Hoops Rumors Glossary: ​​Poison Pill Deployment

That Provision of poison pills is not technically a term defined in the NBA collective bargaining agreement. However, the concept of a “poison pill” colloquially refers to a pair of NBA concepts.

The first of these concepts relates to the Gilbert Arenas commission, which we have explained in a separate glossary entry. When a team uses the Arenas provision to sign a restricted free agent with a year or two of NBA experience on an offer sheet, that team can lock in a massive third-year raise, which is often referred to as the “poison pill” because it it makes it harder for the original team to match the offer.

The second meaning of the “poison survey” is the one that has become more common – and more relevant – in recent years. It refers to players who recently signed rookie scale extensions.

The “poison pill rule” applies when a team renews a player’s rookie scale contract and then trades it before the renewal officially goes into effect. It’s a rare situation, but it has its own rules, as renewals after rookie contracts often create a large gap between a player’s current and future salary.

If a player is traded between the renewal of his rookie contract and the following July 1 (when that renewal becomes effective), the player’s incoming value to the receiving team for salary adjustment purposes will be the average of his current annual salary and the annual salary in each year of its renewal.

His current team, on the other hand, treats his current annual salary simply as an outbound number for matching purposes.

Let’s use heat guard Tyler Herro as an an example. Herro, who is currently considered both a trade and a renewal candidate, is expected to earn $5,722,116 in 2022-23, the final year of his rookie scale contract. Any extension he signs would be significantly more lucrative. To illustrate our point, let’s assume he and the Heat agree on a four-year, rookie-size, $120 million extension that would start 23/24.

If, after signing Herro for this extension, the Heat decide they want to trade him, determining the poison pill would complicate their efforts. From Miami’s perspective, Herro’s year-to-date cap hit ($5,722,116) would represent his outgoing salary for matching purposes. However, any team inheriting Herro would have to put his incoming value at $25,144,423 — that’s the five-year annual average and $125,722,116 he’s left with when factoring in his current contract and its (hypothetical) new expansion.

As we explain in our traded player exception glossary entry, NBA rules dictate that over-the-cap teams must pay and receive roughly the same amount of salary on each trade. Applying the poison pill rule to a player like Herro and creating a nearly $20 million difference between two trading partners’ accounts would make the salary adjustment far more difficult than usual.

Providing poison pills is one of the main reasons the Heat Herro are unlikely to renew until they’re pretty sure they’re not going to use him in a blockbuster trade. Without an extension, his current annual salary of $5,722,116 is both his outgoing and incoming cap for matching purposes.

Trades involving a player who recently signed a rookie scale extension are already rare. After all, these players are generally young and a player who has signed an extension is promising enough to have warranted a long-term investment. These are not players who switch teams often. The poison poll provision further discourages a deal involving one of these recently renewed players by complicating the pay adjustment rules and making these trades that much rarer.

Note: This is a glossary entry from Hoops Rumors. Our glossary articles explain specific rules related to trade, free agency, or other aspects of the NBA’s collective bargaining agreement. Larry Coons Frequently asked questions about the salary cap was used to create this post.

Previous versions of this post were published in 2012, 2018 and 2021.

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