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July Moratorium

June 18th, 2014 at 11:01am CST by Chuck Myron

The July moratorium is a period at the start of each NBA season during which teams aren’t permitted to make trades or, in most cases, sign free agents. The specific dates vary from season to season, but for 2014, the moratorium will last from July 1st to July 9th. As of July 10th, teams can resume business as usual.

Each new NBA season officially begins on July 1st, which is also the day that players on expiring contracts become free agents. However, before players can sign with new teams, the NBA must complete its audit, which establishes figures like the salary cap, luxury tax threshold, and average salary. Free agents are allowed to negotiate with clubs during the moratorium, and can agree to terms on new contracts, but they are unable to officially sign a new deal until the moratorium ends.

Still, there are some types of signings and acquisitions that are permitted during the July moratorium:

A first-round draft pick can sign a rookie scale contract with the team that drafted him.
A second-round draft pick can accept a required tender, which is a one-year contract offer that allows a team to retain its rights to a drafted player.
A restricted free agent can accept a qualifying offer from his team.
A free agent can sign a minimum-salary contract for one or two seasons.
Teams are able to claim players off waivers, providing they were waived during the final two days in June.

When the July moratorium ends, all free agents can officially sign contracts. Additionally, the new salary cap figures for the year take effect, and the seven-day period for using the amnesty clause begins.

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.

Versions of this post, written by Luke Adams, were initially published on May 16th, 2012 and May 13th 2013.

Non-Bird Rights

June 16th, 2014 at 11:45am CST by Chuck Myron

Players and teams have to meet certain criteria to earn Bird rights and Early Bird rights, but Non-Bird rights are something of a given. They apply to players who’ve spent a single season or less with their teams, as long as they end the season on an NBA roster.

Teams are permitted to sign their own free agents using the Non-Bird exception for a salary starting at 120% of the player’s previous salary or 120% of the minimum salary, or the amount of a qualifying offer (if the player is a restricted free agent), whichever is greater. Contracts can be for up to four years, with 4.5% annual raises. The cap hold for a Non-Bird player is 120% of his previous 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 isn’t enough to retain a well-regarded free agent. For instance, the Mavs have Non-Bird rights with Devin Harris, who signed a one-year, minimum salary contract with the team in the summer of 2013 after playing with the Hawks in 2012/13. Dallas can only use Non-Bird rights to sign him for 120% of what he made in 2013/14. The guard nearly signed a three-year, $9MM contract in 2013 with the Mavs before a toe injury scuttled the deal, so it’s reasonable to suspect that Harris is in line for a heftier raise than his Non-Bird rights can provide. That would force the Mavs to use another exception or cap room if they’re to re-sign him, which could prove tricky, given the team’s plans to use cap space to attract marquee free agents.

Non-Bird rights might not be of help to the Mavs and Harris, but there are cases in which the exception proves useful. Jermaine O’Neal signed a one-year, $2MM deal with the Warriors in the summer of 2013 after finishing up 2012/13 with the Suns. Golden State can offer up to $2.4MM for 2014/15, 120% of his 2013/14 salary. That gives the Warriors an advantage over other teams for a still-valuable backup who’ll probably command more than the minimum 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.

Earlier versions of this post, written by Luke Adams, appeared on April 20th, 2012 and April 26, 2013.

Minimum Salary Exception

June 10th, 2014 at 1:30pm CST by Chuck Myron

The minimum salary exception is something of a last resort for capped-out teams seeking to add players, as well as for players seeking NBA contracts. It allows an over-the-cap team to sign a player to a one- or two-year minimum-salary deal, as the name suggests. Teams can use the exception multiple times, allowing clubs that have spent all of their other exceptions an avenue to add to their rosters. It also allows for the acquisition of minimum-salary players via trade, without the players being counted for salary-matching purposes.

Players are entitled to varying minimum salaries based on how long they’ve been in the NBA. In 2013/14, a player with no prior NBA experience was eligible for a $490,180 minimum salary, while a player with 10 or more years of experience was eligible for $1,399,507. Over the course of the current collective bargaining agreement, the minimum salary will increase each season, as Larry Coon’s CBA FAQ outlines. For both this season and next season, the breakdown is as follows:

The graph demonstrates the wide disparity between the minimum salary for rookies and for long-tenured players. A minimum-salary veteran of 10 or more seasons will earn almost three times as much as a rookie making the minimum next season. The NBA doesn’t want clubs to shy away from signing qualified veterans, so the league reimburses teams for a portion of a minimum-salary player’s cost if he has two or more years of experience, as long as the contract isn’t a multiyear deal. For instance, when the Knicks signed 13-year veteran Kenyon Martin for 2013/14 using the minimum salary exception, he earned $1,399,507, but the team’s cap hit was just $884,293. The league reimburses the Knicks for the remaining $515,214.

