Trade exceptions: What they are and why they matter

As we near the NBA trade deadline on March 25, 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 mundane and lacks excitement. After all, when has $28.5 million not been exciting?

Reconsider the Celtics, who currently possess the largest trade exception in history – a whopping $28.5 million – due to strategic moves made by team president of basketball operations Danny Ainge. This happened as free-agent swingman Gordon Hayward was preparing to sign with the Charlotte Hornets before this season.

The sequence of events concerning 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 other teams regarding a possible sign-and-trade, assuming the 30-year-old player would be interested. The Indiana Pacers were one of these teams, however, the discussions centered around center Myles Turner fell through.
• Hayward was offered a four-year contract worth $120 million by The Hornets.
• Boston acknowledges that it is about to lose a crucial element of its Eastern Conference contender without any exchange. Considering the Celtics’ maxed-out payroll, whether or not Hayward stays, finding a replacement for his skills becomes a challenge.
• Ainge is rushing to arrange a sign-and-trade deal with his Hornets counterpart, Mitch Kupchak. Initially, Charlotte was ready to just sign Hayward, already working on freeing up the required salary space by trading veteran Nicolas Batum’s contract. However, Ainge convinced Kupchak to exchange multiple 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 resulted from what seemed to be an uneven deal.

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

The player salaries affect the value – for instance, if the Celtics acquire a player worth $10 million, they would have $18.5 million left on the exception. However, this only applies to trades, not for free-agent signings. Also, these are only available for teams without cap space, not for those who can freely manage under the cap, which is set 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 is reminiscent of former Collective Bargaining Agreement (CBA) systems where teams kept hold of salary “slots” when players departed. This allowed them to fit in other players with similar salaries into open roster places. However, it’s more akin to a traditional gift card that has an expiration date before it loses its value. Also, it’s worth noting that if you decide to use it, you have to spend the money.

The fact that many teams let trade exceptions expire after a year because they didn’t find a suitable trade, their front office changed priorities, or the ownership chose not to invest the money, represents the more low-key aspect of the trade-exception process.

At the very least, they are excellent for tidying up the books during the generated season. They also provide general managers the opportunity to maintain their reputation in situations like the Hayward decision, enabling them 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 designed to be the solution. It comes into play if a team decides to use it, finds deals that appeal to them, and is willing to increase their payroll to, or even 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. When you possess an asset that is considered the largest in NBA history, it naturally draws significant attention to its eventual use.

Given Boston’s mediocre performance that barely keeps them above .500 and risks a lower playoff seed, coupled with the higher expectations for this team, fans are anticipating some changes, either immediately or surely before the exception fades.

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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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