Each year at midnight on July 1, hundreds of NBA players become free agents. While the NBA moved up the deadline for free agents and teams to begin contract negotiations to the more palatable 6:00 PM EST on June 30, players who are eligible for free agency actually become free on on July 1.
Contracts agreed to can then be formally executed when the NBA Moratorium ends on July 6.
There are two types of free agent in the NBA: unrestricted and restricted.
Unrestricted free agency (UFA) is the simpler type of free agency and is exactly what it sounds like. Players are free to sign with any team of their choosing without restriction.
Restricted free agency (RFA) is just that: a process designed to restrict the movement of players unless their incumbent team allows them to leave. Any player, with one exception, that has less than four years of service time in the NBA is subject to restricted free agency. Player who have completed all four years of a first-round rookie scale contract are also subject to restricted free agency before their fifth season.
To make a player a RFA, their current team must issue that player a Qualifying Offer (QO). A QO is a one-year contract offer for a set amount (the exact salary is dependent on the player’s previous year salary).
An RFA then has one of three options: They can sign the qualifying offer and play under the one-year contract. If the player has been in the league for three years, they’ll be an UFA after completing their fourth season while signed to the one-year QO. If the player still has less than four years of service after completing the one-year QO contract, they are subject to restricted free agency again.
The second option for an RFA is to negotiate a new contract with their current team. This is similar to unrestricted free agency, as the team is able to sign the player to any contract length and amount that is allowed by the player’s free agency rights (Bird, Early Bird, Non-Bird).
The third option is for the RFA to sign an offer sheet with an opposing team. The player’s original team then has two days to match that offer. If the original team matches the offer sheet, the player returns. If the original team declines, the player joins the new team. Offer sheets must be for a minimum of two seasons, without option years.
While players are classified as either an UFA or RFA, they can take a handful of paths to get to free agency. The most common path is that their contract simply expires. Players on an expiring contract become an unrestricted or restricted free agent, as laid out above. There is one exception, that we’ll cover a bit later.
The next path is via a Player Option (PO). A PO gives the player the right to extend his current contract. If the player declines to extend his contract, he’ll become a free agent. If a player with four or more years of service does not exercise a PO, he becomes an UFA. If the player has three or less years of service, he becomes an RFA.
Similar to a PO, player contracts can contain an Early Termination Option (ETO). An ETO results in the same outcome as a PO does, as far as free agency goes. The process is just slightly different. With an ETO, the player is choosing to end his contract early vs. a PO where the player is choosing to extend his contract for an additional season.
Contracts can also contain a Team Option (TO). In the case of a TO, the team controls the process. The team must choose to extend the contract for an additional year by exercising the TO. If the team declines to exercise the TO, the player becomes a free agent. The same years of services rules still apply as far as determining UFA or RFA status goes.
It is with a TO that the one exception applies. For players on first-round rookie scale contracts, the third and fourth years are both team options. If the team declines to exercise the TO on a rookie scale deal, the player becomes an unrestricted free agent, no matter their years of service. However, the incumbent team is capped at offering a first-year salary of no more than the amount of the declined option year.
There is one other type of NBA contract that is regularly reported as being a team option, but is actually something different. NBA contracts are allowed to be fully guaranteed, partially guaranteed or non-guaranteed. Often, a contract with a partial or non-guarantee is reported as a team option. This is because should the team choose to waive the player, they can do so without consequence beyond paying the guaranteed amount of the contract.
A partial/non-guaranteed deal is similar to a TO in the sense that the team controls the process. There are a couple of important differences however. In the case of a team option, if the team declines to exercise the TO, that player becomes a free agent. If a team waives a partial/non-guaranteed player, that player is subject to the waiver process. That player only becomes a free agent if he clears waivers.
There is also a matter of trades that differentiates a TO from a partial/non-guaranteed contract. NBA teams are allowed to make trades during the period of time between their season ending and the start of the next league year. This is when you see trades go down around the NBA Draft. The one restriction is that players who are pending free agents, inclusive of those with a PO, ETO or TO, are ineligible to traded without that option being decided upon first. However, a player with a partial/non-guaranteed contract for the next season, is eligible to be traded.
An option (outside of rookie scale contracts) must be on the final year of a deal and contracts are only allowed to include one option year. Contracts can also contain an option (player or team) for a partial/non-guaranteed year. How this works is that if the option is exercised, the player’s contract then converts to a partial/non-guaranteed contract.
Contracts can contain multiple partial/non-guaranteed years. This is most commonly seen with second-round draft picks and undrafted free agents.
Lastly, the dates for when an option must be exercised (outside of rookie scale contracts) are negotiable. All options must be decided upon in late-June before the league year changes over on July 1. Trigger dates in partial/non-guaranteed contracts are also negotiable. A partial/non-guaranteed contract may contain multiple dates where the contract increases in guaranteed money. All NBA contracts become fully guaranteed as of January 10 of each season.