L is for Larry Bird Exception

Earlier in this series of posts on the CBA, while discussing the Early Bird Exception, I mentioned that the NBA, through it’s soft cap system in the current Collective Bargaining Agreement, actually gives financial incentives for players to re-sign with their previous teams when they become free agents.  This, I believe, helps to promote not only team continuity, but also greater fan loyalty.  This is, in my opinion, a very good thing.

No exception to the salary cap better illustrates this philosophy than the Qualifying Veteran Free Agent Exception, which is better known by its nickname, the Larry Bird Exception.  This naming after the famous Celtic is an homage to him and to his decision to re-sign with Boston in 1983 rather than to switch teams as a free agent.  By signing with his previous team through use of this exception instead of signing with a different team, a player can sign for 6 seasons instead of 5 and can earn larger yearly raises.  This means more guaranteed money over the course of the contract.

The Larry Bird Exception applies in cases where a free agent player (either restricted or unrestricted) has played in the NBA for at least 3 seasons without being waived or changing teams through free agency.  That last part of the previous sentence is especially important.  A player who changes teams by means of a trade does not lose his ability to be re-signed through use of the Larry Bird Exception.  Similarly, take the example of a player who signs a one year contract and becomes a free agent, then re-signs with the same team for another one year contract and becomes a free agent, finally signing a third one year contract with the same team.  At the end of that third year, he would be eligible to be re-signed via the Larry Bird Exception – because even though he was a free agent between the three contracts, he didn’t change teams.

Other rules regarding the Larry Bird Exception are as follows:

  • So long as the player is signed before January 10th of the salary cap year, the team can offer the player a first year’s salary up to the maximum contract amount available for that player.  If the player is signed after January 10th, that maximum first year’s salary amount  is reduced by 1/170 for each day after January 10th that the contract is signed.
  • A contract signed using this exception can be between 1 and 6 years in length.
  • The yearly adjustment to salary amount – either as a raise or a decrease from one season to the next – is limited to 10.5% of the amount of the first year of the contract.  However, if the new contract is an extension, than the yearly adjustment is limited to 10.5% of the amount of the last year of the contract being extended.
  • If a player is a first round draft pick on a rookie scale contract whose team picked up the 3rd year team option but did not pick up the team option for the 4th year of the contract, the team can still use this exception to sign the player.  However, the maximum amount of salary in the first year of the new contract is limited to what his salary would have been if the team had picked up the team option for the 4th year.
  • The exception can be used either for a new contract or for an extension, depending on the player’s situation, so long as the player qualifies under the above-mentioned rules.
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