Most salary cap exceptions can only be used once each season. 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, the minimum salary exception can be used any number of times in a single season. The Nets, for example, used the minimum salary exception to sign four players who ended the season on the team’s roster.

The vast majority of 10-day contracts are for the minimum salary, and it’s the minimum salary exception that allows clubs to accommodate those 10-day deals. Teams used the minimum salary exception to sign 41 players to 10-day contracts during the 2013/14 season.

Many exceptions begin to prorate on January 10th, but the minimum salary exception prorates from the first day of the regular season. Teams often take advantage of this to sign players for cheap at the end of the season primarily so they can use them to help salaries match in a trade over the summer.

For example, the Knicks signed Lamar Odom on the last day of the 2013/14 regular season, even though he wasn’t healthy enough to play in the team’s game that night, and even though the team had already been eliminated from the playoffs. The Knicks used the minimum salary exception to sign Odom to a two-year contract that covered the final day of the 2013/14 season and 2014/15. The 2014/15 portion was non-guaranteed, so the only guaranteed money in the deal was Odom’s prorated minimum salary, equal to 1/170th of 1,399,507. Odom doesn’t stand much of a chance to make the Knicks next season, but if the Knicks make a trade over the summer, they can include Odom’s contract as part of the swap to make the salaries match if necessary, allowing the team that acquires Odom to do the same in another trade or simply waive his non-guaranteed contract at no cost before the 2014/15 season begins.

Earlier versions of this post, written by Luke Adams, were published on May 7th, 2012 and April 28th, 2013.

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.

Early Bird Rights

June 3rd, 2014 at 5:00pm CST by Chuck Myron

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. Still, there are other salary cap exceptions available for teams to keep players who don’t qualify for Bird rights. One such exception is the Early Bird, available for players formally known as Early Qualifying Veteran Free Agents.

The Bird exception requires a player to spend three seasons with his club without changing teams as a free agent, but 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.

The crucial difference between Bird rights and Early Bird rights involves the limits 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 is 175% of his previous salary or 104.5% of the league-average salary, 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.

Another 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 have 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’d been claimed off waivers that March.

Teams can benefit from having Early Bird rights instead of full Bird rights when 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, who take up either 150% or 190% of their previous salaries.

One example of a player who will have Early Bird rights this summer is Kirk Hinrich of the Bulls. Hinrich is coming off the second season of a two-year deal with Chicago after having finished the season before with Atlanta. The Bulls can use the Early Bird exception this summer to offer up to 175% of his salary from this year, which would be $7,103,250. It’s likely that will be more than 104.5% of the league average salary, which will probably be close to $6MM when the league calculates the figure during the July Moratorium. Those Early Bird rights might come in handy for Hinrich, who figures to battle D.J. Augustin for the backup job behind Derrick Rose. Augustin only has Non-Bird rights.

A special wrinkle involving Early Bird rights, called the Gilbert Arenas Provision, applies to players who’ve only been in the league for two years. We covered the Gilbert Arenas Provision in another glossary entry.

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, which were written by Luke Adams, appeared on April 19th, 2012 and April 24th, 2013.

Biannual Exception

May 27th, 2014 at 2:00pm CST by Chuck Myron

The most common method over-the-cap teams use to sign free agents from other teams is the mid-level exception, but it’s not the only tool those clubs can use to squeeze an extra player onto the payroll. The biannual exception is a way to sign a player who commands more than the minimum salary and less than the mid-level.

As its name suggests, the biannual exception can only be used every other year. Even if a team uses only a portion of the exception, it becomes unavailable the following year.

The biannual exception is available only to limited number of clubs, even among those that didn’t use the biannual the season before. Teams with player salaries, cap holds and cap exceptions that add up to less than the salary cap lose their biannual exception, as well as their full mid-level exception and any trade exceptions. They must use their cap room to sign players. Additionally, teams lose access to the biannual exception when they go more than $4MM over the tax threshold, exceeding what’s known as the tax apron. So, only teams over the cap but under the tax apron can use the biannual exception.

