The CBA Glossary

Renegotiation parameters

Only teams under the salary cap can renegotiate a contract, and even then, they can only do so upwards. (Every few years, a story comes out about a player trying to look magnanimous and being willing to renegotiate their contract downwards so as to allow their team to spend more money elsewhere. Such magnanimity is wasted, however, because the process is not allowed.)

Contracts can only be renegotiated after the third anniversary of their signing, and only then if it is done prior to March 1st of that season. It is a tough set of circumstances to meet, not least of which is the criterion requiring teams to have cap room. When teams do have cap room, it is not generally the players they already have that they want to spend it on. Nevertheless, the practice is still permissible, however unlikely it is.

It is expressly prohibited in the Uniform Player Contract for two-ways and Exhibit 10 contracts to include player options, team options or ETOs. Not that it is easy to work out how that would even be possible in the first place. ⓘArticle II (Uniform Player Contract) Section 2 (Limtation on Amendments):

(b) Notwithstanding Section 2(a) above, except as provided: (i) in Sections 3(f), (i), (j), (l), (m), (n), (o), (p), and (r), and Section 11 of this Article, no amendments to Two-Way Contracts shall be permitted; and (ii) in Sections 3(e), (h), (j), (l), (m), (n), (o), (p), (r), and (s), and Section 11 of this Article, no amendments to Contracts containing an Exhibit 10 shall be permitted. For the avoidance of doubt, in no event may a Team and a player extend, renegotiate, or include an Option Year or Early Termination Option in a Two-Way Contract or a Contract containing an Exhibit 10.

Concurrent renegotiation/extensions

e. With the implementation of the 2011 CBA, the rules regarding extensions, already complicated, were curtailed in multiple ways. The maximum extension value possible shrunk, from 10.5% maximum compounded annual raises to 7.5%, with extensions to veteran contracts going from a maximum of five years in length to a maximum of four (including the season being extended), and rookie scale exceptions all being capped at four seasons in length except for those designated as a five-year recipient (limited to one per team).

Extend-and-trades in particular are more difficult to do now, having gone from being a maximum of six years in length (including the current year) with 10.5% raises to a mere three years and 4.5% raises. Additionally, per the 2011 CBA, renegotiations cannot be done in conjunction with a trade. So any grandiose renegotiate-extend-and-trade ideas can be done away with quite readily.

Little of this applies to Chandler, who is merely renegotiating to extend and stay with his current team. Even that, though, has limitations. There is a CBA clause which states that, if a player renegotiates their contract upwards with a raise of greater than 10%, they cannot afterwards be extended until three years after the renegotiation is signed. The exact clause in the CBA is written thus, in Article VII, Section 7(A)(2)(i):

A Player Contract that has been extended, or that has been renegotiated to provide for an increase in Salary in any Salary Cap Year covered by the Contract of more than ten percent (10%) of the player’s Salary prior to the Renegotiation, may not subsequently be extended until the third anniversary of the signing of such Extension or Renegotiation.

However, that clause applies only to extensions signed after a renegotiation, hence the word “subsequently”. Article VII Section 7(D)(2) - the same section that imposes the 40% drop limit outlined earlier - permits a simultaneous renegotiation/extension without the 10% limit:

A Player Contract that is extended pursuant to Section 7(a) above may be renegotiated simultaneously, but only if and to the extent permitted by the rules set forth in Section 7(c) above.

Assuming that this renegotiation happened - reports say that it did - Chandler’s 2015-16 salary can be renegotiated up by whatever amount of cap room Denver has left. This amount is slightly more than $8 million, though not all of it is likely to be used. (Reports that some cap room was reserved to re-sign Will Barton are erroneous - as Denver has full Bird rights on Barton, no cap room is needed to give him his three year, $11 million deal.) From there, we can add an extension. But there, we find a problem meeting the reported terms.

Veteran extensions are limited to four years in length, including the number of years remaining on the current deal. As Chandler has one year remaining, he can therefore sign an extension for a maximum of three more years. The amount of money in the first year of the extension, as mentioned above, is capped at 107.5% of the money in the last year of the deal being extended. And from there, the maximum raises (or decreases, if relevant) in all other years are capped at 107.5% of the amount in the first year.

The key thing to note here is the number of years. Chandler can only sign a three year extension despite it being widely reported that he is signing a four year one. It could of course be that the reports of a four year extension include (a bit misleadingly) the renegotiated year, which is fine, but Chandler cannot sign an extension through 2020. What he can do is make a total four year, $46.5 million commitment, but that will include the renegotiated 2015-16 salary. As such, then, Chandler will be a free agent by at least 2019, and perhaps 2018 if there is indeed a player option in the final season.

It remains to be seen how the $46.5 million figure arrived at will take shape. With all the above in mind, there are options here. Using rounded numbers and loose examples for illustrative purposes, Denver could in theory negotiate Chandler’s 2015-16 salary up to $15.5 million, and then using the maximum 40% drop in the extension outlined above, go all the way down to $9.3 million in 2016-17, then use the maximum 7.5% raises to grow back to $10 million and $10.7 million in the final two years, for a total commitment of $45.5 million. Alternatively, Denver could go conventional, negotiate Chandler’s deal up to $10.5 million and then use standard 7.5% raises from there, for a total of $46.7 million. They could maybe frontload the entire thing - the maximum annual decrease percentages are 7.5%, the same as the much more widely known maximum percentage increases. Or they could do anything in between those parameters.

Renegotiating guarantees

What can be done is renegotiating the amount a contract is guaranteed for lack of skill (more commonly simply known as the amount a contract is guaranteed).

Forgive the dated nature of this example, but it suffices here - back in 2007, the Miami Heat

you cannot retroactively put in options:

f a Contract contains any Option or ETO, the right of the Team or player to exercise such Option or ETO must be fixed at the time the Contract (or Extension) is entered into and may not be contingent upon the satisfaction of any individually-negotiated condition. In the case of an ETO, the Effective Season of such ETO also must be fixed at the time the Contract (or Extension) is entered into and may not be contingent upon the satisfaction of any individually-negotiated condition. Section 4.

- The more your team are over the luxury tax threshold, the more your team will pay.

- The more regularly your team is over the luxury tax threshold, the more your team will pay, too.

- Teams under the tax threshold not only avoid penalty, but get rebates, which do not change their salary cap picture but which do improve the cash position.

- In addition to the luxury tax - whose effectiveness as a payroll deterrent had dwindled in light of the Golden State Warriors' extravagant spending - the NBA has recently introduced the "apron" thresholds, which exist in addition to the tax, and which are designed to reduce excessive spending not just through extra payments but through reduced spending options. See the Aprons page for more.