Hoops Rumors Glossary

The Over-38 rule, formerly known as the Over-36 rule under the NBA’s previous Collective Bargaining Agreement, closes a loophole in the CBA, preventing teams from paying older free agents more than their cap room or cap exceptions allow. It also limits the ability of players in their mid- to late-30s to sign long-term contracts.

The original purpose of the Over-38 rule was to block teams from circumventing the salary cap by offering a contract that extends beyond when the club expects a player to end his career. For instance, if a team wanted to offer a 37-year-old free agent a two-year contract worth $35MM but only had the mid-level exception available, the team could have made it a four-year offer in order to fit the average annual salary within the MLE, knowing that the player could collect his third- and fourth-year salaries after retiring. The Over-38 rule prevents that.

The Over-38 rule generally takes effect when a free agent signs a long-term contract that extends beyond his 38th birthday. In these cases, the salary in the year(s) after the player turns 38 is considered deferred compensation, and is applied to the years earlier in the contract, when that salary is actually being earned. In most cases, this prevents the team from completing the contract using the necessary cap room or exception.

The Over-38 rule is a little complicated, so let’s use a real-life example to illustrate it. In the summer of 2017, the Rockets and Nene fell victim to the Over-38 rule when they tried to complete a four-year deal using Nene’s Non-Bird rights. The contract would’ve looked like this:

Unfortunately for Nene and the Rockets, the final year of this deal would have violated the Over-38 rule because the veteran center will turn 38 on September 13, 2020, prior to the start of the fourth season of his contract.

The start of a season is considered to be October 1 for Over-38 purposes, so if Nene’s birthday was on October 13 rather than September 13, he would have been okay. But because a four-year deal for him had to be considered an Over-38 contract, the fourth-year salary needed to be viewed as deferred compensation, which would be spread out in a prorated fashion over the first three years of the deal. It would have looked like this:

Due to the increased cap hits on the new-look deal, the contract would have violated the rules of the Non-Bird exception, which limited Nene’s first-year salary to 120% of his previous salary ($2,898,000). As such, the Rockets couldn’t complete the four-year contract using those Non-Bird rights.

It’s important to note that the Over-38 rule didn’t prevent the Rockets from signing Nene to a four-year, $15MM deal. If the team had wanted to use part of its mid-level exception, it could have given him that same contract the two sides originally negotiated. But Houston had earmarked its MLE for P.J. Tucker, leaving the Non-Bird exception as the team’s only viable means of bringing back Nene. So while Nene technically could have signed a contract that extended beyond his 38th birthday, the Over-38 rule significantly limited the Rockets’ ability to complete such a deal.

In Nene’s case, that fourth year was referred to as a “zero year,” reflecting the adjusted cap charge. Determining what seasons are considered “zero years” is tricky, since a variety of factors relating to the length of the contract, the player’s age, and the player’s Bird rights are taken into account. Here are some of those factors:

• The Over-38 rule only applies to four- or five-year contracts, or extensions that keep a player under contract for a total of four or five years.
• The first “zero year” is either the fourth season of the contract or the first season after the player’s 38th birthday, whichever comes later.
• Players who re-sign with their previous teams prior to October 1 using full Bird rights get some extra leeway. If a player who is 35 or 36 years old signs a four-year contract with his previous team using Bird rights, the Over-38 rule wouldn’t apply. If that player signs a five-year contract, only the fifth season would be considered a zero year. In other words, if Nene had full Bird rights last summer, his four-year deal wouldn’t have been subject to the Over-38 rule.
• These special exceptions for players with Bird rights don’t apply to players who change teams via a sign-and-trade.

If the Over-38 rule doesn’t already sound complicated enough, there’s an additional aspect of the rule that affects what happens when a veteran on an Over-38 contract plays out most or all of his deal. In that scenario, his deferred compensation gradually stops being considered deferred, and his cap hits are adjusted accordingly over the course of his contract. You can check out Larry Coon’s CBA FAQ for more details on that component of the rule if you’re interested.

Finally, it’s worth noting that LeBron James and Chris Paul reportedly played major roles during the last CBA negotiations in having this rule changed from the Over-36 rule to the Over-38 rule. It’s probably no coincidence that both James and Paul head into the 2018 offseason at age 33 with the opportunity to sign five-year deals that would have been considered Over-36 contracts — the new Over-38 rule won’t interfere with those deals.

