The Break-up: Examining Waiver and Buyout Clauses in Player Contracts

by: Hannah Dimaandal

Last December, news in the NBA reported a buyout agreement between Austin Rivers and the Phoenix Suns just days after he was traded by the Washington Wizards together with Kelly Oubre in exchange for Trevor Ariza. The Suns supposedly agreed to a buyout with Rivers after the latter expressed his desire to be with a team who has a chance for the playoffs.[1]

During last season’s trade deadline, Derrick Rose, a once hailed NBA MVP, was traded by the Cleveland Cavaliers to the Utah Jazz through a three-team trade with the Sacramento Kings.[2]Two days after, DRose was waived by Utah[3]and it took him almost a month without a contract before the Minnesota Timberwolves subsequently signed him.[4]

 What is a waiver and buyout clause?

When relationships have gone sour and expectations are not met, the player and the team usually come to an agreement to break up and part ways. The first option can be a trade with another team. If the team is not successful in coming to an agreement with another team for a trade, then a waiver and buyout is the alternative.[5]

In the NBA, first comes the buyout. Then comes the waiver. Then the buyout market. The player must clear all waivers with his former team within 48 hours before he enters the buyout market.[6]He then joins the buyout market where teams may place a bid on his contract.[7]The player usually goes to the team with worse record at the time the bid was made and once a new team assumes his remaining contract, the player’s former team shall clear him off its payroll.[8]In case no team bids or negotiates for his contract, then he is just paid off by his former team.[9]The player and the team talks about the existing contract, the remaining period, and the amount of compensation involved. The player and the waiving team shall settle on the amount that the player is willing to forfeit before he is released.[10]

In the case of Rivers, he had to forego $650,000 of his $12.6 million contract as part of his buyout agreement with Phoenix.[11]DRose, who signed with the Cleveland Cavaliers for a minimum veteran contract of $2.1 million for one season,[12]was only signed by the Timberwolves for roughly $420,000 for the remaining half of last season,[13]way less than his original contract.

Buyout Clauses in the PBA vs. NBA

Despite the absence of its own Player’s Association and hence a lack of a collective bargaining agreement between the players and its teams for better contract terms, the PBA Uniform Players Contract of Employment interestingly provides for a detailed provision on waivers. Juxtaposed with the NBA Uniform Players Contract, both contracts have the same grounds for termination – a) failure to conduct himself with good moral character and good sportsmanship and to keep himself in first class condition, b) failure to exhibit sufficient skill or competitive ability to continue as a qualified member of the team, and c) failure or refusal to render services that materially breaches his contract.[14]

Although both NBA and PBA players’ contracts have the same exact provisions that enumerate the waiver procedure to be conducted by a team, it is important to note that the PBA Player’s Contract specifically provides that the player must be paid the entire amount provided in his contract for its remaining period in case he is waived for his failure to perform and show competitive skills and abilities.[15]On the other hand, the NBA Player’s Contract only contains the provision that for waiver or termination under the same ground, the player must be paid only his base compensation for the season.[16]Still,Article II, Section 3 of the NBA CBAprovides that generally, the contract can be amended as agreed upon by the parties for a different amount.[17]The amount for a player’s buyout is not fixed nor is there a fixed percentage as to his entitlement. The amount really depends on a player’s individual negotiation with the team.

This is where the problem lies. Granted that renegotiating the terms of the buyout is permitted in the CBA, this provision empowers and enables the team to validly negotiate an amount lower than the original price agreed upon in the contract. Although the player has other remedies, such as submitting the dispute to grievance and arbitration, it still burdens the player and takes away the money he expected to earn and which he originally intended to have.

In a case about the validity of a waiver and buyout clause, the Court of Arbitration of Sports noted important points regarding the athlete’s contract that is applicable to the NBA, PBA, and all other leagues. First, the contract is a fixed-term employment contract.[18]Second, the general rule is that the expiration of the contract as prescribed in the agreed period shall be the basis for the termination of the contract.[19]Third, the grounds provided for in a buyout clauses are valid exceptions to the aforementioned general rule to allow premature termination of the employment contract – this may be just cause or mutual agreement by parties.[20]

Under our Philippine labor laws, the PBA Uniform Players Contract is a Fixed-Term Employment, a recognized valid kind of employment. Signing a Player’s Contract of Employment with a waiver or buyout clause is an understanding on both parties that although there is a prescribed contract period, it may be terminated prior to the expiration of the contract for causes accepted and agreed upon by the parties. Under the Labor Code, an employment contract may be terminated for just or authorized causes.[21]The list provided is not an exclusive list as Article 296(e) on just causes for termination provides for analogous causes.

