through four.

[RELATED: Rookie Scale Salaries For 2019 First-Round Picks]

Under the NBA’s current Collective Bargaining Agreement, the rookie scale will eventually increase annually at the same rate as the salary cap. In that scenario, a 5% salary cap increase would mean a 5% increase to rookie scale salaries.

However, the league has been gradually phasing in a 45% overall increase to rookie salaries over the last three seasons (15% per year), complicating that formula. For instance, while the cap only increased by about 7.1% from 2018/19 to 2019/20, the rookie scale amounts for each pick increased by approximately 19.5%.

For the 2019/20 season, the first-year rookie scale amount for the first overall pick is $8,131,200. That number increases to $8,537,900 in year two and $8,944,500 in year three, with a 26.1% raise for year four and a 30% raise for a fifth-year qualifying offer. Williamson signed with the Pelicans for 120% of that amount, meaning his contract looks like this:

• Team option in green
• Qualifying offer in blue

The scale amounts and fourth- and fifth-year raises vary depending on draft position. Top picks earn the highest salaries, while late first-round picks get the most substantial bumps at the end of their contracts. For instance, the 30th overall pick gets an 80.5% raise between years three and four, with a qualifying offer increase of 50%.

Here are several more details relating to rookie scale contracts:

• Only first-round picks are eligible for rookie scale contracts. Second-rounders must be signed using cap room or exceptions.
• A team does not have to be under the cap to sign rookie scale contracts. Any team can give a first-rounder a full 120% rookie contract, regardless of its cap status.
• Because 120% contracts are so common, the cap hold for a first-round pick is also 120% of the player’s rookie scale amount.
• If a player hasn’t signed by January 10, his rookie scale amount becomes prorated each day for the remainder of the season until he signs.
• Teams have until October 31 each year to make decisions on the team-option seasons in rookie scale contracts. By October 31, 2019, teams will have to decide on the options for the 2020/21 season.
• Players coming off rookie-scale contracts may be eligible for larger or smaller qualifying offers in their fifth year, based on whether or not they meet the “starter criteria.” I explained this in greater detail here.
• If a team signs a first-round pick within three years of drafting him, the rookie scale for the year in which he signs is used. For instance, the Sixers acquired 12th overall pick Dario Saric in a draft-night deal in 2014. When Saric arrived stateside two years later, he signed a contract based on the rookie scale salary for the No. 12 pick in 2016.

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.

An earlier version of this post was published in 2012. Photo courtesy of USA Today Sports Images.

After the NBA’s biggest-name free agents come off the board, many teams shift their focus to filling out their training-camp rosters. Teams can only carry 15 players on NBA contracts (plus two on two-way deals) during the regular season, but their maximum roster size increases to 20 players in the offseason, allowing clubs to bring a few extra players to camp to audition for a place on the regular-season roster or a spot on the team’s G League affiliate.

Many of those players will sign a contract with an Exhibit 10 clause. Introduced in the NBA’s most recent Collective Bargaining Agreement, Exhibit 10 contracts are one-year deals worth the minimum salary. They don’t come with any compensation protection, but can include an optional bonus ranging from $5K to $50K.

Let’s say an undrafted rookie signs an Exhibit 10 contract with the Knicks that includes a $50K bonus. He attends camp with the Knicks, but is waived before the regular season begins, with New York designating him an affiliate player in order to retain his G League rights. In that scenario, if the rookie elects to play in the G League for the Westchester Knicks and remains with the club for 60 days, he’d be entitled to his full $50K bonus.

The player wouldn’t receive that bonus if he opts to sign with a team overseas after being waived by the Knicks. Essentially, the Exhibit 10 bonus serves as an incentive for players to stick with their team’s G League affiliate — they must spend at least 60 days with the NBAGL club in order to get their bonus.

There’s another scenario in which that undrafted rookie who signs an Exhibit 10 deal with the Knicks would receive his $50K. Exhibit 10 contracts can be converted into two-way contracts, so if New York opted to do that before the season begins, the $50K bonus would turn into a salary guarantee for the player. As soon as his contract becomes a two-way deal, he’s entitled to that bonus, even if the Knicks waive him a week later.

Only teams with a G League affiliate can include an Exhibit 10 bonus in a contract. In 2019/20, the Pelicans will become the 28th NBA team with its own affiliate, leaving only the Trail Blazers and Nuggets on the outside looking in. Those clubs could technically sign players to Exhibit 10 deals, but wouldn’t be able to include bonus money.

The Heat have been one of the most active teams so far this offseason when it comes to signing Exhibit 10 contracts. Jeremiah Martin, Chris Silva, and Kyle Alexander have all received those deals, which benefit Miami in one important way — they don’t count against team salary during the offseason. That’s crucial for the hard-capped Heat, who are less than $1MM away from the tax apron and otherwise wouldn’t be able to add free agents to their roster without shedding salary elsewhere.

Here are a few more notes relating to Exhibit 10 contracts:

• A team can’t carry more than six Exhibit 10 contracts at a time.
• An Exhibit 10 contract can only be converted to a two-way deal before the regular season begins.
• An Exhibit 10 contract that gets converted to a two-way deal can later be converted into a standard NBA contract.
• An Exhibit 10 bonus earned by a player who ends up in the G League or on a two-way contract isn’t counted toward the NBA team’s total salary.

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.

An earlier version of this post was published in 2018.

