Update: Shams Charania of The Athletic:
This is a huge blow to Houston. The Rockets are now stuck with an over-the-hill center they can’t trade for value and can’t play much without triggering bonuses that’ll make him way overpaid.
If they had known how this would turn out, they would’ve signed Nene to a one-year minimum contract at most. At least that’d be partially subsidized by the league. Because this is is a two-year deal, Houston is on the hook for the full base salary.
The Rockets got a valuable trade chip with Nene’s contract.
At least if the deal goes through.
Although Nene signed with the Houston Rockets on Sept. 6, the NBA has yet to officially approve the deal. The 10-day delay is a result of the NBA discussing internally whether it should disapprove details in the contract, according to multiple sources.
Nene’s contract includes a low base salary with a massive amount of likely incentives. Houston could count Nene’s full $10 million salary (base plus likely incentives) in a trade. The acquiring team would then owe Nene his base salary plus only the bonuses he actually triggers.
It’s a workaround to the typical salary-matching rules.
The bonuses are tied to individual games played and team games won. Because Nene played 42 games for the 53-win Rockets last season, the bonuses are qualified as likely. Last year’s performance is the default way to determine whether incentives are likely or unlikely.
The NBA’s apprehension is interesting. The Collective Bargaining Agreement specifies a procedure for challenging incentive classification when the league or union believes the prior season is not a fair predictor. Essentially, that side makes a case to an arbiter that the default assumption is “very likely” to be wrong.
However, in a funny quirk here, that challenge system lays out only how the NBA can challenge to turn unlikely incentives into likely incentives and how the union can challenge to turn likely incentives into unlikely incentives. There’s nothing about the NBA turning likely incentives into unlikely incentives, which the league is apparently considering here (and would make Nene’s contract invalid, as there’s a limit on unlikely incentives).
The CBA also prohibits circumventing the spirit of the rules. The league could rule Houston did that here. However, that’s a tough case considering not only does Nene’s contract meet all stated technicalities, there’s a section specifically on challenging these types of details. It just doesn’t apply.
The Heat opened the door for likely/unlikely-incentive shenanigans a couple years ago. We didn’t hear then about the NBA challenging those contracts, and that’s where the official challenge system would’ve applied.
It seems unfair to punish the Rockets’ creativity now.