How it Works: The Gilbert Arenas Provision

 

Restricted free agency exists so teams can control the young players they took the time, money, and effort to develop. In restricted free agency, teams are given first refusal rights to prevent their players from leaving for other teams so long as they are willing to pay what the market is offering. It is a useful concept that keeps teams in control (for the most part) and allows them to reap the benefits of player growth and development.

Most restricted free agents (RFAs) are Bird Free Agents, so even if the RFA’s incumbent team does not have any cap space, they can be signed with the Bird Exception, allowing the incumbent team to go over the salary cap to sign them. Because Bird Free Agents can be signed up to a max contract, incumbent teams have no logistical problems matching offer sheets from other teams. Some RFAs (Arenas RFAs), however, are only in the league for one or two seasons before they enter restricted free agency. In this situation, the only free agent exceptions available to the incumbent team are the Non-Bird or Early Bird Exceptions. [1] This theoretically limits the incumbent team’s ability to control their RFA if they are close to or over the salary cap. It leaves them susceptible to the risk of another team using cap space to outspend them, thereby making the entire concept of restricted free agency useless for such players. To prevent this situation from happening, the CBA has what is known as the Gilbert Arenas Provision.

The Gilbert Arenas Provision limits the amount non-incumbent teams can provide for in an offer sheet to an Arenas RFA.[2] The first year of such offer sheet cannot exceed the amount of the Midlevel Exception for the upcoming season. The salary in the second year of the offer sheet can increase or decrease by 4.5%. The salary in the third year can be any amount up to the amount a max contract would have provided in year 3 had the player not been subject to this provision and signed a normal max contract at the outset. The salary in the fourth year can increase or decrease by 4.1% of the salary in the third year. Table 1 below shows the maximum amount a Arenas RFA can receive in 2016 in accordance with these rules.[3]

Table 1. Arenas RFA – Max Offer Sheet

Year Salary Raises Over Prior Year
2016-17 $5,628,000[4]
2017-18 $5,881,260 4.5%
2018-19 $23,975,640[5] 407.5%
2019-20 $24,958,641 4.1%
Total $60,443,541

Interestingly, although the Gilbert Arenas Provision exists to protect teams that do not have enough cap space to sign their Arenas RFA, the rule is applied to all Arenas RFAs even if their team has max level cap space or their market value falls within the available free agent exceptions. A team with an Arenas RFA could have $40,000,000 in cap space but a non-incumbent team could still only offer such player the Midlevel Exception in the first year of the offer sheet.

The player’s cap hit throughout the life of his contract depends on whether his incumbent team matches the offer sheet. If the incumbent team does match the offer sheet, he will remain with his team and his cap hit will be identical to the offer sheet values. If, on the other hand, the incumbent team does not match the offer sheet, the non-incumbent team will acquire the player and his cap hit will be the average of salaries provided for in the offer sheet. Table 2 below shows the cap hit of a Arenas RFA if his incumbent team does not matched the hypothetical max offer sheet shown in Table 1.

 Table 2. Arenas RFA – Cap Hit for an Unmatched Max Offer Sheet

Year Salary Raises Over Prior Year
2016-17 $15,110,885
2017-18 $15,110,885 0.0%
2018-19 $15,110,885 0.0%
2019-20 $15,110,885 0.0%
Total [6] $60,443,540  

It is also important to keep mind that the Gilbert Arenas Provision only applies to offer sheets by non-incumbent teams. An Arenas RFA can receive a “normal” contract for any amount up to the max with standard increases and decreases in salary so long as the contract is offered by his incumbent team.

And although teams with max cap space can sign their Arenas Free Agent to a contract as large as the rules allow, the incentive to do so is relatively low. For example, let’s say a team with more than max level cap space has an Arenas RFA whose play suggests he is worth a max contract. In the 2016 offseason, that team has little incentive to pay him more than $15,110,885 in year 1 because that is the absolute most he could get by signing an offer sheet with another team. Of course, there are risks to this approach. The first is that he will not sign the contract, holding out for a fair contract similar to what Tristan Thompson did early in 2015-16. The second risk is that the player will sign his qualifying offer, play for one year at an amount far less than his market value, and become an unrestricted free agent the following summer. The third risk is that the player will sign an offer sheet, requiring the incumbent team to match, thereby causing a huge raise in the player’s third year. This could severely affect the incumbent team’s ability to sign helpful player’s during that offseason. However, most, if not all, Arenas RFAs are playing under very small contracts and have very small qualifying offers. It would likely be very difficult for these players to pass up such large contracts, even if they are potentially leaving millions on the table.

[1] The Early Bird Exception allows teams to sign their free agent for up to the greater of (i) to 175% of his prior salary or (ii) 104.5% of the average player salary. The Non-Bird Exception allows teams to sign their free agent for up to 120% of his prior salary.

[2] In addition to the rules that follow, the offer sheets must be fully guaranteed and may not contain any bonuses.

[3] All contract examples and salary amounts are based on a salary cap of $94,000,000.

[4] This amount is the Midlevel Exception for the 2016-17 season.

[5] This amount is third year of a 0-6 max contract based on 2016-17 max contract values

[6] This is different from the total in Table 1 due to rounding issues. In reality, the total amounts in both situations would be identical.

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