Cameron Payne, guaranteed contracts, and the Milos Teodosic Rule

On the final day of the transaction window, the Phoenix Suns signed Cameron Payne to an unusual-looking contract: he’ll earn $196,288 for the remainder of this year, with just $2,483 of that guaranteed, plus a second year at $1,977,011, with $25,009 guaranteed. That second year is a team option, in addition to the very small partial guarantee.

The transaction window and upcoming restart of the NBA’s regular season have come with some changes to the way the Collective Bargaining Agreement is interpreted, but there was nothing in any of the new rules about a change in when contracts are guaranteed. Since we’re still in the 2019-20 league year and January 101 For the uninitiated, January 10 is known as the “league-wide cutdown date” – if a player with a partially-guaranteed contract is still on a team’s books by then, then his contract is, for practical purposes, fully guaranteed for the remainder of the year. has come and gone long ago, how come Payne’s salary for the remainder of this year isn’t fully guaranteed?

However, the rule governing the cutdown date isn’t anywhere to be found in the CBA, nor the league’s By-Laws. Instead, the operation manual contains the answer: “Any player whose contract is terminated for ‘lack of skill’ during the period from January 10 through the end of the season shall be entitles to receive his full salary for the season, regardless of whether the contract contains ‘salary protection’ for lack of skill. In order to ensure that a player’s contract is terminated prior to the cutdown date, the player must clear waivers prior to January 10.”

That paragraph is very specifically worded. When January 10 passes, the contract itself does not technically fully guarantee, but for every practical purpose, the money is locked in for the player and team. As a result, almost every contract signed after January 10 is fully guaranteed for the rest of the current season, but based on the paragraph governing the January 10 cutdown date, that doesn’t have to be the case, which is what happened with Payne and the Suns.

Side note: the league’s operations manual isn’t negotiated between the league and the player’s association, so the league could unilaterally change the January 10 cutdown date rule whenever they wanted, either to eliminate it altogether or change the date at which point all contracts become guaranteed. They did that ahead of the 2011-12 lockout-shortened season, when the league-wide cutdown date was February 10 instead, and will have to do it again for the 2020-21 season.

Ed. note (updated 27 July 2020): The above paragraph is not correct. While the January 10 rule does not show up in the main articles of the CBA nor the By-Laws, it is collectively bargained as one of the paragraphs in the Uniform Player Contract.

So now that we know that the Suns were legally allowed to sign Payne to a partially-guaranteed contract that is essentially fully guaranteed, why did they do that? If the contract behaves as though it’s fully guaranteed, why make it partially guaranteed at all?

For the answer to that, we look to the Milos Teodosic Rule2I use Teodosic as the example for this, though it’s quite possible that another player signed a similar deal before 2017 and the rule should be named after him.. This rule is governed by the CBA, in Article XII, and applies to both team and player options: an option year’s salary must have the same guarantee percentage as the previous year’s salary. For the most part, options are either fully guaranteed3LeBron James’ fourth year with the Lakers is a fully-guaranteed player option or entirely non-guaranteed4Mitchell Robinson’s fourth year with the Knicks is a non-guaranteed team option, but they don’t have to be; an option can have any guarantee a team and player agree on, as long as it’s the same percentage of salary as the previous year.

In Payne’s case, the two sides wanted to structure the second year as a team option, with $25,000 guaranteed should the team pick up the option. This way, the team gets multiple chances to evaluate their roster and Payne’s place within it – they can opt out of the contract and either let him go or lock him in for more years this offseason, or they can opt in and cut him at a later date, or they can opt in and keep him around for less than $2 million next year. However, in order to make the second-year team option only $25,000 guaranteed, they had to match that guarantee percentage in the first year, hence the very small $2,483 “guarantee” for the 2019-20 season. Due to rounding with such small numbers, Payne’s guarantee for next year ends up at $25,009.