Buyouts and waivers in sports are equivalent to mutual breakups in relationships. The team and the player acknowledge that at that point, parting ways is best for both of them. But the player should not be left empty-handed.Maybe the NBA can learn from the PBA which has fully guaranteed contracts for its players. The NBPA should at least lobby for minimum, non-negotiable amount or percentage that a player to be waived can take home.

Hannah dreams of working for the NBA (or UAAP) in the future. For now, she just enjoys arguing with anyone about anything NBA. She also can’t wait for NBA All-Star and the very interesting trades and buyouts that’s gonna happen come midseason trade deadline!


 

[1]Kadrice Rollins, Report: Austin Rivers Expected to Sign With Grizzlies When Buyout With Suns Is Complete, Sports Illustrated, Dec. 18, 2018, available at https://www.si.com/nba/2018/12/18/austin-rivers-free-agent-news-suns-grizzlies.

[2]David Liam Kyle, Jazz Acquire Jae Crowder and Derrick Rose in Three-Team Trade, available at, http://www.nba.com/jazz/news/jazz-acquire-jae-crowder-and-derrick-rose-three-team-trade.

[3]National Basketball Association, Utah Jazz waive point guard Derrick Rose, available at, http://www.nba.com/article/2018/02/10/utah-jazz-waive-derrick-rose-official-release#/.

[4]Alec Nathan, Derrick Rose Signs with Timberwolves After Cavaliers Trade, Jazz Release, Bleacher Report, available athttp://bleacherreport.com/articles/2758579-report-derrick-rose-signs-with-timberwolves-after-cavaliers-trade-jazz-release.

[5]Kristian Winfield, NBA buyout market: What is it and how does it work?,SBNation,Feb. 9, 2018, available at https://www.sbnation.com/2018/2/9/16994790/nba-free-agency-nba-buyout-market-explained-how-do-contract-buyouts-work.

[6]National Basketball Association Collective Bargaining Agreement, Exhibit A, National Basketball Association Uniform Players Contract, ¶10(c), at 483 (2017), available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0ahUKEwjirorfncLbAhWCa7wKHa3uDRgQFgh8MAY&url=http%3A%2F%2F3c90sm37lsaecdwtr32v9qof.wpengine.netdna-cdn.com%2Fwp-content%2Fuploads%2F2016%2F02%2F2017-NBA-NBPA-Collective-Bargaining-Agreement.pdf&usg=AOvVaw3Fo1FpVu0rGYRyCjTjxuqe [hereinafter NBA CBA].

[7]Winfield, supranote 5.

[8]Id.

[9]NBA CBA, Exhibit A, NBA Uniform Players Contract, ¶16(f)(iv), at 514, supra note 6.

[10]Dave Zarum, NBA Contract Buyout FAQ: Key dates, salary cap impacts and more, SportsNet, Feb. 21, 2018, available at, https://www.sportsnet.ca/basketball/nba/nba-contract-buyout-faq-key-dates-salary-cap-impacts/.

[11]Mikey Domagala, Austin Rivers Forfeited A TON of Money in Buyout With Suns, available at https://fastbreakdaily.com/2018/12/19/austin-rivers-forfeited-money/.

[12]Kristian Winfield, Derrick Rose thought he’d get a max contract. He just signed for $2.1 million, SBNation,July 24, 2017, available athttps://www.sbnation.com/2017/7/24/16023154/derrick-rose-minimum-contract-cavaliers-max-contract-knicks.

[13]USA Today, Derrick Rose Salary, available at https://hoopshype.com/player/derrick-rose/salary/.

[14]Philippine Basketball Association Uniform Players Contract of Employment, ¶19 (b).

[15]Id. ¶19 (b)(2).

[16]NBA CBA, Exhibit A, NBA Uniform Players Contract, ¶16(a)(iii), at 521, supra note 6.

[17]Id. § (3)(d).

[18]Emirates Football Club Company v. Hassan Tir, Raja Club and Fédération Internationale de Football Association (FIFA), Arbitration CAS 2014/A/3707, para. 113 (2015) (citing FC Shakhtar Donetsk (Ukraine) v. Mr. Matuzalem Francelino da Silva (Brazil) & Real Zaragoza SAD (Spain) & FIFA, CAS 2008/A/1519-1520, para. 81 (2009)).

[19]Id.para. 82.

[20]Id.

[21]A Decree Instituting A Labor Code Thereby Revising And Consolidating Labor And Social Laws To Afford Protection To Labor, Promote Employment And Human Resources Development And Insure Industrial Peace Based On Social Justice [Labor Code], Presidential Decree No. 442 , Art. 296-297 (1974).

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