Explainer: NBA unrestricted free agency & salary cap exceptions

Thu 14th March 2019

As the 2018/19 NBA season rises towards its (seemingly) inevitable Warriors-Bucks crescendo in June, the defeated challengers will begin looking wistfully to the summer, casting their eyes towards the mythical land of “free agency”.

A “free agent” is an NBA player who does not have a current contract. In most cases this means either their contract has expired, was terminated or never existed (e.g. a player who met the qualifications for the NBA draft but was never actually drafted).

But what really is this magical world? What happens when Kevin Durant, Kyrie Irving, Kawhi Leonard, Kemba Walker, Klay Thompson and Jimmy Butler become freely purchasable commodities on the open market in July 2019? Has “loyalty” become a foreign concept? Why would any basketballer in their right mind want to go to the New York Knicks? 

Let’s find out, as we take a trip down the free agency rabbit-hole in this weekly series of articles.

What is NBA unrestricted free agency?

As we discussed last week, there are two types of free agents; restricted and unrestricted.

In simple terms, an unrestricted free agent is a player who does not have a contract, or whose contract has expired, terminated or never existed. 

In the NBA the most common way this occurs is when a player reaches the end of their current contract. For example, Klay Thompson signed a four-year, $69 million rookie extension with Golden State in October 2014. That contract is set to expire at the end of this season, and hence Thompson will become a fully unrestricted free agent as of July 1st 2019.

There are certain caveats (known as “options”) which can be attached to player contracts. Options allow either the team or the player (depending on the contract) to decide whether or not the contract is extended for one or more years, at a salary which is no less than the amount the player received in the previous year.

For example, Kyrie Irving’s current contract with Boston has a player option built in to it for the end of the 2018-19 season. That means that by 29 June 2019 Irving has to decide whether or not he wants to re-sign with Boston for the 2019-20 season (a.k.a. “exercise” his option) or decline to re-sign. 

If he exercises the option he will remain a Celtic on a salary of $21,329,750 (almost $400,000 more than his current contract). However, if Irving declines the option, his contract has effectively expired and he becomes an unrestricted free agent.

Opposing teams are fully able to sign unrestricted free agents at will, provided they are able to fit them within the salary cap.

Unlike restricted free agency, when a player becomes a restricted free agent there is absolutely nothing his original team can directly do to stop him leaving. For example, they are not given the option to match the offer, as with unrestricted agency. 

This is subject to certain exceptions, geared towards giving teams the ability to exceed the salary cap to re-sign their own players over the salary cap if certain exceptions are met.

What are the NBA salary cap exceptions?

This is an area we have touched on several times in recent weeks. 

In a nutshell, the NBA has a salary cap, which means teams cannot sign free agents, or trade for players if the resultant contracts leave the team’s total salary exceeding the league’s salary cap (currently at 101.869 million for the 2018-19 season). 

However, the NBA salary cap is “soft”, meaning teams are able to exceed the cap provided they sign players to contracts under certain exceptions. At a certain point they are then charged under the “luxury tax” – for more information on that check out our article from two weeks ago. 

There are numerous exceptions, and so many different ways that teams can exploit the cap. Here are a few of the most common:

Larry Bird Exception

This is probably the most well-known salary cap exception.

A team has “Bird rights” to a player if the player is on that team for three seasons without changing teams as a free agent, or being sent to the waiver wire. Those three years can occur in any combination of contracts; e.g. a player can be eligible for the Bird exception by playing three years on three separate one-year contracts, or just one three-year contract.

If a team has Bird rights over a player they are allowed to re-sign that player in free agency for a contract up to their maximum salary, and can exceed the cap to do so. The player’s new contract is allowed to be up to 5 years in length.

In mid-2017, for example, the Golden State Warriors signed Stephen Curry to a 5 year $201.2 million contract under the Bird exception. His contract did not count towards their team salary. This was crucial, as it meant Golden State were able to re-sign Kevin Durant even though his salary did not come under any exceptions, and hence had to fall under the cap.

Crucially, when a player is traded, his Bird Rights are traded with him. That means the player’s new team is allowed to re-sign him under the Bird exception once he hits free-agency, even if he hasn’t been with that specific team for three years.

Early Bird Exception

This is, in effect, a restricted version of the Bird exception.

It basically allows a team to re-sign a free-agent if they’ve been with the team for two seasons (rather than three). 

However, the contracts teams are allowed to use to sign the player under the Early Bird are much more restrictive. They must be at least two years in length but no longer than four, and can be up to 175% of the player’s salary in the previous season or 105% of the average salary in the previous season – whichever is higher.

Veteran free agents who do not fit either the Bird or Early Bird exceptions may also be re-signed under the Non-Bird exception. This is allowed to be on a salary of up to 120% of the player’s salary in the previous season, for a maximum of four years.

Mid-level Exceptions (‘MLE’)

This the most commonly-used of the exceptions. 

Teams who are already over the salary cap are able to use the MLE to sign a player to a contract. The amount they are able to sign the player to depends on whether the team is above or below the salary cap tax “apron”.

The salary cap tax “apron” is roughly $6 million more than the luxury tax cap. This means the team is spending more than $129,817,000.

Teams that are above the salary-cap tax “apron” are allowed to use $5.337 million (max contract length 3 years), whereas teams below the apron can use $8.641 million (max contract length four years).

The MLE can be given to one player or split between several. For instance, the Memphis Grizzlies used the entirety of their below-apron MLE to sign Kyle Anderson to a four-year $37.2 million contract. His base salary for 2018-19 is the maximum $8,641,000 and this increases by 5% each year (which is allowed under the MLE).

Conversely, the Hornets have split theirs between Tony Parker ($5,000,000 this year) and Devonte’ Graham ($988,464), leaving them with $2,652,536 left over.

The Warriors used the MLE ingeniously in order to sign Demarcus Cousins. They’re currently $43,430,879 OVER the cap, but were able to sign Cousins to a $5.3 million contract as a team who are well above the tax apron, but still eligible for this exception.

Cousins is still clearly being underpaid, but without the MLE there was no chance the Warriors would have been able to sign him.

The MLE rewards strong teams with clever front-offices.

Other exceptions (too mind-numbing to go in to):

Room Mid-Level Exception

Rookie Exception

Bi-Annual Exception

Minimum Player Salary Exception

Disabled Player Exception


Next Week

All of this explainer stuff is great, but which players are hitting free agency in the summer of 2019, and which teams are best-placed to sign them?

Can the Knicks actually afford to sign Kyrie and KD? Will the Warriors be able to keep Klay? Who’s going to the Lakers?

We’ll find out!

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