What are Bird Rights and how they affect the Orlando Magic's free agency plans

The Orlando Magic are preparing for a major summer of improvement and change.

The Magic have had cap room before but have often been content to roll it over to the next year. They were biding their time and letting their young roster grow. There was not a reason to spend and speed things up.

Indeed, this summer appears to be one of some moderation. The Magic do not seem eager to spend a ton on big-name stars and win the headlines this summer.

Still, everyone understands the Magic have to do something. Their window to spend is closing—even with the new TV deal coming into place next year.

The bill, as Magic president of basketball operations Jeff Weltman likes to say, is going to come due with upcoming extensions for Franz Wagner, Jalen Suggs, and Paolo Banchero in the next two summers.

This is the window to spend. And the Magic, after a breakthrough playoff showing, have considerable power to spend. They have been involved with just about every major free agent expected to change teams or any major trade involving a guard.

Everyone's ideas are running wild.

Estimating the Magic's cap room is also something of a chore because of the various machinations of the cap.

As things stand, the Magic have $66.1 million in guaranteed salary for next year. They increase to $83.5 million if you include Jonathan Isaac's non-guaranteed deal, which the Magic are not expected to move off of. They would still have Joe Ingles' $11 million team options and Moe Wagner's $8 million team option.

It is not clear what the Magic will do with Ingles and even Wagner's team option is not a sure thing—although everyone still expects Orlando to retain Wagner even if they use another machination.

Orlando then has $57.5 million in cap room before dealing with those options and $49.5 million if the team retains Wagner. That creates a lot of room for the Magic to play with.

But most estimates drop that number down to around $32 million. Where is this nearly $17 million gap? It clearly is not just the $2 million in non-guaranteed money owed to Caleb Houstan.

The answer to this question is an important concept in the CBA called cap holds. And those play an important role in how much room the Magic actually have to spend.

It brings us to an important concept that needs to be explained as the Magic approach free agency because it is something that is both working for and against them this summer: Cap Holds and Bird Rights.

What is a Cap Hold? What are Bird Rights?

The first thing to do when talking about the nitty-gritty of the transaction season is to define some terms. There is at least a little bit of confusion over why the Orlando Magic do not have a ton of cap room or what eats into their perceived space.

Even the analysts have often discussed the Magic as functionally having $30 million in cap room while acknowledging they could open things up to as much as around $50 million.

The Magic have created a lot of flexibility for themselves, and what they do on June 29 with some of their non-guaranteed deals and options will speak a lot to what they have planned this offseason.

But mechanically, the reason there is such a discrepancy in the team's cap room estimates is because of a thing call cap holds.

Orlando has $75.8 million in cap holds. Many of those will be released and are irrelevant. But it is still an important mechanism in cap calculations.

A cap hold is not a real charge on the books. It is a placeholder for retaining players on the roster—as well as the placeholder for the Magic's draft pick at No. 18 ($3.6 million which we should include any cap calculations).

The reason a cap hold exists is to force teams to deal with their own free agents first before going out to the market. They are simply a placeholder to retain rights to go over the cap to sign your own players—using Bird Rights.

Bird Rights are an exception to the salary cap that allows a team to go over the cap to re-sign their own players.

When the salary cap was implemented, the Boston Celtics complained that they would not be able to retain their own players and keep their dynasty together and so the exception was granted for teams to re-sign their own players. Thus the exception was named after Larry Bird.

But in order to retain that right, the team is charged a cap hold of 150 percent of the previous year's salary. This is to prevent teams from essentially claiming free cap room—if a max player came off the books without any hold, then a team would be able to replace that salary and re-sign its own player using the Bird Exception.

Bird Rights then are a great tool to retain key players even when teams operate above the salary cap. But the cap hold prevents them from continuing to spend freely. It forces teams to make tough decisions.

At this point, however, the Magic are not expected to re-sign either of their major free agents. Markelle Fultz ($25.5 million cap hold) and Gary Harris ($19.5 million cap hold) are not expected to return. But should the Magic want to retain them without using cap room, they would need to keep those holds on their books and fit players around them in the remaining cap room.

The good news on this front is that cap holds are a cap mechanic. They do not actually exist. So the team can renounce or reclaim them as needed. All that matters in terms of the cap hold is that the Magic have the room when they sign those players.

So if Orlando wanted to retain Harris, the team would either sign him first to whatever amount, and his new salary would replace his cap hold. The team would then sign the new player. Or the team could sign a new player first and then use whatever remaining cap room to retain Harris—in this scenario, Harris would have to fit into open cap space, and the Magic would no longer have the Bird Rights exception to sign him.

It is all a cap mechanic. And the Magic have the flexibility right now to use it how they see fit.

What are Early Bird Rights then?

You might have encountered the term Early Bird Rights in some free agent discussions. And this is an important point when it comes to a few free agents the Orlando Magic could chase this summer.

A team gains Bird Rights when a player plays under the same contract with one team for three years. This is transferrable. So if a player signs a three-year deal, the team that the player finishes the contract with will retain full Bird Rights to re-sign. That is why a lot of teams look to gain expiring contracts rather than wait for free agency to gain those Bird Rights, especially if they are over the cap.

A team who signs a player to a two-year deal does not enjoy the same rights. That is what is happening with Malik Monk and Isaiah Hartenstein.

Both players are going to be sought-after free agents this offseason. But the Sacramento Kings and New York Knicks are limited in what they can offer them because they have played under two-year contracts with them.

Under the CBA, players under this Early Bird exception can only re-sign with their team for 175 percent of their previous salary.

That means the Kings can only offer Monk a contract starting at $17.4 million in the first year. And the Knicks can only offer Hartenstein a contract starting at $16.2 million in the first year.

If the Magic wanted to pursue either player, they could easily offer contracts worth more than that and force both teams to use cap room to pursue those players.

The Kings will struggle to do that. They are $10.5 million over the $141 million salary cap before dealing with cap holds. That has put the Kings in a bind as they aim to retain Monk. And re-signing Monk will likely mean they hit the luxury tax.

The Knicks have $37.1 million in cap room before cap holds and assuming OG Anunoby opts out of his contract. New York should be able to retain Hartenstein, depending on the order in which it signs players. But both Hartenstein and Anunoby will come at a heavy price, and the Knicks would likely have to use cap room to sign Hartenstein first before signing Anunoby using Bird Rights.

Understanding this is important to understanding how the Magic will operate this offseason.

Orlando is not feeling much crunch at all from expiring salaries or players they have to re-sign. The Magic are expected to use their cap room whether that is to absorb players in a trade or sign players outright.

The Magic are also in a position to take advantage of other teams' cap crunch—again whether that is helping a team get under the luxury tax now or at the trade deadline in February or taking advantage of cap quirks like Early Bird Rights to steal players.

Soon though, that bill will come around to them. For now, the Magic are happy to spend.