Trade exceptions: What they are and why they matter

As the NBA trade deadline of March 25 quickly approaches, 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 unexciting and devoid of interest. After all, when has $28.5 million not been exciting?

Let’s revisit the Celtics, who now have the largest trade exception ever – a whopping $28.5 million. This was made possible due to some strategic moves by Danny Ainge, the team’s president of basketball operations, when Gordon Hayward, a free-agent swingman, was preparing to join the Charlotte Hornets before the start of this season.

The sequence of events concerning the deal and trade exception generation 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 had discussions with several teams about a possible sign-and-trade deal, provided the 30-year-old was willing to participate. The Indiana Pacers were among those teams, but negotiations centered around center Myles Turner fell through.
• Hayward was offered a four-year, $120 million contract by the Hornets.
• Boston recognizes that it is on the brink of losing a significant part of its Eastern Conference contender without getting anything in return. With the Celtics’ maxed-out payroll, regardless of Hayward’s presence, finding a suitable replacement for his talent poses a challenge.
• Ainge rushes to negotiate a sign-and-trade deal with Mitch Kupchak, his equivalent at the Hornets. Charlotte was initially ready to sign Hayward directly and was creating the required salary space by trading the contract of veteran Nicolas Batum. However, Ainge convinced Kupchak to trade several second-round Draft picks to structure the Hayward deal as a sign-and-trade.

In essence, the Celtics sacrificed two future second-round picks to bid farewell to Hayward. The reason? Ainge had his eyes on the trade exception that resulted from what seemed to be an uneven deal.

The Celtics created a trade exception equivalent to Hayward’s first-year salary of $28.5 million by trading him to Charlotte and not taking back any salary. This exception allows them to trade for a player or multiple players with salaries totaling that amount, without increasing their cap and luxury-tax liabilities.

The value decreases in proportion to the players’ salaries – for example, if the Celtics acquire a player for $10 million, it would leave them with $18.5 million on the exception. However, this applies only to trades, not to free-agent signings. It’s also only available to teams that don’t have cap space, rather than those that can move freely under the cap, which stands at $109.1 million for the 2020-21 season.

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 has its roots in previous Collective Bargaining Agreement (CBA) models where teams would retain salary “slots” when players left. This enabled them to fit other players with similar salaries into open roster positions. However, it is more akin to a traditional gift card, which loses its value after a certain period. Also, once used, the money has to be spent.

The quieter aspect of the trade-exception process is the reality that many teams allow them to disappear from their books after a year. This usually happens because an appropriate trade didn’t occur, the front office changed its priorities, or the owners chose not to spend the money.

At the very least, they are excellent for tidying up the books during the season generated. Furthermore, they provide general managers with the ability to maintain their reputation in situations like the Hayward decision, and to recover something from a deal when their cap situation would otherwise prevent 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 the proposed solution. It applies if a team utilizes it, finds deals that satisfy them, and is willing to increase their payroll to or even exceed 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.

Surely, Ainge and the Celtics are under some pressure to utilize all or part of the trade exception by March 25. After all, you can’t possess an asset as significant as the largest in NBA history without drawing extra attention to its outcome.

Combine Boston’s underwhelming performance, which has them just above .500 and potentially settling for a lower playoff seed, with the higher expectations set for this team. Fans are anticipating some changes, whether immediately or certainly before the opportunity slips away.

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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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