Trade exceptions: What they are and why they matter

As the NBA trade deadline on March 25 draws near, it’s important to distinguish 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 completely devoid of excitement or intensity. After all, when has $28.5 million not been thrilling?

Reconsider the Celtics, who presently possess the largest trade exception in history – a whopping $28.5 million. This is due to strategic moves made by team president of basketball operations, Danny Ainge, while free-agent swingman Gordon Hayward was preparing to transfer to 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 suggest that Ainge discussed a possible sign-and-trade with various teams, provided the 30-year-old player was willing to participate. The Indiana Pacers were one of these teams, but their discussions, which centered around Myles Turner, did not progress.
• Hayward was offered a four-year, $120 million contract by the Hornets.
• Boston acknowledges that it will lose a vital part of its Eastern Conference contender without any compensation. Additionally, with the Celtics’ maxed-out payroll, with or without Hayward, finding a replacement for his talent becomes a challenge.
• Ainge hustles to arrange a sign-and-trade deal with Mitch Kupchak, his equivalent at the Hornets. Initially, Charlotte was ready to merely sign Hayward — they were creating the required salary space by handling veteran Nicolas Batum’s contract. However, Ainge convinced Kupchak to exchange a number of second-round Draft picks to construct the Hayward deal as a sign-and-trade.

In summary, the Celtics traded two future second-round picks for the opportunity to bid farewell to Hayward. The reason for this seemingly uneven deal was Ainge’s desire for the trade exception it would create.

The Celtics, by transferring Hayward to Charlotte and not accepting any salary in return, created a trade exception equivalent to Hayward’s first-year salary, which is $28.5 million. This exception can be utilized to trade for one or multiple players with salaries totaling to that amount, without increasing their cap and luxury-tax obligations.

The value decreases as the salaries of the players are taken into account. For instance, if the Celtics acquire a player worth $10 million, they would be left with $18.5 million on the exception. It’s important to note that these rules only apply to trades, not to signings of free agents. Also, they are only available to teams without cap space, not those that can freely maneuver under the cap. For the 2020-21 season, the cap is set at $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 reminiscent of previous Collective Bargaining Agreement (CBA) systems where teams maintained salary “slots” when players departed, enabling them to fit other players with comparable salaries into open roster positions. However, it’s more akin to a traditional gift card that loses its value after a certain date. Also, it’s important to note that if you decide to utilize it, you are obliged to spend the money.

The trade-exception process often ends quietly, with many teams letting them expire after a year because a suitable trade didn’t come about, the front office changed their priorities, or the owners chose not to spend the money.

At the very least, they are excellent for tidying up the accounts during the season’s generated activities. They also provide a lifeline for general managers to maintain their reputation in scenarios like the Hayward decision, allowing them to salvage something from a deal when their financial cap would otherwise prohibit a salary exchange.

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 trade exception is considered the intended solution. It comes into play if a team utilizes it, finds deals that appeal to them, or is actually keen on increasing their payroll to or beyond 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 25? Absolutely. Holding an asset regarded as the largest in NBA history naturally attracts additional scrutiny regarding its eventual usage.

Considering Boston’s mediocre performance that barely keeps them above .500 and on the verge of a lower playoff seed, combined with the much higher expectations for this team, fans are anticipating some changes, either immediately or definitely 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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