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.

Photo courtesy of USA Today Sports Images.

The NBA’s annual free agent frenzy begins each July 1, and the league’s top available players rarely take more than three or four days to reach agreements with teams once the calendar turns to July. However, most of those deals can’t become official right away, due to a Collective Bargaining Agreement rule known as the July moratorium.

The July moratorium – which lasts from 12:01am eastern time on July 1 until 12:00pm on July 6 – essentially puts a freeze on most transactions for several days at the start of the new league year. NBA free agents are allowed to negotiate with clubs during the moratorium, and they can agree to terms on new contracts, but they are unable to officially sign new deals until the moratorium ends. The same goes for trades — two teams can agree to terms on a deal, but can’t formally put it through until at least July 6.

While nearly every agreement reached during the July moratorium eventually gets finalized, the unofficial nature of those initial deals can occasionally wreak havoc on the league’s free agent market. DeAndre Jordan‘s 2015 free agency was a perfect example of this. Jordan initially agreed to terms with the Mavericks during the July moratorium, but before the moratorium ended and the two sides could make it official, the Clippers changed Jordan’s mind and convinced him to re-sign with L.A.

Because Jordan and the Mavs had only reached an informal verbal agreement, there was nothing Dallas could do to stop him from reversing course during the moratorium. Still, this sort of about-face is rare, since it can result in fractured relationships between players, agents, and teams.

While most NBA transactions can’t be completed during the moratorium, there are a handful of exceptions to that rule. The following moves are allowed between July 1 and July 6:

• A team can sign a first-round pick to his rookie scale contract.
• A team can sign a player to a one- or two-year minimum salary contract.
• A restricted free agent can sign a qualifying offer from his current team.
• A restricted free agent can sign a maximum-salary contract with his current team.
• A restricted free agent can sign an offer sheet with a new team; the 48-hour matching period would begin after the moratorium ends.
• A team can sign a player to a two-way contract, convert a two-way contract into a standard NBA deal, or convert an Exhibit 10 deal into a two-way contract.
• A team can waive a player or claim a player off waivers.
• A second-round pick can accept a required tender (a one-year contract offer) from his current team.

Under the old Collective Bargaining Agreement, the NBA finalized the salary cap at some point during the July moratorium, and the new cap would take effect once the moratorium ended. However, the current CBA calls for the salary cap for the new league year to be set by the start of July, with the new figure going into effect immediately on July 1. This gives teams more clarity on exactly how much room they have available as they negotiate with free agents during the moratorium.

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 2012, 2013, 2014, and 2015 by Luke Adams and Chuck Myron.

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 $1,312,611 this season, Fred VanVleet will be eligible for a qualifying offer worth $1,699,698 this offseason — that’s calculated by adding $200,000 to his minimum salary for 2018/19 ($1,499,698). Malcolm Delaney‘s 2017/18 salary, meanwhile, was $2,500,000, so his qualifying offer will be worth 125% of that figure: $3,125,000.

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 2014, 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, based on RealGM’s chart: 2014’s fourth overall pick Aaron Gordon, coming off a fourth-year salary of $5,504,420, must be extended a qualifying offer of $7,260,330 (a 31.9% increase) to become a restricted free agent. 23rd overall pick Rodney Hood will be eligible for a qualifying offer of $3,472,887, a 45.5% increase on this season’s $2,386,864 salary.

A wrinkle in the Collective Bargaining Agreement complicates matters for certain RFAs-to-be, since a player’s previous usage can impact the amount of his qualifying offer. The CBA identifies the “starter criteria” as starting 41 games or playing 2,000 minutes per season, and rewards players for meeting those criteria. A player meets the starter criteria if he compiles at least 41 starts or 2,000 minutes in the season prior to his free agency, or averages at least that many starts or minutes over the two seasons before he becomes a free agent. Here’s how the starter criteria affects qualifying offers:

• 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.
• 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.
• A second-round pick or undrafted player who meets the criteria will receive a qualifying offer equal to 100% of the amount applicable to the 21st overall pick.

You can find examples of free-agents-to-be to whom these conditions apply right here.

