The Over-38 Rule limits the Sixers’ leverage over the Rockets for James Harden

Rumors about James Harden being open to a reunion with the Houston Rockets in free agency this summer have reached a fever pitch. Although a “high-ranking Sixers source with knowledge of the team’s operation” told Sam Amick and Kelly Iko of The Athletic that they are “unconcerned” about potentially losing him this summer, that confidence may largely be tied to their ability to offer Harden a more immediate shot at winning a title.

Since the Sixers have full Bird rights on Harden, they would typically be able to offer him both one more year and higher annual raises (8 percent) than any of his free-agent suitors this offseason. However, the “Over 38 Rule” in the current collective bargaining agreement will limit the leverage they have over the Rockets in free-agent negotiations.

The Over 38 Rule applies to any contracts that cover four or more seasons, one of which begins after the player turns 38. In that scenario, the “aggregate salaries” covering a season after the player’s 38th birthday “shall be attributed to the prior salary-cap years pro rata on the basis of the salaries for such prior salary-cap years.”

In plain English: The Sixers can only offer Harden a four-year max contract this summer, not a five-year max.

As a veteran with 10 or more years of NBA experience, Harden is eligible to receive up to 35 percent of the cap as the starting salary of his new contract. Next year’s salary cap is currently projected to be $134 million, which means neither the Sixers nor any other team can offer him more than $46.9 million in 2023-24. From there, the Sixers can offer 8 percent annual raises, while any other team can only offer him 5 percent.

Since Harden will turn 34 in August, he’ll be 38 heading into the final season of his contract (which, for Over-38 purposes, begins on Oct. 1). That means his salary in 2027-28—which would be a whopping $61.9 million on a max deal—would have to be divvied up proportionally over the first four years of his contract. But since he’s ineligible to receive more than $46.9 million next season, the Sixers can’t offer him a five-year contract with his maximum salary in 2023-24.

The Sixers could still offer Harden a five-year deal, but it can be worth no more than the value of his four-year max contract. In other words, he has zero incentive to sign a five-year deal, since the Sixers would be paying him the exact same amount that they would on a four-year max contract.

Based on the $134 million cap projection, the Rockets and any other team can offer Harden a four-year max deal worth roughly $201.7 million (a starting salary of $46.9 million with 5 percent annual raises). The Sixers’ four-year max offer tops out at roughly $210.1 million (a starting salary of $46.9 million with 8 percent annual raises). That means the Sixers can offer him roughly $8.4 million over the next four years than any other team, which is relative peanuts when you’re discussing a $200 million contract. State tax rates could also largely wipe out that difference.

Pennsylvania has a 3.07 percent personal income tax, while Texas does not have an individual income tax. I’m by no means a Pennsylvania state tax expert—I have no idea whether there’s a cutoff in which a certain amount of earnings is not subject to the income tax—but if his entire salary is taxable, he’d be giving roughly $6.3 million right back to the state government. That means he’d theoretically take home only $2.1 million more on a four-year max deal with the Sixers than he would with the Rockets.

So, if Harden elects to stay with the Sixers beyond this summer, it won’t be primarily for financial reasons. His flourishing partnership with Joel Embiid and the Sixers’ proximity to title contention—especially relative to the 13-49 Rockets—will be the main selling points.

There is one wild card looming over all of this: the possibility of a new collective bargaining agreement going into effect ahead of this offseason. The NBA and National Basketball Players Association “are progressing in talks” on a new CBA, and a deal may be “within grasp in the coming weeks,” Shams Charania of The Athletic reported Monday.

The NBA and NBPA each have the option to opt out of the current CBA by March 31. The CBA would expire on June 30 if either side does so; otherwise, it’s set to run through the 2023-24 season. If/when the two sides do reach an agreement, it’s unclear whether they’ll implement the new CBA ahead of next season or if they’ll modify the Over 38 Rule in the new CBA. (It was the Over 36 Rule in the 2011 CBA. Maybe LeBron James’ continued dominance at age 38 will convince the two sides to chance it to an Over 40 Rule?)

But barring a change to the Over 38 Rule in the new CBA, the Sixers won’t be able to significantly outbid the Rockets or any other suitor interested in signing Harden in free agency this summer.

Unless otherwise noted, all stats via NBA.com, PBPStats, Cleaning the Glass or Basketball Reference. All salary information via Spotrac or RealGM.