Generally
Generally, Contracts are not required to guarantee any Compensation owed.
Compensation Protection can be added to a Contract to guarantee all or a portion of a Player’s Base Compensation if the Contract is terminated prior to the expiration of its term.
There are different types of Compensation Protection:
- Lack of Skill;
- Basketball-Related Injury;
- Injury/Illness;
- Mental Disability;
- Death.
For categories 2 through 5, the Team must not have procured an insurance policy for the Player’s benefit.
Limitations
Increase in Protection
Subject to the exception below,the percentage of protected Base Compensation cannot exceed the percentage of unearned protected Base Compensation of any prior Season.
Note the additional limitation for Option Years discussed below.
Exception when Based on Conditions
The percentage of protected Base Compensation can exceed a prior Season if (i) the higher level of Compensation Protection is conditional and (ii) the condition cannot be satisfied until the completion of the Prior Season.
See allowable conditions below.
In 2022, the Pelicans signed Zion Williamson to a “Maximum” Rookie Scale Extension. However, his Compensation Protection throughout the Contract was riddled with conditions. First, Zion’s remaining three seasons became non-guaranteed when Zion missed more than 22 games in the 2022-23 season. He now can earn back guarantees if certain conditions are met, one of them being games played. If Zion plays 41 games, 51 games or 61 games, then his guarantees for the subsequent season increase to 20% at each benchmark. He also has weigh-in checkpoints and roster conditions.
Basketball-Related Injury
Compensation cannot be protected for both a Basketball-Related Injury and Injury/Illness.
Death Limitation
Limitation for death is $30 million.
Conditional Compensation Protection
Types of Conditions Permitted
Compensation Protection may have additional conditions, but only upon the following types of conditions:
- Increased protection if the Player is not waived by certain dates;
- Increased protection based upon achievement of Team/Player performance benchmarks or the player’s physical condition (applying same criterion rules for Incentive Compensation);
- Injury-specific conditions – Team can carve out specific injuries from the injury protection;
- Insurance – Dependent on the Team’s ability to obtain insurance, using best efforts, within a specific time, of a certain type/dollar amount.
In 2025, Jakob Poeltl signed an Extension through 2029-30. Each season was fully guaranteed except the 2029-30 season, which had Compensation for $5 million, that would increase based upon the following conditions: Starting in 2026-27, each season Poeltl played 1,400 minutes, the guarantee would increase $5 million. If he played 1,400 minutes and Toronto made the playoffs, the guarantee would increase another $2,433,333
Termination Prior to Condition
If a condition must occur prior to the trigger of any Compensation Protection, then the applicable protection is only effective if the contract is not previously terminated at the time the condition is satisfied.
Options and Compensation Protection
Termination Prior to Exercising of Option
Below are the rules that govern whether Compensation Protection remains in place in an Option Year when the Contract is terminated prior to the Option being exercised.
Team Options
Compensation Protection is only effective when the Option is exercised by the Team prior to the termination of the Contract.
Player Options
The Team and Player will negotiate whether the Protected Compensation in the Player Option year remains protected when the Contract is terminated prior to the Player exercising his Option.
The specific language to include in the Contract is contained within the CBA, and is set forth below:
- Remains Protected: “If this Contract is terminated by Team prior to Player’s exercise of the Option described in Exhibit 1 of the Contract, then Player shall be entitled to benefit from the Base Compensation protection provisions of this Exhibit 2 to the same extent if the exercise of the Option by Player had occurred prior to Team’s termination of the Contract.”
- Protection Extinguished: “If this Contract is terminated by Team prior to Player’s exercise of the Option described in Exhibit 1 of the Contract, then Team shall be relieved of any obligation to pay Player any Base Compensation with respect to the Option Year.”
Note if the Compensation Protection would be extinguished, then the Player cannot exercise his Option until the Team’s last game of the Season prior to the Option Year.
Terms of Protection Must Remain Unchanged
In an Option Year, the percentage and conditions of Compensation Protection must remain the same from the Prior Year.
In 2025, James Harden declined his 2025-26 Player Option to sign a new Extension with the Clippers. They wanted to sign a 2-year Extension with guaranteed salary in the first year, but only partially guarantee the second year along with a Player Option. They did this by only guaranteeing 31.4% of Year 1 of Harden’s Contract, but it became fully guaranteed on July 11, 2025–just 5 days after he signed the Contract. Since they did so, they were permitted to then only guarantee 31.4% of his Contract in Year 2 with his Player Option, along with the same July 11th roster condition.
Prior Injury Exclusion
The Prior Injury Exclusion is a carve out to Compensation Protection, where the right to receive Base Compensation is eliminated when the player’s disability or unfitness to play skilled basketball is due to the reinjury of a condition that existed prior to the execution of the Contract.
In 2025, Chicago signed Lonzo Ball to a Veteran Extension after dealing with a significant knee injury throughout his career. The extension included an Exhibit 3 Prior Injury Exclusion to protect the Team against reinjury of his knee.
Note that the Prior Injury Exclusion will not eliminate Compensation Protection for a Season when the Contract is terminated on February 1st or later.
Conduct Terminating Protection
A Player is not entitled to Compensation Protection if the termination of his Contract was based upon the following:
Activities Terminating Base Compensation
- Prohibited activities itemized in Exhibit 12 of Player’s UPC (which can be modified from Player to Player);
- Attempted suicide;
- Intentional self-inflicted injury;
- Abuse of alcohol;
- Use of any Prohibited Substance/controlled substance or abuse or prescription drug;
- Conduct during commission of felony for which he is convicted;
- Participation in any riot.
Breach
If the Player is in material breach of his Contract, he is not entitled to Compensation Protection.
Procuring Insurance
If the Player fails to assist in the Team’s procurement and processing of an insurance policy covering the type of Compensation Protection, then the Compensation Protection is not in effect.
The Universal “Cutdown” Date
Any Contract that is terminated for “lack of skill” from January 10th to the end of the Season is entitled to his full Base Compensation for the Season.
Therefore, if a Team seeks to terminate the Contract prior to the Salary being fully guaranteed, the Team must allow the Player to clear waivers prior to January 10th (i.e. he must be cut on January 7th).
Waivers and Buyouts
If a Player is waived, he is owed his full Protected Compensation, unless a Buyout agreement is reached with the Team, reducing all or a portion of the amount owed.
Visit the Waivers page for details.
Payment of Protected Compensation
Visit the Payment Arrangements page to view the payment schedule when a Team terminates a Contract when Protected Compensation remains owed, often called Dead Salary.