How Do NBA Contracts Work?

During the offseason, NBA fans are waiting for Woj bombs to keep them updated with the latest signings, trades, sign-and-trades, and whatever is going on. They may read such terminologies as team options, two-way contracts, mid-level exceptions, restricted and unrestricted free agents, guaranteed and non-guaranteed deals, and so on. How do NBA contracts work, and are they really needed?

Read on and learn more about the nuances and inner workings of NBA contracts.

How an NBA Contract Works

NBA contracts are legally signed documents between a player and a team that stipulate the salary, the number of years the contract will last, and more specific things. The purpose is to care for and satisfy both parties during the transaction. Here’s the rub: Every arrangement is different as players would like to negotiate something to their advantage. 

Of course, superstars can dictate terms they want, provided the team deems it fair compared to the value the said player brings. Nobody expects someone like LeBron James to sign a contract with similar stipulations to Bismack Biyombo’s.

Make no mistake about it, NBA contracts are rarely straightforward. It presents different levels of intricacies that could baffle casuals or those with no interest in numbers. NBA contracts are extremely extensive because they must account for every conceivable scenario. To cover all the bases, the players, represented by their agents, and the club even discuss matters that might not even occur.

Contracts may also address personal behavior to prevent scandals or negative media coverage that might damage the organization’s reputation. Bonuses may also be included if a player achieves a milestone like being chosen for an All-NBA or All-Star team. Overall, breaking any of these rules will result in the termination of the contract.

Why Contracts are Important in the NBA?

NBA teams have been discussing contracts from the days of George Mikan until now. Why is it needed? From a legal perspective, no party can cheat the other off when a contract is already in place. Of course, there are instances when a player outplays their contracts, which means they are playing well above their pay grade. Even so, the primary purpose of a contract is to ensure a level field for teams and players.

For a young player, a contract is a security blanket. It opens many possibilities in the future, and holding your end of the bargain builds up your reputation. That money could change the life of your family.

On the other end of the spectrum, contracts allow teams to maximize their investments. They don’t want the players to go down the wrong path, do, and say something stupid that could cause friction in the locker room and in the public eye. To do that, a team may require avoidance of activities such as excessive drinking or partying and drug use.

11 Types of NBA Contracts

NBA teams are made up of different players from different backgrounds– superstars, role players, undrafted picks, and anyone in between. That means the league has a contract specifically for the players and what they mean to the team. It follows that proven commodities almost always get the bag over unproven talents.

Here are the basic descriptions of the types of NBA contracts:

1. Uniform Player Contract

The Uniform Player Contract is likened to a blank slate where a team and player can begin negotiations. There will be no designated salaries, just the money based on the years of experience of a player. The parties may agree to unique stipulations such as a No-Trade Clause or compensation protections. A UPC contract has a maximum term of four years.

An example of a UPC contract is a veteran’s minimum, which is based on the number of years of experience. For the 2021-22 season, a 10-year vet commands a minimum salary of $2.6 million.

2. Max Contract

A “max” contract is short for “maximum.” A max contract is essentially a UPC adjusted for higher salaries based on the season’s salary cap. A player with at least six years of experience could have a salary of 25% of the cap, players with 7-9 years, 30%, and 10+ years at 35%. 

3. Supermax Contract

A supermax is basically a max contract on steroids. Players who have played at least seven seasons and are renewing their contracts with the team they were on during their rookie deals are eligible for these. Supermax contracts could be up to 35% of the annual salary cap.

The supermax can be offered through extensions, not just on free agents. For example, an eligible player with two years left on his contract can be up for a four-year supermax. In the same vein, an eligible player with a year left can sign for a five-year supermax, and so is a free agent with at least eight years of experience.

4. Rookie Scale Contract

A rookie contract is a deal exclusively signed by first-round picks. It is a four-year contract with a team option in the third and fourth years. The salary is determined by the slot in which the player was drafted. For example, 2022 first overall pick Paolo Banchero receives $11 million in Year 1, $11.6 million in Year 2, $12.16 million in Year 3, and over $15 million in Year 4.

5. Designate Veteran Player Contract

The DVPC is a contract only introduced in the 2017 Collective Bargaining Agreement. This is only offered to a player with seven to nine years of experience, who plays in the team that drafted him, and who achieves performance-related criteria. This is like a supermax that may only be offered by the team that originally picked the player, giving teams from small markets an advantage to retain the services of their superstars.

The first player who signed the DVPC was Steph Curry in 2017. It was also the first $200 million contract in the history of the NBA.

6. Two-Way Contract

A two-way contract is a contract that allows teams to sign second-round picks or undrafted players to develop them. It states that these players may play on the team and the G-League for a specified number of games. More often than not, two-ways can be turned into a standard UPC contract.

7. Summer Contract

Undrafted players who sign a summer contract can participate in their team’s summer activities and get evaluated before committing to a longer-term deal. A summer contract may also be called a training camp contract and paid $2,000 per week with no compensation. These contracts may be signed on July 1 and end a day before the regular season begins.

8. Non-Guaranteed Training Camp Contract

A non-guaranteed training camp contract is like a summer contract with one big difference. Player contracts can be revoked on the first day of the regular season, with compensation protections of up to $6,000. If the contract is not canceled, it will immediately become a two-way contract with no protections. 

9. Exhibit 10

Young talent might be encouraged to advance within a franchise’s confines rather than sign elsewhere or abroad by offering them Exhibit 10s. These are offered to young players who were waived by the team and signed to their G-League team to develop. In doing so, they may receive at least a $5,000 bonus, and the contract may be converted into a two-way deal.

10. 10-Day Contract

A 10-day contract is often given to a player amidst an injury crisis for a team. It only lasts 10 days or roughly three games, whichever comes first. The pay is based on the player’s experience, which could range from $61,000 to $175,000.

