The NBA was confident — bordering on cocky, really — that the players’ union had zero chance to win a case concerning salary-cap minutiae known as Early Bird Rights. But an arbitrator threw the league for a loop on Friday, ruling in favor of the union. The league said it would appeal.
The ruling is crucial to the Knicks because it affects their ability to re-sign point guard Jeremy Lin (and forward Steve Novak) while retaining financial flexibility to pursue other players. In the simplest terms, Bird Rights allow teams over the salary cap to re-sign their own players. The Knicks are over the projected cap for next season even though only six players have guaranteed money at this point; such is life when you pay Carmelo Anthony and Amar’e Stoudemire $40 million combined. The Knicks claimed Lin and Novak off waivers last season (the Clippers did the same with point guard Chauncey Billups and the Trail Blazers with power forward J.J. Hickson). In the past, Bird Rights haven’t applied to players acquired that way; the collective bargaining agreement specifies that Bird Rights only go to players who have stuck with the same team or changed teams via trade.
The issue hasn’t been too important because teams rarely clamor to keep waiver wire players. The Knicks, of course, are clamoring to keep Lin. If they are allowed to do so via Bird Rights, they can re-sign Lin (and possibly Novak) and retain the mid-level exception, which allows teams over the cap to sign a rival team’s player for up to the league’s average salary (about $5 million per year). Without Bird Rights, the Knicks would have to use the mid-level exception to bring back Lin, which would mean they could not save it to sign another free agent — someone like Steve Nash. But with Bird Rights, they could sign Lin and Novak, and still have the mid-level in reserve.
A win for the union, then, would appear to be a significant victory for the Knicks. And it is. But it is perhaps not as big as it would first appear.
Here’s why: Under the terms of the new CBA, any team that uses the full mid-level exception cannot end with a payroll more than $4 million higher than the luxury-tax line. Because the tax line is expected to stay around $70 million, that hard cap would kick in at $74 million. The rule is designed to discourage spending and equalize payrolls.
Let’s follow the math. The Knicks have $59.4 million committed to six players next season: Anthony, Stoudemire, Tyson Chandler, Toney Douglas, Renaldo Balkman and Iman Shumpert. Pretend the union’s victory in the Bird Rights case is upheld on appeal, and the Knicks offer Lin the maximum allowable $5 million starting salary. (No team is allowed to offer Lin a salary for next season larger than that, for reasons I won’t get into. If you’re interested, read this.)
That contract for Lin increases the payroll to $64.4 million. Tack on the full $5 million mid-level exception for Free Agent X, and the bill comes to $69.4 million for just eight players. As you can see, the math is getting tight. In this scenario, the Knicks have $4.6 million until they hit the new “hard cap” level, and they still have four roster spots to fill. And we haven’t even dealt with Novak or shooting guards J.R. Smith (who has a $2.5 million player option) and Landry Fields (a restricted free agent).
But wait! The CBA allows teams to disregard that hard cap $4 million above the tax line, provided they follow certain conditions. Among them: offering only a smaller version of the mid-level exception rather than the whole thing. Teams can offer that “mini” mid-level, worth about $3 million per year, and spend as much as they’d like.
This is a good news/bad news thing for the Knicks. The bad news, again, is that in practical terms, a favorable ruling in the Bird Rights case would really only open the “mini” mid-level and not the big one. The difference amounts to about $2 million per year in salary. That won’t matter to some free agents, but it will to others, especially if a team with access to the full mid-level (or just cap room) makes a competing offer.
The good news in this favorable Bird Rights scenario is that it would get the Knicks out of using the full mid-level on Lin. Some team is going to offer Lin $5 million, and the Knicks without Bird Rights could only match that by using their full mid-level. Doing so is a double blow: It hurts the Knicks in chasing other free agents and brings the hard cap into play.
The system essentially guarantees that the Knicks can keep Lin if they’d like to. But this Bird Rights case has major implications for what they can do around Lin and the rest of the roster. Stay tuned.