Trade exceptions: What they are and why they matter

As the NBA trade deadline of March 25 rapidly nears, 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 or lacks thrill. After all, isn’t $28.5 million always exciting?

Think about the Celtics once more. They presently have the largest trade exception in history—$28.5 million—courtesy of their team president of basketball operations, Danny Ainge. This was a result of his strategic moves when free-agent swingman Gordon Hayward was preparing to leave for the Charlotte Hornets before this season began.

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 engaged in discussions with several teams about a possible sign-and-trade, provided that the 30-year-old player showed interest in participating. The Indiana Pacers were among those teams, although the negotiations centered around center Myles Turner eventually fell through.
• Hayward was offered a four-year contract worth $120 million by the Hornets.
• Boston recognizes that it will lose a significant component of its Eastern Conference contender without any compensation. The Celtics’ maximum payroll, whether or not Hayward is included, makes finding a replacement for his skills challenging.
• Ainge hustles to negotiate a sign-and-trade deal with Mitch Kupchak, his equivalent at the Hornets. Charlotte was ready to directly sign Hayward, and was in the middle of creating the required salary space by transferring the contract of veteran Nicolas Batum. 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 surrendered two future second-round picks just to bid Hayward farewell. The reason? Ainge was after the trade exception that resulted from what seemed like an uneven trade.

The Celtics created a trade exception equal 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 as player salaries are accounted for. For instance, if the Celtics acquire a player worth $10 million, it would leave them with $18.5 million on the exception. These exceptions are only applicable for trades, not for signings of free agents. Only teams that lack cap space can avail them, not the ones that can easily operate under the cap. The cap for the 2020-21 season 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 a throwback to previous Collective Bargaining Agreement (CBA) frameworks where teams would retain salary “slots” when players departed, enabling them to position other players with comparable salaries in empty roster spots. It functions more like a traditional gift card, though, with a use-by date before its worth is lost. And importantly, if you opt to use it, the money has to be spent.

The quieter aspect of the trade-exception process is the fact that many teams allow them to lapse after a year. This can happen because an appropriate trade failed to materialize, the front office changed priorities, or the ownership decided not to spend the money.

At least they are beneficial for tidying up the books induced in the season. They also provide general managers with the opportunity to save face in scenarios like the Hayward decision, allowing them to rescue something from a transaction when their cap situation would normally 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 the proposed solution. It is applicable if a team chooses to use it, if a team finds suitable deals, and if a team is willing to increase the 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.

Sure, Ainge and the Celtics are indeed under some pressure to utilize all or a portion of the trade exception by March 25. Holding an asset that stands as the largest in NBA history naturally garners significant attention towards its deployment.

Considering Boston’s mediocre performance that has them just over .500 and risking a lower playoff seed, coupled with the significantly higher expectations for this team, fans are anticipating some changes, either immediately or definitely before the exception 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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