11. Rest-of-Season Contract

As the name implies, this contract is given to a player to play the rest of the season out. Players who are bought out of their contracts often sign ROS contracts. When they sign, their compensation is based on how much of the season is still left, but it must be more than the minimum for that time. 

What is NBA Salary Cap?

The salary cap in the NBA is the maximum amount of money a franchise may pay its players. 

The NBA uses what is referred to as a “soft” cap, which means a number of exceptions may be granted to let a club spend more than its salary cap. However, teams that go above the cap will be punished, excluding certain specific cases. 

According to the rule, if a team exceeds the threshold by $5 million to $10 million, it will be charged $1.75 per dollar. Excellence has its price, and for many NBA teams, that means paying additional tens of millions.

For more information about the NBA salary cap, click on this in-depth article here.  

What are NBA Trade Restrictions?

NBA players under contract can’t be passed around like a hot potato. The CBA outlines the NBA trade rules including trade restrictions.

Generally, teams must wait before the season is finished to engage and participate in trades. That means trade season comes early for the teams who fail to make the playoffs, while the Finalists wait until the end of their series.

Now, what about certain players and their contracts? Once a player signs a contract as a free agent, they are also subject to trade limitations. The limitation is 30 days if he recently signed a two-way deal or was recently drafted.

A free agent can’t be traded for at least three months. However, for free agents who re-signed to their teams via Bird rights at a raise of at least 120% of their previous salary, their trade eligibility will be four months. 

Other players, as mentioned, have no-traded clauses in their contracts. That means they cannot be traded by the team unless they waive that clause. Players with that luxury use this as leverage to get traded to teams they really want.

For more about the ins and outs of NBA trades, this article has plenty of useful information.

Are NBA Contracts Guaranteed Money?

The vast majority of NBA contracts include guaranteed compensation to ensure the player’s financial security regardless of the season’s events. Many are fully guaranteed, and some are partially guaranteed; either way, the players are often financially protected.

For partially guaranteed contracts to become fully guaranteed, a date should often pass before a team makes that decision. If the front office wants to cut ties, they will cut the player before the said date to prevent his contract from becoming fully guaranteed.

Top 5 Players with Biggest NBA Contracts

NBA players have never been paid this much money. In fact, the NBA plays its players a whole lot compared to other professional sports organizations. Here are the 5 players who secured the biggest NBA contracts:

1. Nikola Jokic (5 years, $272,020,000)

2. Bradley Beal (5 years, $251,019,650)

3. Giannis Antetokounmpo (5 years, $228,400,220)

4. Devin Booker (4 years, $224,224,000)

5. Karl-Anthony Towns (4 years, $224,224,000)

With the way things are going now money-wise, this list needs to be updated every couple of years.

Top 5 Worst NBA Contracts in NBA History

To label someone’s contract as “bad” is subjective. Some, like Gilbert Arenas, were true superstars before signing a nine-figure contract. Sadly, Arenas could not return to form, making him one of the worst signings in NBA history.

That said, some players are just terrible. They don’t have the resume of Arenas, a three-time All-Star and a three-time All-NBA member, yet they managed to secure heinous amounts of money. 

If you want to know them, here are 5 of the worst contracts in NBA history:

1. Joakim Noah (4 yrs, $72 million)

Noah was a former All-Star selection, All-NBA First team member, and Defensive Player of the Year. However, by the time Phil Jackson gave Noah a mad amount of money, even a blind man can see he was done. He was already ran to the ground and got nothing left in the tank thanks to a myriad of injuries.

2. Timofey Mozgov (4 yrs, $64 million)

Mozgov was a solid player, but nothing about him screams $18 million a year. Former Lakers boss Jim Buss thought differently and along with teammate Luol Deng, clogged the books for $136 million in the next four years. That’s a master class on how not to run a franchise. Deng ( four years, $72 million) deserves a mention here, but at least the guy was a two-time NBA All-Star.

3. Penny Hardaway (7 yrs, $86.7 million)

Penny was a joy to watch in his Orlando days which were cut short due to injury. He was a legit All-NBA first-team talent, but after a slew of knee problems, Phoenix should have erred on the side of caution before signing him in 1999 for nearly 87 million. In his defense, Penny did play all 50 games of the lockout-shortened season, but that proved to be an anomaly. He missed over half of the games during his tenure in Phoenix and was never the Penny basketball fans cheered for.

4. Jon Concak (6 yrs, $13 million)

Concak was a restricted free agent in 1989 when out of nowhere, the Atlanta Hawks chose to match the Pistons’ offer of six years and $13 million to retain his services. That amount was more than Larry Bird or Michael Jordan was earning then, so this was a shocker, maybe even to Concak.

5. Cristiano Felicio (4 yrs, $32 million)

If Concak averaged 4.5 points and 4.5 rebounds in his career, Felicio did less. Even so, the Bulls gave him a four-year contract worth $32 million to come off the bench and play 15 minutes. Maybe he’s a nice guy or a hustler in practice, but he never lived up to even becoming a decent first big off the bench. He was out of the league as soon as his contract expired.

Wrapping Things Up: How Do NBA Contracts Work?

NBA contracts are legal documents between players and teams that state various stipulations. These include the salary, the number of years, their conduct, and many other specifics. The purpose of the contract is to keep both parties happy as they work together for a common goal.

But how do NBA contracts work? Well, as long as set in the contract, it must be fulfilled, except for particular situations such as buyouts. Players must also work around certain types of NBA contracts, such as rookie scale, max, supermax, two-way, and Exhibit 10. Even though NBA contracts are complex, they are needed to protect the interests of teams and players.

We hope you enjoyed this post! If you did, be sure to check out our other basketball FAQ articles here.