The Over-38 rule fills a gap in the CBA by forbidding teams from paying older free agents more than their cap room or cap exceptions permit. It was previously known as the Over-36 rule under the Collective Bargaining Agreement (CBA) for the NBA. Additionally, it restricts the availability of long-term contracts for players in their mid-to-late-30s.
The Over-38 rule was put in place to prevent teams from underpaying players. This was done by giving them contracts that go beyond the expected end of their careers. For instance, if a team wanted to offer a 37-year-old free agent a two-year deal worth $35MM but only had the mid-level exception available, the team could have changed the offer to a four-year deal. The purpose was to fit the average annual salary within the MLE, knowing that the player could receive his third and fourth-year salaries after retiring. That is forbidden by the Over-38 rule.
The Over-38 rule typically kicks in when a free agent signs a long-term deal that lasts past the age of 38. In these situations, the salary for the year or years following the player’s 38th birthday is regarded as deferred compensation. Moreover, it is applied to the years earlier in the contract where the salary is received. This usually precludes the team from finishing the contract by using the required cap space or exemption.
Over-38 Rule: An Example
Let’s use a real-world example to clarify the Over-38 rule since it is a little difficult to understand. When the Rockets and Nene attempted to finalize a four-year agreement using Nene’s Non-Bird rights in the summer of 2017, they were unsuccessful due to the Over-38 restriction.
Unfortunately, the veteran center will turn 38 soon, before the start of the fourth season of his contract. Therefore the last year of this deal would have broken the rule.
How Does LeBron Relate to the this?
LeBron James has recently signed a two-year, $97.1 million deal extension with the Los Angeles Lakers. This has brought attention to an obscure NBA salary-cap quirk known as the “over-38 rule.” James won’t be able to sign a contract for four or more years after his 38th birthday on December 30. James could only negotiate a two-year extension to his current contract, which was set to expire in 2022–2023.
LeBron kept the flexibility of a player option in 2024–25 that might allow him to play with his son.