Salary Cap 101: How do veteran extensions work in the NBA?

Fans of the Cleveland Cavaliers were given cause to sweat this summer when it began to circulate that All-NBA guard Donovan Mitchell was not expected to sign a contract extension with the team when he became eligible later in the offseason. Was Mitchell on his way out?

Not at all, or at least not anytime soon. It never made sense for Mitchell to sign an extension, even if he wanted to spend the rest of his career in Cleveland. Why is that? It comes down to veteran extensions and the very particular rules that govern them.

That makes it time for the latest entry in our “Salary Cap 101” series, where we dig deep into how the NBA salary cap works and how it affects NBA teams and players. Today we discuss veteran extensions: what are they, what are the various types, and what does it mean for Donovan Mitchell, the Cleveland Cavaliers and other teams around the league?

What is a veteran extension?

The clearest way for a player to sign a new contract is by hitting free agency, then inking an entirely new deal with either his current team or a new one. That’s not the only path, however; teams and players can agree to a new contract before the current one is over, and this mechanism is called a “contract extension”.

Players coming off of their rookie contracts can sign a “rookie extension” and those operate slightly differently; we’ll set those aside for now. The rest are called “veteran extensions” and allow a player to extend his contract for multiple seasons past the end of his current deal. Extensions can extend a player’s contract to a total of five seasons.

When can a player sign a veteran extension?

In most cases, a contract can be extended if it fits one of two criteria: there are two seasons or fewer on their current deal, or if it’s the two-year anniversary of when they signed a new veteran deal (in some cases the third anniversary).

If a player has two or more years left on their current deal and is eligible for an extension, they need to sign that prior to the start of the season; otherwise, they have to wait until the following offseason. That applies to a player like Donovan Mitchell, who can sign an extension only up to Game 1. Then next summer he will (potentially) have only one season remaining, so he can sign a new deal all the way through the summer, season and up to July 1; for example, Naz Reid just agreed to a veteran extension in late June rather than hit free agency.

What are the different types of veteran extensions?

The most lucrative veteran extension is called a “Designated Veteran Extension” and allows players who hit certain benchmarks to sign a deal worth more than a standard veteran extension; for example, Jaylen Brown of the Boston Celtics just made an All-NBA Team, which qualified him to sign a new Designated Veteran Extension worth up to 35 percent of the cap.

The standard veteran extension can start at 140 percent of the player’s salary in the final year of their current contract. From there, contracts can go up or down by 8 percent each season. The new years added can take the total length up to five seasons.

There are also “extend-and-trade” contracts, where a player can stay eligible for a trade and still sign a new deal; those extensions can go up to four years and 120 percent of a player’s previous salary.

Why won’t Donovan Mitchell sign an extension this offseason?

There is a wrinkle to the Designated Player Extension that is worth bringing up here. Designed as a tool to help teams retain their star players, the “DPE” is no longer an option for a player traded during their second contract. That means Mitchell, who was moved while on that second deal, cannot sign a “supermax” extension like Jaylen Brown just did.

That may seem like it makes it more likely for Mitchell to sign an extension this summer if he did want to stay in Cleveland, but he doesn’t get much of a benefit for doing so. He is the level of player who will sign a max contract even if he suffers a serious injury this season, so the extra security doesn’t benefit him. He can sign the same extension a year from now, or wait two years and hit unrestricted free agency.

The contract he can sign in unrestricted free agency will be the same as his extension, as if he opts out to hit free agency in 2025 he will be at nine years of service and eligible for a 30 percent maximum; his previous year’s salary is close enough that an extension would kick him up to his max.

The interesting wrinkle is that if Mitchell can hit free agency in 2026 he will have 10 years of service and be eligible for 35 percent of the cap. That could lead Mitchell to agree to a 1+1 extension next summer with the Cavs, tacking on another year with the team and allowing him to hit free agency in 2026. That could be the right middle ground for the two sides.

It never made sense for Donovan Mitchell to sign an extension this summer; he will want to keep his options open, and as much as he might love Cleveland it doesn’t cost him anything to wait. The fact that there is no larger payday waiting, however, puts a lot of pressure on next summer; if he doesn’t sign then, he may not sign back in Cleveland at all.