If a team uses all or part of the biannual exception, it triggers a hard cap for that season. Clubs that sign a player using the biannual can’t go over the tax apron at any time during the season in which the contract is signed.

The biannual exception provides for a starting salary of $2.077MM in 2014/15. That’s approximately 3% greater than the starting salary in a biannual deal this past season, and the figure will continue to rise by about 3% each year under the collective bargaining agreement. A biannual contract can be for either one or two seasons, with a raise of 4.5% for the second season. Teams also have the option of splitting the exception among multiple players. The bi-annual exception becomes pro-rated starting on January 10th, so it’s rarely used for late-season signees.

Five teams used the biannual exception in 2013/14, the most since 2009/10, as I noted last summer. Those five — the Nuggets, Wizards, Timberwolves, Warriors and Pacers — are ineligible to sign a player via the biannual in 2014/15. That’s true for Golden State even though Jermaine O’Neal only signed a one-year contract, for Denver even if Nate Robinson opts out, and for Washington even though the team traded Eric Maynor.

Previous versions of this post appeared on April 23rd, 2012 (by Luke Adams) and May 1st, 2013.

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.

Maximum Salary

May 12th, 2014 at 1:41pm CST by Chuck Myron

Superstars like LeBron James and Carmelo Anthony are often referred to as “maximum-salary players” as they approach free agency, since they’re likely to command the most lucrative contract offers possible when they hit the market. That holds regardless of whether they’re making less than the max on their current deals, as in the case of James, or have suggested they’ll take less when they next sign, as Anthony has. The NBA’s collective bargaining agreement limits players to salaries based on a percentage of the salary cap, but the maximum varies from player to player. That helps explain why Anthony could sign at a discount this summer and still make a higher salary than James, even if the four-time MVP ends up with the max.

If a player has been in the NBA for six years or fewer, 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.

Those percentages are somewhat deceiving, since the NBA uses factors to determine the maximum salary that are slightly different than what goes into calculating the salary cap. That’s why James Harden made $13,701,250 on his max deal in 2013/14 rather than $14,669,750, which is 25% of the $58.679MM salary cap for 2013/14. For players eligible for the 30% max in 2013/14, their top salary was $16,441,500, and the 35% max was $19,181,750. These figures will fluctuate from year to year, depending on the league’s projected Basketball Related Income for a given season.

There are a number of exceptions to the maximum salary, as follows:

The maximum salary only applies to the first year of a multiyear contract. For example, if Eric Bledsoe were to sign a maximum-salary deal this summer, he would be subject to the maximum salary for the first season, with either 7.5% or 4.5% raises, depending on whether he signs with the Suns or another team. So by the third or fourth year of his contract, he could be earning significantly more than the max.
A free agent’s maximum salary is always at least 105% of his previous salary. For instance, Anthony’s 2013/14 salary was $21,388,954. He is eligible to sign a new contract that will allow him to earn a maximum of $22,458,402 — 105% of his prior salary. That’s why he could take slightly less and still earn more than James, whose salary in 2013/14 was $19,067,500.
A first-round pick coming off his four-year rookie scale contract is eligible for a maximum-salary contract extension worth 30% of the cap (rather than 25%) if he meets one of the Derrick Rose Rule criteria. That entails winning an MVP award, being voted an All-Star Game starter at least twice, or being named to an All-NBA team at least twice.

There were 16 players who were either playing on some form of max deal or had signed max extensions when I examined the league’s maximum-salary players in August. Those ranks have since swollen to 18 with the additions of Paul George and DeMarcus Cousins, who inked max extensions. The list demonstrates the many caveats and variations involved with max contracts, which ranged in value from slightly more than $57.5MM to nearly $123.7MM in 2013/14. Simply put, it’s difficult to define the NBA’s maximum salary in a broader sense, since it applies to individual players and not the league as a whole.

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 ShamSports were used in the creation of this post.

A version of this post, written by Luke Adams, was initially published on May 8th, 2012.

Mid-Level Exception

May 11th, 2014 at 3:41pm CST by Chuck Myron

The mid-level exception is the most common way for NBA teams that are over the salary cap to sign free agents from other clubs. Teams can make use of the mid-level every season, and they can split it among multiple players. Different mid-level exceptions apply based on a team’s proximity to the cap.

