As the 2022/23 NBA season gets underway, some people’s eyes are already looking ahead to what happens after it ends.
The current Collective Bargaining Agreement between the NBA and the NBA Players Association, agreed upon in 2017, has its first option to terminate coming up at the conclusion of this campaign. And with that in mind, numerous stories abound about, if the agreement is terminated, what changes might be afoot in the next one.
Perhaps some time in negotiations can be saved by removing a redundant part of the current one altogether.
There exists a little-known provision in the NBA salary cap that affects only the league’s elder statesmen. It is colloquially called the Over-38 Rule, and, since it was most recently refined in the 2017 Collective Bargaining Agreement, it has been a prohibitive factor roughly as many times at it has been renamed.
Previously the Over-35 Rule and then the Over-36 Rule – the threshold being progressively updated in successive CBAs to reflect the fact that player careers are lasting longer – the Over-38 Rule exists to prevent new contracts given to senior players being longer than it is expected (or known) that the player will want to keep playing for.
For example, if a team wanted to sign a player that they knew would retire in two years, they could potentially give him a mid-range value four-year contract instead of a higher-range two-year contract, thus circumventing the salary cap. If they for example intended to sign a player for two years and $40 million, but only had a non-taxpayer Mid-Level Exception to offer, they could theoretically sign him for four years and $40 million with the MLE, watch him retire after two, and take the cap hit in the final two years. The total commitment would be the same, while the immediate-term salary cap machinations would be far more favourable. This is to the team’s benefit, who get to sign a guy they would not otherwise get to sign.
The Over-38 rule seeks to shut this loophole by imposing parameters based on the age threshold suggested by its name. The particulars of how it does this are particularly complicated – for a truly comprehensive explanation, visit Larry Coon’s NBA Collective Bargaining Agreement FAQ – yet at the core of it, players signed to four- or five-year contracts that run beyond their 38th birthday will have salary in years after that date (the last year of a four-year deal; the last two of a five, unless only the last year is after 38) treated as deferred compensation, and thus distributed across the salary numbers of the years of the contract prior to that date. Correspondingly, therefore, the exceptions or cap room used to sign those contracts have to be big enough to incorporate both the deferred amounts in the post-38 years as well as the base amount in the first year.
This does not prevent teams from signing players to multi-year contracts that run beyond their 38th birthday. It does however limit the size of such deals, to prevent deals being backloaded in an act of cap circumvention (or, perhaps more accurately, cap can-kicking).
This age threshold – and thus, the colloquial name – has been moved up twice to reflect the fact that, with the advancement of biomechanics, nutrition, therapy and understanding of load management, player’s careers are lasting longer in the present day than ever before. The by-product of moving the threshold up, though, is that the instrument is still almost never used.
There was one famous public example a few years ago. In the summer of 2017, 14-year NBA veteran Nene’s career was winding down. He was still a good back-up center effective in a small role, particularly offensively, but he was also about to turn 35, and looking for one final multi-year deal. It seems he had arrived upon it when he agreed to re-sign with the Houston Rockets to a reported four-year, $15 million deal, which would take him up to almost his 39th birthday.
Nene had spent the previous year with the Rockets, signing as a free agent to a one-year, $2,898,000 contract using the post-cap room Room Exception having been with the Washington Wizards for the previous four and a half years. Because he changed teams as a free agent in this way only one year prior, he had neither Bird rights nor Early Bird rights.
Therefore, if Nene was to re-sign with the Rockets without using their 2017 MLE to do it, his new deal would have to fit within the upper limits of what he could get with non-Bird rights. That is to say, the biggest deal he could sign would be one staring at 120% of this previous salary, with maximum raises equal to 105% of that first year, for a maximum of four years.
In total, this meant a maximum deal of:
2017/18 – $3,477,720
2018/19 – $3,651,606
2019/20 – $3,825,492
2020/21 – $3,999,378
However, the final season would have come after Nene’s 38th birthday. Per the Over-38 rule, this means it would be treated as deferred compensation, and instead of having $3,999,378 on the 2020/21 salary cap, the Rockets would instead have one third of it ($1,333,126) added on to each prior year. This would have meant Nene’s 2017/18 salary cap number up to $3,477,720 plus $1,333,126, or $4,810,846. And since this was more than was allowable using the exception they were trying to sign him with, the deal was invalid, and negotiations had to begin again.
(Ultimately, Nene re-signed to the same deal as above, except without the fourth year entirely, bypassing the Over-38 provision yet costing him $4 million.)
As convoluted and confusing as that sounds, it is also incredibly rare that it is relevant. This is because, while it is established that NBA player’s careers are lasting longer, they still are rarely lasting that long. And when they do, the players are invariably not commanding salaries big enough for it to matter.
As of right now, there are only two players in the NBA over 38 years of age – Andre Iguodala and the 312-year-old Udonis Haslem. Both earn only the minimum salary, and have done for a while. Of the near-38s, there are twelve players aged either 36 or 37, and of those 12, three (Taj Gibson, Goran Dragic, Wes Matthews) are earning the minimum salary.
The candidates for whom this would even apply, then, are few and far between. The Over-38 rule did mean that if LeBron James had opted to become a free agent in 2021, his contract negotiations would have been affected (as they would also have been had he sought a five-year maximum salary back in 2016, when it was still the Over-36 rule), yet as with so many things about basketball, LeBron James is the exception, not the norm.
That said, there was one candidate in the most recent round of free agency that seemed to fit the bill. P.J. Tucker was a free agent of the Miami Heat, who was born on 5th May 1985. Therefore, any contract he signed at all this summer would take him past his 38th birthday, and therefore in theory, any four-year contract (or five if signed with his Bird rights) would have been subject to the Over-38 rule.
However, ultimately, the contract Tucker signed with the Philadelphia 76ers was only a three-year pact for the full non-taxpayer Mid-Level Exception. The above treatment of the salary in a fourth year as deferred compensation spread over the previous three did not apply, as there was not a fourth year. The $33,043,500 in total compensation Tucker received from the 76ers would have been the maximum he could have received via their MLE, no matter whether he signed for three years or four. And so he chose the three, opting for a year of rest rather than a year of free labour.
As a 38-year-old myself who appreciates the value of rest ever more with each passing year, I support his decision.