Trade exceptions: What they are and why they matter

As the March 25 NBA trade deadline rapidly approaches, it’s important to highlight the substantial difference between an exceptional trade and a trade exception.

The former is something like, oh, Robert Parish and Kevin McHale for Joe Barry Carroll back in the day, arguably the most exceptional trade in league history (for the Boston Celtics, anyway).

The latter is a mechanism of NBA rules and regulations overseeing team-to-team transactions, a credit voucher of sorts that has a lot more to do with salary-cap accounting than it does with post moves or perimeter shooting.

However, this doesn’t mean that a trade exception is devoid of excitement or entirely uninteresting. After all, who wouldn’t find $28.5 million exciting?

Let’s revisit the Celtics, who currently possess the largest trade exception ever recorded – a whopping $28.5 million. This impressive feat is the result of some strategic moves made by the team’s president of basketball operations, Danny Ainge. He managed to secure this during the time when free-agent swingman Gordon Hayward was preparing to leave for the Charlotte Hornets before the start of this season.

The sequence of events for the deal and the creation of the trade exception unfolded as follows:

• The Celtics wanted to keep Hayward, but didn’t control the decision (he opted out of his deal and became an unrestricted free agent).
• Reports indicate that Ainge had discussions with several teams about a possible sign-and-trade deal, given that the 30-year-old might be persuaded to partake. The Indiana Pacers were one such team, but negotiations centered around center Myles Turner fell through.
• Hayward was offered a four-year, $120 million contract by the Hornets.
• Boston acknowledges the impending loss of a key component of its Eastern Conference contender without any return. Considering the Celtics’ maxed-out payroll, with or without Hayward, finding a replacement of his caliber presents a challenge.
• Ainge hustles to negotiate a sign-and-trade deal with his equivalent at the Hornets, Mitch Kupchak. The Hornets, originally planning to directly sign Hayward, were making the requisite salary space by trading veteran Nicolas Batum’s contract. However, Ainge convinced Kupchak to exchange several second-round Draft picks to structure the Hayward deal as a sign-and-trade.

In essence, the Celtics traded two future second-round picks just to bid farewell to Hayward. The reason? Ainge desired the trade exception that was produced by what seemed to be an uneven deal.

The Celtics established a trade exception equal to Hayward’s first-year salary of $28.5 million by trading him to Charlotte without reciprocating in salary. This exception allows them to trade for a player or several players whose combined salaries equal this amount, without increasing their cap and luxury-tax liabilities.

The decrease in value is correlated with the salaries of the players acquired. For instance, if the Celtics acquire a player worth $10 million, they would be left with $18.5 million on the exception. However, this only applies to trades, not free-agent signings. Only those teams lacking cap space can avail this, not the ones which have the flexibility to operate below the cap. The cap for the 2020-21 season is $109.1 million.

It’s all part of the Traded Player Exception clause in the NBA’s and National Basketball Players Association’s collective bargaining agreement. And it is good for one year — to be used by next week’s trade deadline, in the 2021 offseason or, as often happens, not at all.

The Celtics are just the greatest current example based on the size of their exception for Hayward. They also have a $5 million one from trading away center Enes Kanter (to Portland) and a $2.5 million one from shipping big man Vincent Poirier (to OKC) in November (as part of the Al Horford-to-OKC trade).

Denver has a $9.5 million trade exception from the deal it struck with Detroit involving forward Jerami Grant. Houston got a $10.6 million one when the dust cleared from James Harden’s move to Brooklyn. Probably half the teams in the league hold trade exceptions worth $1 million or more, or even a few hundred thousand dollars.

The idea of a trade exception is a throwback to earlier Collective Bargaining Agreement (CBA) systems where teams kept salary “slots” when players left, enabling them to slot in other players with similar salaries into open roster spots. It’s somewhat akin to a traditional gift card that comes with an expiry date before it becomes worthless. Also, you’re obligated to spend the money if you decide to use it.

The quieter side of the trade-exception process is the fact that many teams just let them expire after a year. This usually happens because an appropriate trade didn’t come up, the front office changed their priorities, or the team owners chose not to spend the money.

At the very least, they are useful for tidying up the books during the season’s turnover. They also provide general managers with the opportunity to maintain their reputation in situations like the Hayward decision, to rescue something from a deal when their cap situation would normally not allow a swap of salaries.

When you think through it, another Celtics star comes to mind: Larry Bird. He was the player whose re-signing necessitated the “Bird rights” wrinkle in the salary-cap rules, the provision enabling teams to keep their own players whether they’re above the cap or not. The flip side of that, in an era when teams can exceed the cap by tens of millions of dollars, is that losing such a player doesn’t necessarily open up space.

The intended solution is the trade exception. It’s applicable if a team utilizes it, finds deals that are favorable, and is willing to increase the payroll to, or even surpass, tax thresholds.

One way to look at a trade exception is like an insurance policy or an extended warranty. They are good to have, even if you never use them. Also, the folks at HoopRumors.com maintain a regularly updated list of trade exceptions.

Is there pressure on Ainge and the Celtics to utilize all or part of the trade exception by March 25th? Absolutely. Holding an asset that is considered the largest in NBA history inevitably draws additional attention to its future use.

Considering Boston’s mediocre performance that has them barely above .500 and vying for a lower playoff seed, combined with the high expectations for this team, fans are anticipating some strategic moves, either immediately or certainly before they lose the exception.

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Steve Aschburner has written about the NBA since 1980. You can e-mail him here, find his archive here and follow him on Twitter.

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