ESPN's Tim MacMahon first reported the deal was close.
MacMahon noted the length and added the deal is worth a total of $10 million, and it includes a team option as part of the second year.
The Mavericks declined Nowitzki's option for the 2017-18 season, but few expected the 13-time All-Star to leave Dallas this summer. ESPN.com's Marc Stein reported in June the team preferred to re-sign Nowitzki, with a source telling Stein the Mavs wanted to do "what Dirk wants."
Similarly, Nowitzki expressed a desire to remain with the Mavericks despite their 33-49 record, their fewest wins over an 82-game regular season since 1997-98.
"At the end of the day, I just can't imagine myself in a different uniform," he said in April, per the Associated Press' Schuyler Dixon (via NBA.com). "If we're rebuilding, then I'm the face of that."
The emotional pull that comes with Nowitzki beginning and ending his career in Dallas is obvious. ESPN Stats & Info noted Kobe Bryant is the only other NBA player ever to reach 20 seasons in the league with the same team.
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Keeping an established star such as Nowitzki also provides benefits during the rebuilding process the Mavs are likely to continue in 2017-18. He could help keep the interest of fans who might otherwise begin turning away from a losing team. His experience will also be invaluable for the franchise's younger generation of players.
In terms of Nowitzki's on-court impact, he continues to be a solid shooter and rebounder. He averaged 8.9 rebounds per 36 minutes last year and made 37.8 percent of his three-point attempts.
The Mavericks have been proactive about resting Nowitzki in an effort to keep him healthy. The team took the approach even further in 2016-17, with Nowitzki's 26.4 minutes a game his fewest since his rookie season.
At 39 years old, Nowitzki can no longer be the player who helped the Mavs reach the postseason 15 times since 2000-01 and win an NBA title in 2011. In a limited role, however, he can still be an efficient offensive presence.
Nowitzki could've chased another ring and signed with a title contender. The fact he could begin and end his career with the Mavericks would arguably do more for his NBA legacy than a second NBA championship.