Generally
General Circumvention Provisions
The CBA includes a general provision restricting any action by the League, Team or Players that is an attempt to circumvent the CBA.
The following acts are considered actions that circumvent the CBA:
- The Team enters into an Agreement with a third party that pays the Player for his basketball services (even if it looks like it’s not for basketball services), where (i) the fair market value for the services is substantially lower and (ii) his Contract with team is substantially below fair market value;
- Having a financial arrangement or offer a financial inducement to a Player not under Contract.
“Player” and Team Affiliate
For all circumvention rules, “Player” refers to the Player and any person or entity acting on behalf of the Player.
“Team” refers to the Team and any Team Affiliate.
Penalties
The penalties for violating the above general Circumvention provision include the following, to be issued by the Commissioner:
- Up to $4.5 million fine (Team);
- Up to $5.5 million for the second offense;
- Forfeiture of one First Round Pick;
- Void the Contract and any other transaction found to violate the provisions.
No Unauthorized Agreements
In addition to the general Circumvention Provision above, there are specific agreements expressly prohibited by the CBA, subjecting the Team to harsher penalties.
No Separate Agreements
The Team and the Player are not permitted to have any agreement, express or implied, involving any type of compensation or for anything of value other than what is permitted in the CBA, including any investment or business opportunity.
In 2015, the Clippers were fined $250,000 when a presentation made to Free Agent DeAndre Jordan included an opportunity with a third-party sponsor.
The Team and Player must certify upon the execution of a Contract that no separate agreements were made.
No Future Agreements
The Team and the Player can not make any agreement on any future Renegotiation, Extension or amendment to an existing Player Contract.
In 1999, the Timberwolves signed Joe Smith to a 1-Year Contract for $1.75 million, which was well below his market value. After the year, the League became aware that the Wolves and Smith agreed that he would sign three 1-year contracts to generate Full Bird Rights, to then sign him to a long-term contract up to $86 million.
After it was discovered, the Wolves were (under a prior version of the CBA) fined $3.5 million. Five First Round Picks were forfeited (reduced down to three). Smith’s Contract was voided and his Bird Rights were extinguished. Owner Glen Taylor was suspended and Kevin McHale was forced to take a leave of absence.
If a Team intentionally delays providing a UPC to the Player and the Player has no knowledge of the delay, then the Player will not be found in violation of this rule.
These rules align with the general rule that any oral or written agreement between a Team and Player shall be reduced to writing in the form of a UPC “as soon as practicable.”
The Team and Player must certify both upon the signing of a Contract, and when a Player is traded in the final Season of his Contract, that no future agreements have been entered into (orally or in writing).
Attempts = Prohibited Conduct
Any attempt to enter into or solicit into any of the above agreements also constitutes a violation.
Co-Investment Permitted
A Team and Player may passively invest (no decisionmaking powers) in the same third-party entity, subject to the following requirements:
- Neither can hold more than 12.5% interest in the third-party entity;
- The Team and Player cannot coordinate with each other;
- The investment opportunity was not made available from one party to the other.
Proof
A violation of these actions can be proved by circumstantial evidence.
Evidence that a term or provision in a Contract cannot be rationally explained in the absence of a violations is considered circumstantial evidence.
Penalties
Penalties for Team and Player
The penalties for violating the above provisions include the following, to be issued by the Commissioner:
- Up to $7.5 million fine (Team);
- Up to $350,000 fine (Player);
- Forfeiture of multiple First Round Picks;
- Void any Contract in violation of the provision (when both Team and Player are found in violation);
- Suspend Team personnel up to 1 year;
- Void any transaction violating this provision and claw back any value the Player received;
- Exceptions – If the Player received Compensation for services already performed and/or Player establishes by a preponderance of the evidence he was unaware of the violation.
The Commissioner may also fine the Team or Team Personnel $1 million without any proceeding before a System Arbitrator.
