Trade exceptions: What they are and why they matter

As the March 25 NBA trade deadline quickly approaches, it’s important to note 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 lacks thrill or excitement. After all, who wouldn’t find $28.5 million exciting?

Think about the Celtics once more, who currently possess the largest trade exception ever, amounting to $28.5 million. This is due to the strategic moves made by the team’s president of basketball operations, Danny Ainge, when free-agent swingman Gordon Hayward was in the process of transferring to the Charlotte Hornets before 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 had discussions with several teams about a possible sign-and-trade deal, given that the 30-year-old might be persuaded to participate. The Indiana Pacers were among these teams, but negotiations centered around center Myles Turner fell through.
• Hayward was offered a four-year, $120 million contract by the Hornets.
• Boston acknowledges that it’s about to lose a vital component of its Eastern Conference contender without any compensation. Furthermore, the Celtics’ maxed-out payroll, regardless of Hayward’s presence, makes finding a replacement for his skills a challenge.
• Ainge hustles to negotiate a sign-and-trade agreement with his counterpart from the Hornets, Mitch Kupchak. Charlotte was ready to directly sign Hayward, as they were in the process of creating the necessary salary space by trading the contract of veteran Nicolas Batum. However, Ainge convinced Kupchak to exchange several second-round Draft picks to establish 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 was keen on the trade exception that resulted from what seemed like an uneven transaction.

The Celtics managed to create a trade exception equivalent to Hayward’s first-year salary of $28.5 million by trading him to Charlotte and receiving no salary in return. This exception allows them to trade for a player or several players with combined salaries up to that amount without increasing their cap and luxury-tax liabilities.

The value decreases as the salaries of the players are accounted for. For instance, if the Celtics acquire a player with a $10 million salary, they would be left with $18.5 million on the exception. However, these rules only apply to trade deals, not free-agent signings. Moreover, only teams without cap space can avail of this, not those who can easily maneuver under 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 reminiscent of past Collective Bargaining Agreement (CBA) systems, where teams kept salary “slots” when players departed. This allowed them to replace those players with others who had similar salaries. However, it’s more akin to a traditional gift card that comes with an expiry date and loses its value after that. Additionally, once you decide to use it, you’re obliged to spend the money.

The more subdued aspect of the trade-exception process is the reality that numerous teams let them expire after a year. This usually happens when a suitable trade doesn’t come about, the administrative team changes the focus, or the owners choose not to invest the money.

At the very least, they are excellent at tidying up the books during the season generated. They also provide general managers with a way to maintain their reputation in scenarios like the Hayward decision, allowing them to rescue something from a deal when their cap situation would not typically allow a salary swap.

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 is utilized when a team finds deals that suit its preference and is willing to increase its 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 some pressure on Ainge and the Celtics to utilize all or a portion of the trade exception by March 25? Indeed. It is impossible to possess an asset as significant as the largest in NBA history without garnering extra attention on its eventual use.

Given Boston’s mediocre performance that has them barely above .500 and on the verge of a lower playoff seed, coupled with the high expectations set for this team, fans are expecting some changes to be implemented immediately, or at least before their exception expires.

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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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