If the union prevails, the Knicks would be able to re-sign both Jeremy Lin and Steve Novak, their two top free agents, despite cap constraints. They would also retain a $5 million salary slot — known as the mid-level exception — for use on another player, possibly J.R. Smith, who might opt out of his Knicks contract.

But if the union’s challenge fails, the Knicks will probably lose Novak and possibly Smith, when free agency opens in July. And they will have little ability to sign a significant free agent — such as Steve Nash — once they re-sign Lin.

The union sent a letter seeking arbitration on Monday and hopes to have the matter settled by the time free agency opens on July 1. The union and the league must first select an arbitrator.

The case could also affect J.J. Hickson of the Portland Trail Blazers and Chauncey Billups of the Los Angeles Clippers.

via Howard Beck – NYTimes.com.