LeBron's max deal next summer could be 5yr/$217M - do you sign him?

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The Over-36 rule addresses a loophole. Suppose a player is nearing retirement, and he wants to finish his career with a team that can only offer him their Non-Taxpayer Mid-Level exception. If they want to give this player more money than is allowed by the exception, they could instead offer a contract for more years than they expect the player to play -- continuing to pay the player past his retirement.

For example, suppose the Non-Taxpayer Mid-Level exception is $5 million. With 4.5% raises, a three-year contract would total $15.675 million. But if they added a fourth year to the contract, the salary would total $21.35 million. If the player retires after three seasons and continues drawing his salary for the additional season, then he effectively will be paid $21.35 million for three years' work. In essence, they are giving the player a three-year contract with additional deferred compensation.

This loophole is addressed by the Over-36 rule.

Certain contracts that extend past the player's 36th birthday are deemed Over-36 contracts. In an Over-36 contract, the presumption is that the seasons at the end of the contract are likely to come after the player retires. Therefore, the salaries in those seasons are classified as deferred compensation as described above. This is significant because deferred compensation is charged to team salary in the year it is earned, not the year it is paid.

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