Contract Extensions

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Contract extensions in the NBA are agreements that add additional years and compensation to a player's existing contract, extending the player's commitment to the team beyond the original end date of their current deal. Extensions come in various forms, each with its own set of rules, and eligibility criteria, and financial and duration limitations.



​

Rookie Scale Contracts



​

When a player is a first-round selection in the NBA draft, they are eligible to sign a rookie scale contract. While this is not an “extension”, the way that the contract is structured (the first-round pick exception), includes a team option for a 3rd and 4th season, which means that a team can unilaterally decide to extend the player’s contract. The team option for the third season must be exercised between the day following the last day of the 1st season and the following October 31st. The option for the 4th season must be exercised between the day following the last day of the 2nd season and the next October 31st. First-round picks can sign for as much as 120% and as little as 80% of the rookie scale. The rookie scale sets out the amount a player can earn in their rookie contract, and this will vary for players as it is influenced by draft position. 

Contracts for second-round draft picks and undrafted players in the NBA do not follow the rookie salary scale. There is a second-round pick exception set out in the CBA that allows for teams to sign second-round picks to a 3 year contract where the player makes the minimum in year 1 (applicable to a player with 1 year of service) and in years 2 and 3 the amount increases pursuant to the minimum salary scale. Year 3 is a team option. The second-round exception can also follow a 4 year contract structure where the player makes the minimum in years 1 and 2 (applicable to a player with 2 years of service), and in years 3 and 4 the amount increases pursuant to the minimum salary scale. Year 4 is a team option. There isn’t a specific exception for signing undrafted players to rookie contracts.



 

Rookie Scale Extensions



​

A first-round pick who is on a Rookie Scale Contract may enter into an extension of such contract during a period “12:01 p.m. eastern time on the last day of the Moratorium Period through 6:00 p.m. eastern time on the day prior to the first day of the Regular Season of the second option year provided for in such Contract”. A player can extend for up to 4 years. The standard for Rookie Scale Extensions allows a player coming off their initial Rookie Scale Contract to receive a starting salary in the 1st year of the extension equivalent to 25% of the Salary Cap. The salary can increase by up to 8% of the salary in the first year of the extension each subsequent year. Bonuses can increase a player's earnings above the standard annual raise, but the base salary in the contract cannot exceed the 8% annual increase limit.

The 5th Year, 30 Max Criteria, or the “Rose Rule".  
There are conditions under which a player coming off their Rookie Scale Contract can qualify for a starting salary in their Rookie Scale Extension up to 30% of the Salary Cap if they meet specific achievements: winning the MVP award at any point, being named to an All-NBA Team in the season immediately preceding the extension or in two of the three previous seasons, or being awarded the Defensive Player of the Year in the season immediately preceding the extension or in two of the three previous seasons. The maximum term for such an extension is five years. If Tyrese Maxey is named to an ALL-NBA team this season, he would be eligible for this type of extension.



 

Veteran Extensions



 

Veteran extensions can be applied to players who have completed at least 3 years in the league. If a player is on a contract that spans for 1 or 2 seasons, they are not eligible for a veteran extension. A player on a contract that covers a term of 3 or 4 Seasons may be extended no sooner than the 2nd anniversary of the signing. For a contract covering 5 seasons, an extension can be signed no sooner than the 3rd anniversary of the contract's signing date. Renegotiations and extensions cannot occur from March 1 through June 30 of any salary cap year. A team may still hold a player’s bird rights on July 1 which can allow for a team to exceed certain cap restrictions to re-sign their own free agents. If Paul George declines his player option this offseason and becomes a UFA, the Clippers would still hold his bird rights. And because Paul George played at least three full seasons with the Clippers, the Clippers have full bird rights and can offer George a starting salary of up to 35% of the salary cap (because George has given the NBA 10 or more years of service) or 105% of the player's previous salary, whichever is greater (current salary cap projections say its the former, which would be just shy of a $50 million starting salary). For players with fewer than 7 years of service, the maximum starting salary can be the greater of 25% of the Salary Cap in effect or 105% of the player's previous salary. For players with at least 7 but fewer than 10 years of service, the maximum starting salary can be the greater of 25% of the Salary Cap in effect or 105% of the player's previous salary. 


 

The Designated Player Extension

 

If George makes ALL-NBA, he would be eligible to sign this type of extension, also known as the “supermax”. The supermax can be up to 35% of the salary cap or 105% of the player's previous salary, whichever is greater. If George makes ALL-NBA he can sign a max contract with a different team, for a max term of 4 years. The main limiting factor is the inability of the new team to offer the same length length as the Clippers who could offer 5 years if not for George turning 38 in that time period, and also a new team couldn't offer the same annual raises as the Clippers (where the Clippers can offer 8% annually, the new team would only be able to offer 5%). A supermax would be 4 years and $221 million with the clippers of 4 years and $212 million with a new team. It’s in question whether the Clippers will even offer George a max contract as they re-signed Kawhi Leonard this season for just under the supermax and James Harden is a UFA as well.
Eligibility for this extension requires winning the MVP award at any point, being named to an All-NBA Team in the season immediately preceding the extension or in two of the three previous seasons, or being awarded the Defensive Player of the Year in the season immediately preceding the extension or in two of the three previous seasons.

 

Over 38 Rule



 

Paul George cannot extend for 5 years because his fifth year would be subject to the over 38 rule, as it would be the first year following the player's 38th birthday. George could technically sign for 5 years but the fifth year of his contract would be attributed to earlier years in the contract on a pro-rata basis. This means that for salary cap purposes, the team's financial obligation for those later years is accounted for in the earlier years of the contract, raising the team's salary cap figure in those earlier years. This presentsfinancial and cap management challenges that make it less practical for the Clippers. The CBA sets it up this way  to prevent teams from deferring a large portion of a player's salary to later years when the player might not be playing, thereby circumventing the salary cap rules.

​