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. 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.

During the 2017 offseason, for instance, Nerlens Noel and Alex Len signed their respective qualifying offers. Their teams likely would’ve been willing to negotiate longer-term deals (Noel reportedly turned down a lucrative four-year offer at the start of free agency), but neither player had a ton of leverage. Noel and Len ultimately felt it would be in their best interest to accept that one-year qualifying offer and reach unrestricted free agency in the summer of 2019.

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 has already been on two-way deals with his current team for two seasons or because he has three 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. Timberwolves two-way player Anthony Brown is one example of a player who would be eligible for this form of qualifying offer this summer.

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 2012 and 2013.

Under the NBA’s old Collective Bargaining Agreement, which was in effect through the 2016/17 season, a player’s full salary (not including unlikely incentives) was used for trade purposes, whether or not it was guaranteed. If a player had an $10MM salary with a partial guarantee of $1MM, his outgoing salary in a trade was the same as it would have been for a player who had a fully guaranteed $10MM contract.

That’s no longer the case under the league’s new CBA, however. While contracts signed under the old agreement still operate by the old rules, contracts signed after July 1, 2017 will be subject to the rules of the current CBA.

Under the current CBA, only the guaranteed portion of a player’s contract counts for outgoing salary purposes in a trade, limiting the appeal of non-guaranteed salaries as trade chips.

This detail is crucial for determining how much salary a team can acquire in a trade — unless a team is under the cap, the amount of salary it sends out in a trade dictates how much salary it can take back. The amount of salary an over-the-cap team can acquire in a trade ranges from 125% to 175% of its outgoing salary, depending on how much salary the team is sending out and whether or not the team is a taxpayer.

In the old system, it might make sense for a cap-strapped club to trade a player with a guaranteed salary for a player earning an equivalent non-guaranteed salary — the cap-strapped club could then waive that newly-acquired player to cut costs. That’s trickier to do now.

Complicating matters further is that a team can’t simply circumvent the new rules by trading a player before a league year ends on June 30, then having his new team waive him when his non-guaranteed salary goes into effect on July 1. After the end of the regular season, a player’s outgoing salary for trade purposes is the lesser of his current-year salary and the guaranteed portion of his salary for the following season.

Here’s a practical example: Darren Collison‘s deal with the Pacers featured a fully guaranteed $10MM this season, with only $2MM of $10MM guaranteed for 2018/19. Once the regular season ends this year, Collison would only count for $2MM in outgoing salary for trade purposes.

To paint a complete picture of exactly how these new rules work, let’s assume that a free agent signs a two-year, $24MM contract during the summer of 2018. Each year is worth $12MM, but the first season of the contract is guaranteed for $3MM, while the second year is fully non-guaranteed. Here’s how it would count, for trade purposes, as outgoing salary:

1. From the date of the signing until the one-quarter mark of the 2018/19 season:
   • $3MM
   • Note: Due to other CBA rules, the player wouldn’t become trade-eligible until at least December 15, 2018 anyway.
2. From the one-quarter mark of the 2018/19 regular season until salaries become guaranteed on January 10, 2019:
   • A prorated amount of the salary based on the player’s earnings to date.
   • Note: The player would earn 1/177th of his $12MM salary per day; so 60 days into the season, his outgoing salary in a trade would be $4,067,797 (60/177ths of $12MM).
3. From January 10, 2019 until the 2019 trade deadline:
   • $12MM
4. From the day after the 2018/19 regular season ends until the start of the 2019/20 regular season:
   • $0
5. From the start of the 2019/20 regular season until salaries become guaranteed on January 10, 2020:
   • A prorated amount of salary based on earnings to date.
   • Note: The player would once again earn 1/177th of his $12MM salary per day; so 10 days into the season, his outgoing salary in a trade would be $677,966 (10/177ths of $12MM).
     
6. From January 10, 2020 until the 2020 trade deadline:
   • $12MM

This new rule in the league’s Collective Bargaining Agreement won’t stop teams from tacking on non-guaranteed years to the end of certain players’ contracts, since those non-guaranteed salaries still provide flexibility. However, the new CBA rules will ensure that they’re no longer as valuable for trade purposes as they once were.

