The Knicks can now exceed the salary cap to re-sign Lin and Novak — for up to $5.3 million each — while maintaining maximum flexibility to pursue outside free agents.
Without the Bird rights, the Knicks would have been forced to use their midlevel exception to sign Lin and would almost certainly have lost Novak to free agency. Now they can retain both players and save the midlevel slot for another player.
The settlement is a victory for the players union, which has asserted all along that players who are claimed off waivers — as Lin and Novak were in December — should retain their Bird rights, just as a traded player does. The opposed that interpretation, but an arbitrator, Kenneth Dam, sided with the union in a ruling issued on June 22.
The N.B.A. initially appealed the ruling. But with free agency set to open Sunday at 12:01 a.m., the league opted to negotiate a settlement, rather than prolong the dispute and risk confusion. Without a resolution, the Knicks would have gone into free agency without knowing what they could offer their players, or which exceptions were available.
“We’re absolutely thrilled that the current players, as well as future players, will be able to benefit from this rule,” said Ron Klempner, the union’s deputy general counsel. “It was very important that we resolve the appeal by July 1.”
The Knicks declined to comment on the settlement. The N.B.A. issued a statement that described the settlement’s parameters, but it declined to comment further.
Bird rights allow teams to re-sign their players without respect to the salary cap. A player who spends at least two straight seasons with a team earns early Bird rights, making him eligible for a salary up to the league average (about $5.3 million). A player who stays for three seasons earns full Bird rights, making him eligible for the maximum salary.
Under the settlement, a player who is claimed off waivers will get the same early Bird rights as a player who is traded. However, in a compromise by the union, a waived player can retain full Bird rights only if he is claimed through the new amnesty procedure. In all other cases, a waived player will be eligible only for early Bird rights.
The rule applies only to players who are claimed through the waiver process. Once a player clears waivers and becomes a free agent, he loses all Bird rights. The union’s stance has been that a player who changes teams via a waiver claim is analogous to a traded player because in both cases the player did not choose his destination.
The settlement applies to J. J. Hickson of the Portland Trail Blazers and Chauncey Billups of the Los Angeles Clippers, who were also claimed on waivers last season. Both were granted full Bird rights, although the benefit could be meaningless under the circumstances.
The Blazers are under the cap and therefore do not need Bird rights to re-sign Hickson. Even without Bird rights, Billups is eligible for a 20 percent raise on his previous salary ($14 million), but at age 35 he is more likely to take a major pay cut.
So the clear-cut winner Friday was the Knicks, who now have a much better chance to keep their roster intact and to add a significant player. They are facing other cap-related challenges, however.
Under the new labor deal, a team can only use the full midlevel exception, worth $5 million, if it caps its payroll at $74 million ($4 million over the luxury-tax threshold). Any team that expects to exceed $74 million is limited to the mini midlevel exception, worth $3.09 million.
The Knicks already have $61.7 million in committed salaries for next season, before re-signing Lin, Novak, J. R. Smith, Landry Fields or Jared Jeffries. If Lin earns his full $5.3 million and Smith re-signs for $2.8 million, his maximum raise, the payroll will exceed $69 million — before adding another player — leaving the Knicks ineligible to use the $5 million exception.
Even if the Knicks traded Toney Douglas ($2.1 million) or other minor players to a team with cap room, it is highly unlikely they could re-sign their top players and still use the $5 million slot without exceeding $74 million.
Glen Grunwald, the Knicks’ general manager, acknowledged the quandary Thursday night, saying: “Whatever happens with our own free agents, it’s likely that we’ll be a taxpayer this coming year. So that’s why we would be operating under the three million number.”
Negotiations between teams and players can begin at 12:01 a.m. Sunday, although deals cannot be consummated or announced until July 11, after the N.B.A.’s annual moratorium. The league will use that 10-day period to finish the accounting on the 2011-12 season and to calculate the salary cap and luxury tax for next season.