The most valuable kind of mid-level exception is available to teams that are over the cap but less than $4MM above the tax threshold. Still, clubs deep into the tax, and even those under the cap, have access to less lucrative versions of the mid-level. Here’s a glance at how all three forms of the exception are structured:

For teams with cap room:

Called the mini mid-level, or the room exception
Maximum two-year contract
Maximum 4.5% annual raises
First-year salary is worth $2,732,000 for 2014/15

For over-the cap teams:

Called the full mid-level, or the non-taxpayer’s mid-level exception
Maximum four-year contract
Maximum 4.5% annual raises
First-year salary is worth $5,305,000 for 2014/15
Once used, the team cannot surpass the “tax apron” ($4MM above tax line) for the remainder of the season.

For taxpaying teams:

Called the mini mid-level, or the taxpayer’s mid-level exception
Maximum three-year contract
Maximum 4.5% annual raises
First-year salary is worth $3,278,000 for 2014/15.

The value of the starting salary in each exception increases by about 3% each season under the current collective bargaining agreement. Here’s the maximum contract a free agent could receive this summer using each of these three forms of mid-level exception:

Room Exception

2014/15: $2,732,000
2015/16: $2,854,940
Total: $5,586,940

Non-Taxpayer’s MLE

$5,305,000
$5,543,725
$5,782,450
$6,021,175
Total: $22,652,350

Taxpayer’s MLE:

$3,278,000
$3,425,510
$3,573,020
$10,276,530

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.

Versions of this post, written by Luke Adams, were initially published on April 24th, 2012 and May 10th, 2013.

Cap Holds

May 1st, 2014 at 1:31pm CST by Chuck Myron

The Lakers have committed only about $34.1MM in guaranteed money to player salaries for 2014/15, but that doesn’t mean the team will have nearly $30MM to spend on free agents. Each of the Lakers’ 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 following criteria are used for determining the amount of a free agent’s cap hold:

First-round pick coming off rookie contract: 250% of previous salary if prior salary was below league average; 200% of previous salary if prior salary was above league average
Bird player: 190% of previous salary (if below 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.

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. Kent Bazemore and Ryan Kelly are set for restricted free agency this summer. Both earned the minimum salary this year, so if they were unrestricted free agents, their cap holds would only be worth next year’s minimum. Their status as restricted free agents bumps their cap holds to the amount of their qualifying offers — $1,115,243 and $1,016,482, respectively. The Lakers can knock their cap holds down to the minimum if they elect not to tender qualifying offers to them, making them unrestricted free agents.

No cap hold can exceed the maximum salary for which a player can sign. That’s why Pau Gasol‘s cap hold will be less than 150% of his salary this season even though the Lakers hold his Bird rights. Gasol made slightly more than the maximum salary for a veteran of 10 or more years this past season. There’s a decent chance that the maximum salary for 2014/15 could be higher than $20,250,143, which is 105% of what Gasol makes now, but it certainly won’t go high enough to allow for a cap hold worth 150% of Gasol’s pay from this season.

The Lakers have an even more unusual case in MarShon Brooks, who was traded twice this season. They have his Bird rights, but the Celtics declined the fourth year team option on his rookie scale contract before the season, so the Lakers can’t pay him more than what he would have made in the option year. That rule is in place so a team can’t circumvent the rookie scale and decline its option so it can give the player a higher salary, and it applies even if the player is traded after the option is declined, as in the case of Brooks. The Lakers faced a similar dilemma with Jordan Hill two years ago. In these cases, the cap hold is equal to the amount of the fourth-year team option.

If a team holds the rights to fewer than 12 players, cap holds worth the minimum rookie salary ($507,336) are assigned to fill out the roster. So, if Nick Young opts out of his contract and the Lakers choose to renounce their rights to all of their free agents and players on non-guaranteed contracts, the team would have three players and about $34.1MM left under contract. However, nine holds worth $507,336 would be added to the team’s cap, reducing its total cap space by about $4.6MM.

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 instance, since John Salley never signed elsewhere after reaching free agency after the 1999/00 season, and the Lakers have never renounced him, the Lakers still have a minimum salary hold for Salley on their cap. It’s been so many years since the Lakers have gone under the cap that there’s been no reason for them to renounce their rights to players who retired long ago. Keeping those cap holds allowed the Lakers 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 cap teams. There’s a strong chance that Salley, Mitch Richmond, Brian Shaw, Karl Malone and others will disappear from the Lakers’ list of cap holds this summer with the team finally poised to open cap space.

