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I’ve had a number of requests to explain what the Over-36 rule is all about, and how it might affect this summer’s free agent crop. I’m going to use this article to try to put it into layman’s terms. For a more detailed explanation, please refer to Question 49 of my FAQ at cbafaq.com.

Consider a free agent like Jason Kidd, who’s nearing retirement. Let’s say a number of teams want to sign him — except we’ll assume that Dallas isn’t one of those teams, and neither is any team that has cap room. This means that the teams competing for his services will all be waving the same Mid-Level exception at him. Kidd will be left to choose a team based on other factors like the weather and his likelihood of winning a ring.

Kidd is 36, and based on statistics alone, likely won’t be in the league very much longer. Let’s say he intends to hang ‘em up three years from now. For this article we’ll assume the Mid-Level exception is an even $6 million. If a team wants to use the Mid-Level exception to sign him for three seasons, then the most they can pay him (using 8% raises) is $19.44 million total.

Now suppose some crafty GM has a bright idea and says "Jason, we know you’re going to play for just three more years. But we’ll sign you for FOUR years, and continue paying you after you retire." So instead of three years and $19.44 million, this team is offering four years and $26.88 million. This idea is obviously appealing to Kidd, who finds himself being offered an additional $7.44 million to sit on a beach somewhere in 2012-13.

We’re really talking about paying Kidd some deferred salary, which is perfectly legal – as long as it’s properly accounted for. The league counts deferred salary against a team’s cap in the year it’s earned, and not the year it’s actually paid. So some of Kidd’s deferred salary should count against the team’s cap in 2009-10. But they only have $6 million available using the Mid-Level exception, so they can’t pay Kidd the full $6 million if they also have to account for a portion of the deferred salary. In other words, by pretending it’s a normal four-year contract, this GM is trying to circumvent the cap by paying Kidd deferred salary but not accounting for it as such.

Unfortunately for Kidd and this crafty GM, the league already thought of this, and took measures to prevent it from happening. To implement this rule, they make a blanket assumption that players will retire at age 36 (it changed from 35 to 36 starting with the 1999 CBA in response to older players continuing to play). If a player signs a longer contract that lasts past a player’s 36th birthday, then the rules take the default position that the team will be paying the player after he retires, and therefore any salary past age 36 is really deferred salary.

By classifying this salary as deferred, it forces teams to account for it in the early years of the contract. For Kidd and this GM, the only way to fit both his 2009-10 salary and a portion of the deferred salary within the $6 million Mid-Level exception is to reduce his 2009-10 salary. If they do this, then Kidd also makes less over the life of the contract.

{AUTHOR_BOX}The net effect of doing this is pretty interesting – it turns out that he makes the same total amount in a three year contract (starting at $6 million, and with no deferred salary), as he does in a four year contract (that classifies the last season as deferred, forcing the first year salary to be reduced). In other words, forcing the later salary to be classified as deferred removes all financial incentive for the player to sign for extra years after they retire.

That’s the essence of the Over-36 rule – it forces salary to be classified as deferred salary if it’s a longer contract and lasts past the player’s 36th birthday. In doing so, it prevents the kind of cap circumvention I described above.

But as they say, the devil is in the details, and there are lots of factors that complicate the Over-36 rule. For instance, extensions and renegotiations can also be subject to Over-36, and there was even an exception created specifically for Shaquille O’Neal! Instead of going into all the details, I’ll review this summer’s free agents (ages are per ESPN) who might be affected by Over-36, and indicate which seasons would be counted as deferred under this rule. If a season is counted as deferred, it really means "there is no point in signing the player for this many years."

• Kobe Bryant (LAL), Jarron Collins (UTA), Jason Collins (MIN), Walter Herrmann (DET), Mehmet Okur (UTA) and Hedo Turkoglu (ORL) are 30. If re-signing with Bird rights for six years, the sixth year may be counted as deferred.
  
• Mike Bibby (ATL), Melvin Ely (NOH), Jason Hart (DEN), Jamaal Magloire (MIA), Shawn Marion (TOR), Desmond Mason (OKC), Ime Udoka (SAN) and Jake Voskuhl (TOR) are 31. For any contract of five or more years, all seasons starting with the fifth season may be counted as deferred.
  
• Damon Jones (MIL), Tyronn Lue (ORL), Stephon Marbury (BOS), Michael Ruffin (POR) and Wally Szczerbiak (CLE) are 32. For a five year contract, seasons four and five may be counted as deferred. If re-signing for six years with Bird rights, then years five and six are deferred.
  
• Maceo Baston (IND), Calvin Booth (SAC), Ryan Bowen (NOH), Brevin Knight (UTA), Raef LaFrentz (POR), Sean Marks (NOH), Andre Miller (PHI), Mikki Moore (BOS), Rasho Nesterovic (IND), Brian Skinner (LAC), Joe Smith (CLE) and Lorenzen Wright (CLE) are 33. If re-signing with Bird rights, years five and six are counted as deferred. Any other contract for five years counts years four and five as deferred.
  
• Anthony Carter (DEN), Adonal Foyle (ORL), Zydrunas Ilgauskas (CLE), Allen Iverson (DET), Antonio McDyess (DET), Anthony Parker (TOR), Malik Rose (OKC), Jacque Vaughn (SAN) and Rasheed Wallace (DET) are 34. If re-signing with Bird rights, years five and six are counted as deferred. Any other contract for five years counts years four and five as deferred.
  
• Grant Hill (PHO), Juwan Howard (CHA), Lindsey Hunter (CHI), Bobby Jackson (SAC), Jason Kidd (DAL), Donyell Marshall (PHI), Dikembe Mutombo (HOU), Kevin Ollie (MIN) and Theo Ratliff (PHI) are 35 or older. If re-signing with Bird rights, years four, five and six are counted as deferred. Any other contract for five years counts years four and five as deferred.

In some places I say years "may be" counted because in these cases it depends on the player’s exact birth date and whether he signs before or after his birthday.

Also keep in mind that if the player is re-signing with his previous team with full Bird rights, his salary is limited only by the maximum salary. So players in this situation are only affected by the Over-36 rule if they are contemplating a maximum contract.

I’ll close this article by repeating my disclaimer one more time. The actual machinations of this rule are very complicated. If you want a better idea of whether a particular player will be subject to the Over-36 rule, see my FAQ at cbafaq.com for more details. If you want to tell beyond a doubt, you’d better grab the actual CBA, a calendar, and the player’s birth certificate.