Although some NBA teams can become hard-capped during a given league year if they use certain 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 tax line at season’s end, the NBA charges a tax for every extra dollar the club spends.

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 2017/18, the league’s salary cap was set at $99.093MM, while the luxury tax threshold is at $119.266MM. So any team whose total ’17/18 salary exceeds $119.266MM 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 (ie. $3.75 for $20-25MM, $4.25 for $25-30MM, etc.).

For instance, if a team is over the tax by $14MM, its tax bill would be $26.25MM — $7.5MM for the first $5MM over the tax, $8.75MM for the $5-10MM bracket, then $10MM for the final $10-14MM increment.

While those are the rates that apply to most taxpayers, including the Warriors, Thunder, and Wizards 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 Cleveland — the Cavaliers were a taxpaying club in 2015, 2016, and 2017, 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 (ie. $4.75 for $20-25MM, $5.25 for $25-30MM, etc.).

If the team described above, over the tax by $14MM, was a repeat taxpayer, its bill would increase to $40.25MM.

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 Trail Blazers did just that when they sent Noah Vonleh and his $3.5MM salary to Chicago in a deadline deal earlier this month, slipping below the luxury tax threshold.

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 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.
• If a player with a trade bonus is acquired after the final regular season game, that trade bonus is added to team salary.

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.

An earlier versions of this post was published in 2012 by Luke Adams.

Gilbert Arenas hasn’t played in the NBA since 2012, but his legacy lives on in the NBA’s Collective Bargaining Agreement. The NBA introduced the Gilbert Arenas provision in the 2005 CBA as a way to help teams retain their restricted free agents who aren’t coming off standard rookie scale contracts.

While Arenas isn’t specifically named in the CBA, the rule colloquially known as the Arenas provision stems from his own restricted free agency in 2003. At the time, the Warriors only had Early Bird rights on Arenas, who signed an offer sheet with the Wizards starting at about $8.5MM. Because Golden State didn’t have $8.5MM in cap room and could only offer Arenas a first-year salary of about $4.9MM using the Early Bird exception, the Warriors were unable to match the offer sheet and lost Arenas to Washington.

The Arenas provision limits the first-year salary that rival suitors can offer restricted free agents who have only been in the league for one or two years. The starting salary for an offer sheet can’t exceed the amount of the non-taxpayer’s mid-level exception, which allows the player’s original team to use either the mid-level exception or the Early Bird exception to match it. Otherwise, a team without the necessary cap space would be powerless to keep its player, like the Warriors were with Arenas.

An offer sheet from another team can still have an average annual salary that exceeds the non-taxpayer’s mid-level, however. The annual raises are limited to 5% between years one and two, and 4.5% between years three and four, but a team can include a significant raise between the second and third years of the offer.

As long as the first two years of a team’s offer sheet are for the highest salary possible, the offer is fully guaranteed, and there are no incentives included, the third-year salary of the offer sheet can be worth up to what the player’s third-year maximum salary would have been if not for the Arenas restrictions.

Based on a projected $101MM cap for 2018/19, here’s the maximum offer sheet a first- or second-year RFA could receive this coming summer:

In order to make the sort of offer outlined above, a team must have enough cap room to accommodate the average annual value of the contract. So a team with $19MM in cap space could extend this offer sheet to a first- or second-year RFA. But a team with only $15MM in cap space would have to reduce the third- and fourth-year salaries in its offer sheet to get the overall average salary of the offer down to $15MM per year.

The application of the Arenas provision is infrequent, since first- and second-year players who reach free agency rarely warrant such lucrative contract offers. First-round picks sign four-year rookie deals when they enter the NBA, so the Arenas provision generally applies to second-round picks or undrafted free agents whose first NBA contracts were only for one or two years.

One notable recent example of the Arenas provision at work was Tyler Johnson‘s restricted free agency in 2016. The Heat had Early Bird rights on Johnson, who had only been in the NBA for two seasons. The Nets attempted to pry him away with an aggressive offer sheet that featured salaries of $5,628,000, $5,881,260, $19,245,370, and $19,245,370. It wasn’t the maximum that Brooklyn could have offered Johnson, but the massive third-year raise was a tough pill for Miami to swallow.