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 its rights to its 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.

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 ShamSports were used in the creation of this post.

A Version of this post was initially published on May 1st, 2012, by Luke Adams.

Bird Rights

April 24th, 2014 at 11:16am CST by Chuck Myron

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, more complicated criteria. A player retains his Bird rights in the following scenarios:

He changes teams via trade, rather than being waived or signing elsewhere as a free agent. For instance, MarShon Brooks is in the third year of his contract. He has been traded three times, from the Nets to the Celtics, the Celtics to the Warriors and the Warriors to the Lakers, but he still has his Bird rights because he hasn’t been waived.
He finishes a third season with a team after having only played partial seasons with the club for one or both of the first two years (without signing elsewhere in between).

However, a player sees the clock on his Bird rights reset to zero in the following scenarios:

He changes teams via free agency.
He is selected in an expansion draft.
He is waived and is not claimed on waivers.
His rights are renounced by his team.

If a player has earned Bird rights, he is eligible to sign a maximum-salary contract for up to five years with 7.5% annual raises when he becomes a free agent. The maximum salary will vary depending on how long the player has been in the league, but regardless of the amount, a team can exceed the salary cap to complete the deal.

Although the Bird exception allows teams to exceed the cap, a team cannot necessarily use free cap room to sign free agents and then re-sign its own players via Bird rights. 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 250% and 200%, respectively.

The Mavericks, for instance, will have a $6.042MM cap hold for Vince Carter on their 2014/15 books — 190% of his $3.18MM salary this season. Dallas could renounce Carter and clear that $6.042MM in cap space, but the Mavs would lose his Bird rights if they did that. That would force them to use either cap room or a different cap exception to follow through on their plan to re-sign him.

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 was used in the creation of this post.

Versions of this post were initially published on April 17th, 2012, and May 2, 2013 by Luke Adams.

Early Termination Options

March 11th, 2014 at 3:19pm CST by Chuck Myron

LeBron James, Carmelo Anthony, Chris Bosh and Dwyane Wade are among the luminaries facing summer decisions about whether to exercise the early termination options in their contracts. Early termination options, or ETOs, are opportunities for players to free themselves from their contracts before they run to term, as the name suggests. They’re essentially player options, but with a few tweaks.

They were originally designed to give players a second chance to escape from their deals, since player options can only cover one season. That’s why James, Bosh and Wade all have early termination options for this summer and player options for 2015 as part of their contracts. The Heat stars signed under the previous collective bargaining agreement. The new CBA prevents deals from running longer than five seasons, and since early termination options may only be included in five-year pacts, contracts can no longer contain both an ETO and a player option.

That ETOs are only allowed in five-year deals also means that most of the players who hold ETOs are marquee names, since few others sign deals that cover five seasons. It also means that going forward, ETOs will be exclusively for free agents who re-sign with their teams via Bird rights, since there’s no other way to obtain a five-year contract in the new CBA.

ETOs allow teams and players slightly more room for negotiation than standard player options do, since the salary in a player option year can’t be any lower than in the previous season. There’s no such rule with an ETO, so players can have the contract front loaded, with an ETO season at a reduced salary around as insurance against an injury or decline in play. If the player is still performing at a high level after four seasons, he can exercise the early termination option and seek another lucrative contract. Teams may also benefit from this rule, similarly using the cheaper fifth season as protection against a drop-off in the player’s production. Still, no existing contract with an ETO is structured this way, in large measure because many of them are for the maximum salary, which precludes front-loading.

A player who signs a deal with a trade kicker stands to benefit if the contract also includes an early termination option. A trade kicker is a bonus that a player receives when he’s traded, and it’s usually equal to a percentage of the money remaining on the deal. Standard player option seasons don’t count toward trade kickers, but seasons covered by ETOs do.

There’s another difference between player options and ETOs that rarely comes into play. If a player opts out using a standard player option, he can still sign an extension before hitting free agency. That’s not the case with ETOs. Still, most players make formal decisions on these options not long before becoming free agents, leaving little time to negotiate extensions. Veteran extensions usually aren’t beneficial to players under the current collective bargaining agreement anyway, so there’s little incentive to choose a player option over an ETO just to gain more flexibility in signing an 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 Salary Cap FAQ was used in the creation of this post.