With a densely-worded four page memo, NBA System Arbitrator Kenneth Dam breathed new life into the New York Knicks and altered the course of the 2012 free agent market.

Then, just as the Knicks were getting ready to pop the corks on their champagne bottles, the league announced it was appealing Dam’s decision – putting it on hold until the league’s appeals panel heard the issue and reached its own decision on the issue.

And finally, on Friday the league and players association announced a compromise, just in time for the opening of this summer’s free agent market. The compromise clarified the status of four players in this summer’s free agent market – most notably the Knicks’ Jeremy Lin – and future free agents in a similar situation. The Knicks can put the champagne back on ice.

It was a crazy week in the normally bucolic waters of arcane salary cap rules.

So what happened? The league and players union were fighting over the “Bird” status of players who are waived (released) by their team and then claimed by another team before clearing waivers and becoming free agents. The CBA says Bird rights follow a player when he changes teams by means of trade, and the league interpreted this to mean that the Bird clock resets when a player changes teams through the waiver process.

The union disagreed, saying that a waiver claim is no different than a trade in that a player changes teams without becoming a free agent, and has no say in where he goes. The union requested a hearing before Dam, the arbitrator charged with resolving such disputes.

This seemingly trivial issue has enormous consequences. For example, Lin was waived by the Golden State Warriors and claimed by the Houston Rockets, and then he was waived by the Rockets and claimed by the New York Knicks. By the league’s interpretation of Bird rights, Lin’s Bird status reset back to zero every time he was waived.

According to the league, Lin’s single season with the Knicks therefore entitled them to “non-Bird” status, which is the most restrictive form of Bird rights. A team can offer its non-Bird players only 120 percent of their previous salary (or 120 percent of the minimum salary, whichever is greater) in a new contract.

In contrast, the players union maintained that the clock should not reset when a player changes teams through the waiver process, so a player like Lin should have the benefit of two years’ tenure — which entitles the team to “Early Bird” rights, allowing them to spend up to the league’s average salary in the first season of a new contract.

For the Knicks, it was a perfect storm of seemingly unrelated rules conspiring against them. Since Lin is a restricted free agent, the team has the ability to match any offer he receives from another team, preventing him from leaving the Big Apple. They are further protected by the “Gilbert Arenas provision,” which limits the salary in the first season of another team’s free agent offer to the average player salary (about $5 million). This gives the team the ability to match such an offer using the non-taxpayer version of the Mid-Level exception, or using their Early Bird rights.

But the non-taxpayer Mid-Level exception comes with a steep cost — by utilizing an exception reserved for teams that are not taxpayers, the Knicks would be committing to not being taxpayers themselves. That means they would be saddled with a crippling hard cap — which they cannot exceed under any circumstance — at approximately $74 million. The league refers to this point as the “apron,” but to the Knicks it would become more of a brick wall.

The switchover from the non-taxpayer to the taxpayer version of the Mid-Level exception is at about $3 million. If Lin received an offer from another team in excess of $3 million – which was sure to happen – they would have needed to use their non-taxpayer Mid-Level to match, and would have been forced to live within the constraints of a hard cap through the upcoming season.

But if Lin instead was an Early-Bird free agent, the Knicks instead could use their Bird rights to match any offer Lin could have received from another team. This would have preserved their Mid-Level exception for another use – and more importantly, kept it within their own control. The team could sign another free agent – perhaps the Mavs’ Jason Kidd — for no more than $3 million, avoiding the hard cap.

For the Knicks, it all hinged on whether the Bird clock resets when a player is waived and then claimed by another team.

Dam sided with the union, noting that the language changed from “assignment” to “trade” in the 2005 CBA as part of a global change in terminology to accommodate the introduction of a newly defined term, “traded player.” In other words, Dam said that the rule regarding Bird rights was not changed in order to exclude waived players, noting that the change “appears to have had a different origin and purpose.”

The CBA gives either side the right to appeal an arbitrator’s decision to the league’s appeals panel, and the league immediately did so. Dam’s decision was set aside pending the outcome of the appeal, meaning the four affected players went right back to having non-Bird status, and would remain that way until the issue was resolved.

An appeal can take as long as 90 days to resolve under normal circumstances. However, this was the first appeal under the new CBA, so an appeals panel still needs to be selected – further delaying the process. The appeal all but guaranteed that Lin and the other players would enter free agency as non-Bird free agents, and teams like the Knicks would be forced to suffer the consequences.

However on Friday the league and union announced that the sides had reached a settlement, avoiding the lengthy appeals process. In exchange for the union agreeing to strict limits on the scope of Dam’s ruling, the league agreed to drop its appeal. The definition of Early Bird and Bird rights was modified to include players claimed from waivers. The sides also agreed that in the future, full Bird rights will be granted only when the player is waived and claimed through the league’s amnesty process.

This settlement takes effect immediately, so Lin and the Knicks’ Steve Novak enter free agency with Early Bird rights. The Clippers’ Chauncey Billups and the Blazers’ J.J. Hickson were granted full Bird status as part of the settlement. Since limiting full Bird rights to amnestied players does not apply to the current free agents, Hickson now has full Bird status even though he was not waived through the amnesty process.

The settlement also clarified that any other use of the word “trade” in the CBA does not also include players who were waived and claimed. This avoids the “absurd results” the league suggested would be a consequence of Dam siding with the union. Without this limitation, a future player might have insisted on collecting a trade bonus when he is claimed off waivers, or teams could claim they should receive trade exceptions when their waived players are claimed.

Novak is another player whose status was clarified by the settlement. Normally, players on one-year contracts who are traded always lose their Bird or Early-Bird rights, and enter free agency as non-Bird free agents. This means that even though Novak (who signed a one-year contract) is now treated the same as if he were traded, he would still become a non-Bird free agent. However, since “trade” doesn’t include waived and claimed players anywhere except in the definition of Bird rights, the rule resetting the Bird status of players on one-year contracts applies only to players who were actually traded.

Portland GM Neil Olshey will have a significant amount of cap room this summer, and having Hickson as a Bird free agent gives him more spending power. Olshey can now take care of Nicolas Batum, go shopping for a premier free agent or two, and then turn his attention to Hickson, re-signing him for any amount up to the maximum salary.

The Los Angeles Clippers aren’t affected by Dam’s decision or the settlement at all. The Clippers were already entitled to re-sign Billups for up to 120% of his full $14.2 million salary, and not just 120% of the $2 million they were paying him (the remainder of his salary was paid by the Knicks). So even as a non-Bird free agent, the Clippers could sign Billups for as much as $17.04 million, which is significantly more than they will want to spend to bring back a 35-year-old guard returning from a season-ending Achilles tear. Having Billups as a Bird free agent instead of non-Bird does not matter to them.

So the Knicks are the clear beneficiaries of this process. Their entire summer – and perhaps their entire season – rested on the outcome and the quick resolution of this dispute. With this matter now resolved, they are free to pop the corks on those champagne bottles.