Chapter 4: The Poison Pill

How the new CBA played a big role in the Knicks' decision to part with Jeremy Lin

Originally Published: July 19, 2012

Kent Smith/NBAE via Getty ImagesJeremy Lin put his signature on a contract that contained a poison pill the Knicks didn't want to ingest.

The old "poison pill" trick, offering a contract with an oddity that one franchise could accommodate more easily than another -- in this case, a salary that gets very high in its final year -- had long been allowed under the NBA rules that govern restricted free agency, but it had never been as effective as in the case of Jeremy Lin.

No matter how loaded the offer sheet that a team presented to a free agent, the player's original team has long had the right to match (though before 2005, there were more limitations in this regard) and almost always did. The thinking was that even if you didn't want the player for that much money, you had two choices: You could suck it up and pay the player the big salary and associated fees, or you could eventually find another team that would and get something back in a trade. Rudy Gay, Paul Millsap, Josh Smith -- in recent years teams made noises about recruiting all of them that way, but none moved.

With the NBA's new collective bargaining agreement, however, Houston realized it was time to revisit that logic. The more punitive luxury tax might make a "poison pill" something another team would choke on. The medicine was old, but the effect new -- and it took the Knicks, and even the people who designed the new CBA, by surprise.

"The rate goes up for every $5 million, so the tax due to Lin would have depended on how much salary the Knicks would have had without Lin," ESPN cap expert Larry Coon said. "For example, if they are right at the tax line without Lin, then his $15 million will cost them $28.75 million in tax. If they're $10 million over the tax line before Lin, then his salary will cost them an extra $47.5 million in tax."

That's a lot of money, even for one of the richest teams in sports.

Jeremy Lin was the apple of the Big Apple's eye -- a major draw who delighted fans and inspired global interest in the Knicks with major bottom-line implications. He was, until last weekend, seen as a lock to return to New York at any cost.

Then the Rockets agreed to give Lin a huge pay bump in the third year of his three-year offer, which, if the Knicks matched, would trigger a huge tax bill for New York.

This deal was diabolical for the Knicks in another regard, too: Lin would have been almost untradable if the Knicks had signed him.

The rules have long said that such players (restricted free agents whose original teams match another team's offer sheet) can't be traded in the first year of the deal without their consent. In the second year, Lin's contract would have been essentially a two-year, $20 million deal -- a much less attractive contract than three years and $25 million. What's more, the trade partners would have been teams willing to offer a player worth about $5 million, to match the Year 2 salary, but also be able to pay $15 million (plus, in some cases, luxury taxes) the next year. Not a lot of teams fit the bill.

SIX DEGREES OF SEPARATION: JEREMY LIN

Why did Jeremy Lin and the Knicks split? Here are six sides to the story.

• Chapter 1: The Family »
• Chapter 2: The Knicks »
• Chapter 3: The Rockets »
• Chapter 4: The Poison Pill »
• Chapter 5: The Financials »
• Chapter 6: The Lin Camp »

So, what about trading him in the third year to avoid the tax? A couple of problems there, too. For one thing, that season Lin would be paid like an All-Star, which most teams wouldn't want unless he were playing like one, and even then he'd be an impending free agent. On top of that, the Knicks couldn't take a similar salary back without incurring the same tax bill. The only solution would be to trade him for almost nothing to a team well below the cap, like the Bobcats or Kings, but that's tough to pull off.

In a league where the essence of trading is matching salaries, Lin's salary was nearly unmatchable for New York. That won't be as true for the Rockets, however. In another CBA wrinkle, for trade purposes, Lin's salary, on the Rockets or any other team, is averaged over the contract. If the Rockets want to trade Lin, his annual salary counts as $8.4 million at any time, making him that much less of a risk.

To Knicks fans, both the huge tax bill and the trade restrictions feel unfair. The two teams appeared to have the least level playing field imaginable in pursuing Lin.

But the Knicks could have prevented this: They could have saved their use of the amnesty clause they employed to release Chauncey Billups last year. Cutting Amare Stoudemire instead, perhaps in 2013 or 2014, would have gone a long way toward getting the Knicks out of the CBA bind that ties their hands in dealing with Lin and all other free agents.

Then there's the reality that the league designed the CBA to discourage rich teams like the Knicks from holding on to all their good players.

One of the league's major goals in negotiating this rule was to encourage the transfer of talent from free-spending teams. If the new CBA does not begin to separate good players from rich teams, it has failed to achieve one of the league's key goals of the lockout.

Painful though it may be, Lin's journey to the Rockets is precisely what that looks like, perhaps to be followed by Omer Asik's similar departure from Chicago.

Sources who were in the room negotiating the collective bargaining agreement say many cap tricks were addressed -- other owners even quizzed Dallas Mavericks owner Mark Cuban at one point about his CBA knowledge, hoping to learn some of his methods -- but the words "poison pill," sources say, were never spoken.

So as used by the Rockets, it came as a surprise.

But sources from both the league and the players' association agree this is precisely the kind of effect the new luxury tax penalties were designed to have.

The Rockets, meanwhile, were early to realize that this "poison pill" opportunity, while hardly new, would be newly effective. Rockets GM Daryl Morey drove a Mack truck through this loophole -- and came out of it with Jeremy Lin.

Next: The Financials »