Primer: NBA Contract Extension Rules

As Peter Novak and I were preparing for our nerd smackdown debate on extension values for Gordon Hayward and Derrick Favors, Peter aptly threw in a primer on extension rules. I decided to share those here as a companion post for anyone who wants to join in the argument while making sure they have all their facts right.

Peter put together the following description of what the fourth-year forwards are eligible for if they agree to an extension by the October 31, 2013 deadline:

Until October 31, either player is eligible to sign a 4 year extension with a first year salary in the approximate amount of 25% of the 2014-15 Salary Cap and annual 7.5% raises.  Depending on what the Salary Cap ends up at next summer (really it depends on Basketball Related Income), a maximum contract extension would be about 4 years and $62.3mm.

There are two new 2011 CBA provisions which potentially could modify that figure.  The first is the “Derrick Rose Rule” which allows two-time All-Star/All-NBA players or an MVP to get an extension with a first year starting salary of up to 30% of the 2014-15 Salary Cap.  However, neither player will meet those conditions to get the bonus jump in salary.

The other new rule is the “Designated Player” provision which allows the Jazz to offer 1, and only 1, player on its roster a 5 year extension.  The Jazz will be hesitant to offer either Hayward or Favors the extra year and should save their Designated Player provision for a more identifiable franchise player in the future.

If the Jazz and Hayward/Favors are able to come to an agreement within those guidelines by October 31, then the player would finish out the fourth year of the contract on the scale figure from their rookie contract and then the new numbers would kick in for the 2014-15 season.

If not – and here’s where the negotiating leverage comes in – then the team can make either player a restricted free agent next summer by extending a qualifying offer at a pre-set amount. Once that offer has been made, the Jazz then have the right to match any contract terms that are agreed upon by the player and another team, giving them the upper leg in re-signing either guy.

Peter brought this up later in our debate when he said:

I should also disclaim that there is a possibility that the Jazz do not want to extend either player now in order for them to maintain maximum salary cap flexibility next offseason.  Since the Jazz can control the restricted free agency process next year they have little incentive to overpay now.

Restricted free agency is extremely pro-team and can work against the player, for a couple of different reasons. First, because many teams’ approach to RFA is to tell their player to go out and set a market value by negotiating with other teams. This is smart, given that the team doesn’t want to bid against itself, but getting serious bidders as an RFA is hard. If you’re a Bird free agent (both Favors and Hayward are), then any team that has an ounce of interest knows your team has the ability to match any offer, so they may not even mess around with you.

That happened to a number of RFAs this summer who were thought to be among the prizes of the free agent class but wound up signing very late because their old team only wanted to talk when the number was set by the market and no new teams wanted to help them out, at least at a dollar amount that the players found attractive.

Of course, the players do have one other chip — a veto threat, if you will. If they are really turned off by the team’s offer or handling of the situation, they can ride out their contract with no extension, accept the one-year qualifying offer and then become an unrestricted free agent after the fifth season. Very few take this route because of the bird-in-the-hand logic; now your career is five years in before you get your first major payday, and if you get hurt or suffer a slump before then, you may never cash in on the millions that may have been available to you in extension negotiations or as a restricted free agent.

So that’s basically what’s behind door number 1, 2 and a distant 3 for Hayward, Favors and the Jazz. Now that you’re primed, go watch Peter and me fight. Pay-per-view subscription not required.