As Larry Coon explains in his invaluable CBA FAQ, the term “base year compensation” technically no longer shows up in the NBA’s Collective Bargaining Agreement, and hasn’t since 2011. A relic of past agreements, the base year compensation rule was intended to prevent teams from signing free agents to new contracts that were specifically intended to facilitate salary-matching in trades.

While the base year compensation rules have mostly been adjusted and/or removed from the CBA in recent years, there’s still one situation where they apply. Teams have to take them into account when completing sign-and-trade deals.

The BYC rules apply to a player who meets the following criteria in a sign-and-trade:

• He is a Bird or Early Bird free agent.
• His new salary is worth more than the minimum.
• He receives a raise greater than 20%.
• His team is at or above the cap immediately after the signing.

If the player meets those criteria and is included in a sign-and-trade deal, his outgoing salary for matching purposes is considered to be his previous salary or 50% of his new salary, whichever is greater. For the team he is being signed-and-traded to, his incoming figure for matching purposes is his full new salary.

Here’s a specific example to help make things a little clearer: Let’s say the Celtics want to sign-and-trade Kyrie Irving this offseason. He’s a Bird free agent, his new salary will be well above the minimum, and the Celtics project to be an over-the-cap team. Having made $20,099,189 in 2018/19, Irving will also receive a raise significantly higher than 20% if he inks a maximum salary contract, which is projected to start at $32,700,000. So he meets the BYC criteria.

In that scenario, Irving’s salary for matching purposes from the Celtics’ perspective would be $20,099,189, since his previous salary is greater than 50% of his new salary. From his new team’s perspective, Irving’s incoming figure would be his actual salary, $32,700,000.

Typically, a team acquiring a player via sign-and-trade doesn’t have the cap room to sign the player outright, or else there would be little need to negotiate a sign-and-trade. That means salary matching is often required, and is complicated by base year compensation rules.

In this example, the Celtics wouldn’t be able to take back more than $25,223,986 in exchange for Irving, due to the league’s salary-matching rules. However, in order to take on $32,700,000 in salary, Boston’s trade partner would have to send out at least $26,080,000 in order to account for those salary-matching rules themselves. The discrepancy between those two figures would complicate sign-and-trade talks, likely requiring both teams to include additional pieces to make the deal work.

The base year compensation concept doesn’t surface frequently, as there have only been four sign-and-trades completed around the NBA in the last four offseasons. However, it looms large over most sign-and-trade attempts, reducing the likelihood of teams finding a deal that can be legally completed.

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.

While a rule like the Gilbert Arenas provision can flatter its namesake, the late Ted Stepien, former owner of the Cavaliers, may have preferred not to go down in history as the reference point for the Ted Stepien rule. Stepien owned the Cavs in the early 1980s, and made a number of trades that left the franchise without first-round picks for several years. As a result, the NBA eventually instituted a rule that prohibited teams from trading out of the first round for consecutive future seasons.

Because the Stepien rule applies only to future draft picks, teams are still permitted to trade their first-rounders every year if they so choose, but they can’t trade out of the first round for back-to-back future seasons.

For instance, since the Raptors have traded their 2019 first-round pick to San Antonio, they aren’t currently permitted to trade their 2020 first-rounder. Following the 2019 draft though, the Raptors will regain the right to trade that 2020 first-round pick, since their ’19 first-rounder will no longer be considered a future pick.

The Stepien rule does allow a team to trade consecutive future first-round picks if the team has acquired a separate first-rounder from another team for either of those years. So if Toronto were to trade for a new 2019 first-rounder, that would give the Raptors the flexibility to move their 2020 pick without having to wait until after the 2019 draft.

Teams are permitted to include protection on draft picks. This can create complications related to the Stepien rule, which prevents teams from trading a first-round pick if there’s any chance at all that it will leave a team without a first-rounder for two straight years.

For example, the Mavericks have traded a top-five protected 2019 first-round pick to Atlanta. That traded 2019 pick is protected through 2022, and as long as there’s still a chance it won’t convey immediately, the Mavs are prevented from unconditionally trading any of their next few first-round picks. That’s why when Dallas agreed to send two future first-round picks to New York in the Kristaps Porzingis trade, those picks came with conditions attached — the Knicks won’t receive the first of those selections until two years after the Mavs’ pick to Atlanta conveys.

[RELATED: Traded first round picks for 2019 NBA draft]

Teams will have to take the Stepien rule into account this offseason as they mull including draft picks in deals. Oklahoma City, for instance, is one of the teams most significantly impacted by the rule at the moment. The Thunder have committed their 2020 first-round pick to Philadelphia and their 2022 selection to Atlanta, limiting OKC’s ability to move any other first-rounders up until at least 2024.

Here are a few more rules related to trading draft picks:

• For salary-matching purposes, a traded draft pick counts as $0 until the player signs a contract.
• The “Seven Year Rule” prohibits teams from trading draft picks more than seven years in advance. For instance, during the 2018/19 season, a 2025 draft pick could have been traded, but a 2026 pick could not have been dealt.
• A team can add protection to a pick it has acquired as long as there wasn’t already protection on the pick. For example, when the Sixers flipped the Kings’ 2019 first-round pick to the Celtics, Philadelphia included top-one protection on the pick. Boston will get that selection this year unless the 76ers beat the odds and land the No. 1 overall pick.

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 version of this post were published in 2012 and 2018 by Luke Adams.