One of the benefits of the “soft salary cap” in the NBA is that it purportedly enables a team to retain its own players easier than a “hard salary cap.” Teams can offer their own free agents more money and more years than any other team, thus rewarding hometown fans and promoting player loyalty. Of course, it is not a flawless system, and there will always be players who have their minds firmly set on taking their talents to a different market to play with different teammates. But for the most part, a player’s current team will virtually always be able to offer a more lucrative and longer contract.
Back in 2003, the Washington Wizards were able to take advantage of one of the few loopholes in this soft cap system when they outbid the Golden State Warriors for Gilbert Arenas, a restricted free agent (RFA) after being a second round pick in 2001. The Warriors were over the cap and thus could only use an exception to re-sign Arenas. Gilbert was classified as an “Early Bird” free agent, meaning he had played with the Warriors over the previous two seasons without changing teams. A team can use the Early Bird exception to re-sign its own free agent for up to 175-percent of his salary in the previous season or 104.5-percent of the league’s average salary, whichever is higher. Therefore, Golden State could only match an offer sheet, or extend Gilbert’s contract, for up to the amount of the Early Bird exception ($4.9 million in 2003, the league average at the time). The Wizards smartly (two words you don’t hear next to each other very often) signed Arenas to an offer sheet nearly doubling Golden State’s exception, $8.5 million in starting salary, and left the Warriors without an option to legally match within salary cap rules.
This loophole was seemingly closed in the 2005 CBA with the “Gilbert Arenas Provision,” where it was ruled that an offer sheet made to a restricted free agent in his first or second year in the NBA could not contain a first-year salary greater than the non-taxpayer mid-level exception ($5 million for 2012-13) and a second-year salary no greater than the standard 4.5-percent raise from the first year. The third year of the offer sheet has no such restrictions and could be as high as the player’s maximum, given the offering team’s cap room. However, if a raise from year two to year three is greater than 4.5-percent, the team proposing the offer sheet must be able to fit the average of the entire contract under the cap, rather than the first-year salary, and that is how it is applied to their ledger. But if the original team decides to match the offer sheet, the annual salary is applied to the original team exactly as it is laid out in the standing offer sheet. To put this in context of 2003, the Wizards would only have been able to offer the full mid-level exception in the first two seasons, which at the time was $4.917 million. Golden State therefore would have at least had the option to match this offer sheet for Arenas, if they chose to do so.
The So-Called “Gilbert Arenas” Provision
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The Wizards and Knicks face off for the second time this season, the previous meeting coming in Washington, a 