Penalties for Player Representatives
If ruling on individual/entity acting on behalf of Player:
- System Arbitrator must make specific determination;
- If violation is found and upheld on appeal, it is referred to the NBPA;
- The violation will be considerd a violation of NBPA regulations;
- NBPA will impose its own penalty.
The NBPA is to issue a suspension of a minimum 1-year suspension of a Player Agent’s license.
No adverse inference will be made should the party initiating the proceeding delay in doing so until there was further reason to believe there was a violation.
Transactions With Retired Players
Transaction Triggering the Rule
Below are the elements required to trigger the application of this rule:
- Retired Player played for Team within 5 years of transaction;
- Retired Player to be (i) paid compensation or consideration of more than $10,000, or (ii) provided with an investment or business opportunity; and
- Compensation the Retired Player received from the Team when playing was substantially below his fair market value.
The Test
If the League challenges the transaction (below), the determination that must be made is the following:
- The compensation/consideration substantially exceeds fair market value; or
- The amount of the Retired Player’s investment/benefit gained in the transaction is not commercially reasonable.
The Challenge Process
If the transaction triggers the rule, the League may challenge the transaction:
- League and NBPA select a business valuation expert (Business Expert);
- Business Expert holds a hearing and makes a determination, with the League holding the burden of proof;
- The Business Expert’s decision can be appealed to the System Arbitrator.
Penalty
If the League succeeds in the challenge, then the following occurs:
- Calculate the difference between the compensation/consideration received by the Retired Player (or the net value of his investment/opportunity) and (ii) the fair market value of the services provided by the Retired Player. The Guide calls this the Net Benefit.
- The Net Benefit is added to the Team’s Team Salary (allocated over time as determined by the Business Expert/System Arbitrator);
- Exception – If the addition of the Net Benefit exceeds the Team’s Room, then the challenged transaction/arrangement shall be rescinded.
Restructing/Rescinding Transaction
If the League succeeds in its challenge and the Team/Retired Player renegotiate or terminate the transaction, then it is disclosed to the League/NBPA and it goes back through the challenge process.
Charitable Contributions
A Team and Player may only donate to each other’s charitable contributions up to $20,000 per Salary Cap Year, and the Team can only donate up ot $75,000 for all Players on the Team for a Salary Cap Year.
Tampering
When Negotiations are Permitted
A Team cannot begin negotiating with a Player other than as permitted below. If negotiations take place outside of this timeframe, then it is considered Tampering.
UFA and RFA’s
A Player that will, or could be, a UFA or RFA on July 1st, and finished the Season on the Team’s roster, can begin negotiating with the Team after the NBA Finals.
A UFA and RFA can begin negotiating with any Team on June 30th at 6:00 P.M. ET.
On June 29th at 6:00 P.M. E.T., Teams can communicate with Players for the sole purpose of scheduling a meeting to take place on or after June 30th at 6:00 P.M.
Rookie Free Agents
A Rookie Free Agent can begin negotiating with Teams following the conclusion of the NBA Draft.
Extensions & Renegotiations
An Extension of a Contract with more than 1 Season and any Designated Veteran Extension cannot be negotiated during the Regular Season.
A Renegotiation cannot be negotiated between March 1st through June 30th.
A Team can begin negotiating an Extension or Renegotiation with a Player after the NBA Finals, if an Extension or Renegotiation can be signed after the Moratorium Period.
Tampering Penalties
The Commissioner can impose the following penalties if there is a finding of tampering, without a finding from the System Arbitrator (though appeal rights to the System Arbitrator are permitted):
- Fine of up to $2 million (Team);
- Forfeiture of draft picks; and/or
- Suspend any Team personnel engaged in the violation.
In 2022, the 76ers were stripped of their 2023 and 2024 2nd Round Draft Picks after being found to have violated the tampering rules via improper discussions with P.J. Tucker and Danuel House before the proper negotiation period.