Overall, the deal was worth $50MM for four years. If the Heat had declined to match it, the Nets would have flattened out those annual cap hits to $12.5MM per year, the average annual value of the deal. However, due to the Arenas provision, Miami was able to match Brooklyn’s offer sheet with the Early Bird exception, even though the Heat wouldn’t have been able to offer Johnson a four-year, $50MM contract using the Early Bird exception outright.

When a team matches an Arenas-provision offer sheet, it also has the option of flattening those cap charges. However, that option is only available if the team has the cap room necessary to accommodate the average annual value of the deal. Otherwise, the club has to keep the unbalanced cap charges on its books. That’s why Johnson’s cap hit for the Heat will jump from $5,881,260 this season to an eye-popping $19,245,370 in 2018/19.

This coming summer, there aren’t many restricted free agents who will be candidates for an Arenas-provision offer sheet. Top RFAs like Aaron Gordon and Clint Capela have four years of experience, so the rule won’t apply to them. Patrick McCaw looked like a potential Arenas-provision candidate coming into the season, but he has struggled and his value has declined. The best candidate for an Arenas-provision offer sheet may be Raptors guard Fred VanVleet, who has played a key role for Toronto’s excellent second unit. Still, I’d be pretty surprised if VanVleet gets an offer worth more than the standard non-taxpayer’s MLE.

Finally, just because a club is given the opportunity to use the Arenas provision to keep its restricted free agent doesn’t mean it will necessarily have the means. Here are a few situations in which the Arenas provision wouldn’t help a team keep its restricted free agent:

• If the team only had the taxpayer mid-level exception or room exception available, it would be unable to match an offer sheet for a Non-Bird free agent if the starting salary exceeded the taxpayer mid-level or room exception amount.
• A team would be unable to match an offer sheet for a Non-Bird free agent if it used its mid-level exception on another player, including another one of its own Non-Bird free agents. A team could use Early Bird rights to match if those rights are available, however.
• If the player is a Non-Bird or Early Bird free agent with three years of NBA experience, the Arenas provision would not apply — only players with one or two years in the league are eligible.

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 2012 and 2015 by Luke Adams and Chuck Myron.

Once the NBA trade deadline passes, the league’s buyout season begins. And as a result of the decision to move this season’s trade deadline up by two weeks, the 2018 buyout period will last longer than usual. So 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 waived 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 players like Greg Monroe, Joe Johnson, Brandan Wright, and Marco Belinelli agree to buyouts. Those players reportedly surrendered between $300K and $1.5MM in salary to their respective teams in order to reach free agency and sign with a new team closer to contention.

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While relying on ESPN.com’s Trade Machine may be the simplest way to verify whether or not a trade will work under NBA rules, it’s worth examining the primary tool in the league’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 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 Rockets have traded their 2018 first-round pick to Atlanta, they aren’t allowed to trade their 2019 first-rounder. Following the 2018 draft though, the Rockets will regain the right to trade that 2019 first-round pick, since their ’18 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 first-rounder from another team for either of those years. So if Houston were to trade for a new 2018 first-rounder, that would give the Rockets the flexibility to move their 2019 pick without having to wait until after the 2018 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 Raptors have traded a lottery-protected 2018 first-round pick to Brooklyn. That traded 2018 pick is protected through 2023, and as long as there’s still a chance it won’t convey immediately, the Raptors are prevented from unconditionally trading any of their next few first-round picks — their 2020 first-rounder is trade-eligible, but only conditionally.

[RELATED: Trade restrictions on future draft picks by team]

Teams will have to consider the Stepien rule over the next few weeks as they mull trading draft picks in deals for immediate help. Miami, for instance, is one of the teams most significantly impacted by the Stepien rule at the moment. As part of their Goran Dragic deal with the Suns, the Heat will send their 2018 and 2021 first-round picks to Phoenix, so the Stepien rule currently prevents them from also trading their first-rounders in 2019, 2020, or 2022 — moving any of those selections would leave the team without first-round picks in consecutive future seasons.

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 2017/18 season, a 2024 draft pick could be traded, but a 2025 pick could not be 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 Celtics flipped the Nets’ 2018 first-round pick to the Cavaliers, Boston could have tried to include top-three protection on the 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.

