Trade exceptions: What they are and why they matter

It’s important to note a significant distinction between an exceptional trade and a trade exception as the NBA trade deadline of March 25 quickly approaches.

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.

This doesn’t mean though, that a trade exception lacks thrill or excitement. After all, who wouldn’t find $28.5 million exciting?

Let’s revisit the Celtics, who presently possess the largest trade exception in history — a whopping $28.5 million. This move is thanks to strategic efforts by team president of basketball operations, Danny Ainge. This manipulation occurred as free-agent swingman, Gordon Hayward, was preparing to leave for the Charlotte Hornets before the start of this season.

The sequence of events regarding 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).
• It has been reported that Ainge was in discussions with other teams regarding a potential sign-and-trade, provided the 30-year-old player agreed to participate. One such team was the Indiana Pacers, however, negotiations centered around center Myles Turner fell through.
• The Hornets proposed a four-year contract to Hayward, worth $120 million.
• Boston recognizes it will lose a crucial component of its Eastern Conference contender without any exchange. Considering the Celtics’ maxed-out payroll, with or without Hayward, finding a replacement for his skills poses a challenge.
• Ainge hustles to negotiate a sign-and-trade agreement with his counterpart from the Hornets, Mitch Kupchak. Charlotte was initially ready to sign Hayward directly, as they were creating the required salary space by trading veteran Nicolas Batum’s contract. However, Ainge convinced Kupchak to exchange multiple second-round Draft picks to construct the Hayward deal as a sign-and-trade.

In essence, the Celtics traded two future second-round picks for the opportunity to bid farewell to Hayward. The reason? Ainge desired the trade exception that was formed from what seemed to be an uneven deal.

The Celtics managed to create a trade exception equal to Hayward’s first-year salary, which is $28.5 million, by trading him to Charlotte without accepting any salary in return. This exception allows them to trade for a player or multiple players whose combined salaries amount to $28.5 million, without increasing their cap and luxury-tax liabilities.

The value decreases as players’ salaries are taken into account. For instance, if the Celtics acquire a $10 million player, it would leave them with $18.5 million in exception. However, this only applies to trade deals, not the signing of free agents. These are only available to teams that do not have cap space and not for those who can freely move 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 earlier Collective Bargaining Agreement (CBA) structures, where teams kept salary “slots” when players departed, enabling them to slot in other players with comparable salaries into empty roster positions. However, it’s more akin to a traditional gift card, which has an expiry date before it becomes worthless. Plus, if you decide to use it, the money must be spent.

The quieter aspect of the trade-exception process involves many teams allowing them to expire after a year. This typically happens when a suitable trade doesn’t materialize, the front office changes its priorities, or the ownership decides against investing the money.

At the very least, they are excellent for tidying up the books during the generated season. They also provide general managers with the opportunity to maintain their dignity in scenarios like the Hayward decision, enabling them to salvage something from a deal when their cap situation would generally 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 can be utilized by a team if they find suitable deals, and are actually willing to extend 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 that is considered the largest in NBA history inevitably draws significant attention to its eventual utilization.

Boston’s mediocre performance, which has them barely over .500 and teetering on a lower playoff seed, combined with the high expectations for this team, has fans pushing for some moves, either now or before the exception is lost.

* * *

Steve Aschburner has written about the NBA since 1980. You can e-mail him here, find his archive here and follow him on Twitter.

The views on this page do not necessarily reflect the views of the NBA, its clubs or Turner Broadcasting.