NBA Free Agency Glossary: What is restricted and unrestricted free agency?

Free agency is one of the most exciting moments in a player’s career. After years of team control, players can hit free agency and sell their services to the highest bidder, but not all free agencies are created equal. 

What is unrestricted free agency in the NBA?

The NBA has two basic types of free agency– restricted and unrestricted. Unrestricted free agency is incredibly simple. After the completion of their contract, an unrestricted free agent can sign with any team for any contract within the parameters of the Collective Bargaining Agreement (CBA).

The most famous example of unrestricted free agency was LeBron James’ free agency decision in 2010. James met with a host of teams and ultimately decided to sign with the Miami Heat as an unrestricted free agent. All his former team, the Cleveland Cavaliers, could do was sit back and hope he stayed, and when he didn’t, there were a ton of hurt feelings over a player using his hard-earned unrestricted free-agency rights. 

What is restricted free agency in the NBA?

The “free” in unrestricted free agency lives up to its name, but restricted free agency is far more complex and draconian, as it is a literal antithetical phrase. Before we delve into the mechanics of restricted free agency, a quick graphic detailing the timeline of restricted free agency will help as a useful reference point. 

This is restricted free agency at its most basic level, but a whole host of rules and regulations governs the who, what, where, when, and why of restricted free agency.

What is a qualifying offer?

The first step in the restricted free agency lifecycle is the qualifying offer. A qualifying offer can only be extended to players coming off their rookie deal, must be made by the team that previously had the player under contract and must be for one fully guaranteed year of salary. The amount of money a team can offer through a qualifying offer is determined by the player’s previous salary and experience. Once a qualifying offer is made, the player becomes a restricted free agent. 

For first-round picks, both their third and fourth-year team options must have been exercised for a team to extend a qualifying offer, and the qualifying offer is for the agreed-upon percentage increase over their fourth-year option based upon their draft spot. 

Salary increase from fourth-year option for qualifying offers

For players who weren’t first-round picks and were not on two-way contracts, their qualifying offer will be for 135 percent of their previous season’s salary, or 125 percent if their contract was signed prior to 2023-24. Qualifying offers for players on two-way contracts will be for the standard NBA contract. 

Teams may also extend an alternative qualifying offer which covers five seasons for the maximum annual salary (25 percent of the salary cap) with annual eight percent raises. This contract can only contain base compensation, no bonuses, and cannot contain options or early termination options. The maximum qualifying offer and standard qualifying offer must remain open for the same duration, and players cannot accept both qualifying offers.

As soon as a qualifying offer is made the player in question becomes a restricted free agent and the team gains Rights of First Refusal, which allows them to match any contract offered to the player in free agency. A qualifying offer remains active until the player signs any contract. If a player does not sign a contract with their original or a new team the qualifying offer will remain intact, and a team can retain their Rights of First Refusal into the next season. So while a restricted free agent is free to explore free agency, they aren’t really free to sign with any team, and the rules of offer sheets add further restrictions. 

What is an offer sheet?

An offer sheet is a contract offered to a restricted free agent by a team that is not their previous team. However, offer sheets are subject to certain restrictions not extended to contracts for unrestricted free agents. An offer sheet must be for more than one season, excluding options, unless the player has been tendered a maximum qualifying offer and then it must be for more than two seasons, the team must have room for the player’s contract at the time the offer sheet is signed and continue to have room while the offer sheet is outstanding, and the offer sheet cannot provide a signing bonus that exceeds 10 percent of the contract’s compensation. 

Once a contract is agreed upon, the player and the new team sign the offer sheet and present it to the team with Rights of First Refusal. The team then has two days to either agree to all the principal terms of the offer sheet and retain the player under those terms, or allow the player to join the new team. 

For players with one or two years of service, an offer sheet cannot be for more than the Non-Taxpayer Mid-Level Salary Exception in the first year of the deal. For the 2024-25 season, the Non-Taxpayer Mid-Level Salary is set at $12.9 million but projects to hit $18.9 million by 2028-29. 

How restricted free agency plays out for players

The power of the qualifying offer and the restrictions on offer sheets can make restricted free agency difficult to traverse. The primary issue players face in restricted free agency is that teams need to keep their cap space open to facilitate an offer sheet but there is no guarantee they’ll end up with that player. With how fast unrestricted free agency and the trade market can move, waiting 48 hours on a player who may not end up on your team is a substantial risk. 

There’s also the issue that many teams operate well above or just below the salary cap, which further reduces the number of teams that can realistically target restricted free agents. The restriction on signing bonuses is meant to prevent teams from negotiating offer sheets that would be financially difficult for the team with Rights of First Refusal from matching. The result is that players generally receive less lucrative deals through restricted free agency than they would have received through an extension or if they were unrestricted free agents.  

Deandre Ayton’s restricted free agency with the Phoenix Suns is an informative example of how the process plays out. Ayton, selected with the first overall pick in the 2018 draft, enjoyed a strong start to his NBA career and helped the Suns reach the Finals in his third season. However, the Suns weren’t completely sold on him and never agreed to a rookie scale extension, but still picked up his fourth-year rookie contract option, setting him up for restricted free agency. 

The Suns and Ayton’s relationship deteriorated over the next season, his fourth, but the franchise still extended him a qualifying offer. In restricted free agency, he agreed to a four-year, $133 million maximum offer sheet with the Indiana Pacers, the largest offer sheet in NBA history at the time. The Suns matched the contract, and Ayton had to return to Phoenix, the place he wanted to leave, but on a contract he wanted. Ayton would last one more season in Phoenix before he was traded to the Portland Trail Blazers. The Suns used restricted free agency to keep a player they barely wanted, only to preserve a large salary slot and asset. 

Reaching unrestricted free agency

To reach unrestricted free agency, players generally have to sign one contract following their rookie contract. However, a player could reach unrestricted free agency because a qualifying offer was never extended or rescinded, but that is typically an indication of a low-level player. The fastest way for a player of note to reach unrestricted free agency is to sign the one-year qualifying offer following their rookie deal. This route has never been taken by a high-level player, due to the risk associated with injury and the financial benefits players receive via staying with the same team. 

While unrestricted free agency allows players to sign with any team, league rules have made it a less lucrative and attractive option. The Veteran Free Agent Exception allows teams to retain their own free agents beyond the salary cap, and players with five years of service time can earn 30 percent of the salary cap on a maximum contract, as opposed to 25 percent, if they stay with the same team. These two CBA parameters working in tandem have created an environment where star-level players generally avoid unrestricted free agency to get the best contractual terms, and then use trade demands to get to the destination of their choosing.