An earlier version of this post was published in 2012 by Luke Adams.

This Friday marks the renewal of the annual tradition of the ultimate on-the-job tryout in professional sports. The 10-day contract has been the foot in the door for several players who’ve gone on to lengthy, successful NBA careers, like Anthony Mason, Bruce Bowen, Raja Bell, Kurt Rambis, Howard Eisley, and several others. C.J. Watson saw his first NBA action on a pair of 10-day contracts with the Warriors in 2008, and blossomed into a sought-after backup point guard. He signed a three-year, $15MM deal with the Magic in 2015.

Ten-day deals also help veterans make comebacks. Chris Andersen languished in free agency for six months after the Nuggets used the amnesty clause to get rid of him, but two 10-day contracts with the Heat in 2013 kick-started a revival for the Birdman. He wound up signing for the rest of the season that year and played a key role in Miami’s championship run. Andersen reprised that role on a guaranteed minimum-salary contract the next season, and that led the Heat to re-sign him in 2014 to a two-year, $10.375MM deal.

More recently, players like David Nwaba, Okaro White, and Yogi Ferrell jump-started their respective NBA careers last season with 10-day contracts, parlaying those deals into multiyear pacts. While those guys remain on NBA rosters, the 10-day is often a fleeting glimpse at NBA life for players on pro basketball’s fringe — the majority of last year’s signees aren’t currently in the league.

Beginning on Friday, January 5, a team can sign a player to as many as two 10-day contracts before committing to him for the rest of the season or, as in many cases, turning him away. A player can’t sign three 10-day contracts with the same team, but after signing two 10-day deals with one club, he’s allowed to sign another with a separate club.

Ten-day deals are almost always for a prorated portion of the minimum salary, though they can be worth more. A minimum-salary 10-day contract for a rookie this season is worth $46,080, or 10/177ths of the full-season rookie minimum salary. A one-year veteran would earn $74,159. A minimum-salary 10-day deal for any veteran of two or more seasons would represent a cost of $83,129 to the team.

Veterans with more than two years of NBA experience would earn more than $83,129 on a 10-day contract, but the league would pay the extra freight. However, teams gain no financial advantage if they eschew 10-day contracts with more experienced players to sign rookies or one-year veterans to 10-day deals in an effort to avoid the tax, as those deals count the same as the ones for two-year veterans when the league calculates a team’s salary for tax purposes.

Teams would have to pay slightly more if they sign a player to a 10-day contract and they have fewer than three games on their schedule over that 10-day period. In those cases, the length of the 10-day contract is extended so that it covers three games for the team. It’s rare that any team would have such a light schedule, since most play at least three games a week, but the rule sometimes comes into play around the All-Star break.

If there are fewer than 10 days left in the NBA regular season, a team can’t sign a player to a 10-day contract.

A team may terminate a 10-day contract before it runs to term if it wants to use the roster spot to accommodate a waiver claim, signing, or trade acquisition. Players whose 10-day contracts end early don’t go on waivers, so they become free agents immediately. Still, those players receive their full 10-day salaries — the contracts are fully guaranteed for the 10 days.

While clubs close to the luxury tax threshold may be wary of bringing players aboard via 10-day contracts, other teams will make liberal use of those deals, in part because they’re relatively inexpensive. A year ago, the rebuilding Mavericks and the short-handed Pelicans each signed six different players to at least one 10-day deal.

Usually, teams only have one player on a 10-day contract at a time, though they’re allowed to carry as many 10-day contracts as they have players on the inactive list. If a team has 13 players on the active list, it can carry one more 10-day contract than the number of inactive players it has, meaning that if a team has a full 15-man roster, as many as three of those players may be on 10-day deals.

Young players recently released by NBA teams, like Kay Felder and Gary Payton II, figure to draw consideration for 10-day contracts, as should notable veteran free agents, such as Jordan Crawford and Derrick Williams. G League standouts like Trey Burke, Xavier Munford, and Amile Jefferson could all find paths to the NBA via 10-day contracts. Other NBA hopefuls from the G League will make their cases to scouts at a four-day showcase which will take place later this month in Mississauga, Ontario.

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 2013, 2014, 2015, 2016, and 2017 by Luke Adams and Chuck Myron.