What is the Salary Cap?
The salary cap is the total amount of money each team is allowed to spend on players. The actual figure varies year to year based on league revenue from previous seasons, and NBA Commissioner David Stern recently announced that this year's number will be set at about $56.1 million. The NBA institutes a "soft cap" in which there are various exceptions that allow teams to exceed the set limit.

Why can a player re-sign with his current team for more money than with another team?
Named after Larry Bird, a player earns “Bird rights,” also known as a qualifying veteran free agent, once he plays for three seasons without signing as a free agent or being waived. If a player is traded, his Bird rights are traded with him. The idea behind this is to create an incentive for a player to stay with his current team. A player can receive a raise of 10.5% of his first year's salary. Using this exception allows a team to exceed the salary cap to re-sign one of their own players.

What is the difference between unrestricted and restricted free agency?
An unrestricted free agent is able to sign with any team he chooses while a restricted free agent's original team has the chance to keep the player by matching the offer sheet signed with another team. This is known as the "right of first refusal."

What is a qualifying offer?
For a team to make one of their players a restricted free agent, they must submit a qualifying offer to the player by June 30. This offer must be a one year offer for 125% of the player's previous salary or the player's minimum salary plus $175,000 (whichever is greater). If a player agrees to this offer, they play under a one-year contract and become an unrestricted free agent the following year. If not, he becomes a restricted free agent.

What is an offer sheet?
If another team wants to sign a restricted free agent, they extend an offer sheet to the player. If he signs it, the original team now has seven days to match.

What are option clauses?

Option clauses allow for a contract to be extended for an additional season past the date it is scheduled to end. There are three types of options:
Team Option - This gives the team the right to extend the length of the contract.
Player Option - This gives the player the right to extend the length of the contract.
Early Termination Option (ETO) - This gives the player the right to end the contract early, allowing him to become a free agent.

Can a team sign free agents and then re-sign their own free agents using the player's Bird rights?
Yes, however a team's free agent counts towards the team's salary against the cap while he is unsigned. In order to gain additional cap room to sign other free agents, a team would have to renounce their own player's Bird rights, meaning they give up the ability to exceed the salary cap by re-signing their player.

What is a sign-and-trade?
A team is not allowed to sign another team’s free agent and then immediately trade him. However, a team is allowed to re-sign their own free agent and immediately trade him to another team by adding a clause to the contract making it invalid if the player is not traded to a specific team within 48 hours. A sign-and-trade contract must be for three years or longer, and a team does not acquire the player’s Bird rights.

When can free agents officially beginning signing with teams?
While team’s can negotiate with free agents starting July 1, they can not officially sign a contract until July 8. This is known as the “July Moratorium” and is when the league reviews the revenue from the previous season and officially sets the salary cap.

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