Trade exceptions: What they are and why they matter

As the NBA’s March 25 trade deadline swiftly approaches, it’s important to highlight the significant distinction 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 a trade exception is entirely unexciting and without its thrill. After all, isn’t $28.5 million always exciting?

Let’s think about the Celtics once more, who presently boast the largest trade exception ever, valued at $28.5 million. This was achieved through strategic moves by the team’s president of basketball operations, Danny Ainge, while free-agent swingman Gordon Hayward prepared to transfer to the Charlotte Hornets before the start of the season.

The sequence of 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 is reported that Ainge had discussions with several teams about a possible sign-and-trade, assuming the 30-year-old would be willing to participate. The Indiana Pacers were one of those teams, but the negotiations centered around Myles Turner fell through.
• The Hornets proposed a four-year contract to Hayward, worth $120 million.
• Boston acknowledges that it’s set to lose a vital part of its Eastern Conference contender with no return. This situation is complicated further by the Celtics’ maxed-out payroll, regardless of Hayward’s presence, making his replacement a challenge.
• Ainge hustles to negotiate a sign-and-trade deal with Mitch Kupchak, his equivalent at the Hornets. Charlotte was ready to just sign Hayward outright – they were creating the required salary space by negotiating the contract of veteran Nicolas Batum. However, Ainge convinced Kupchak to exchange several second-round Draft picks to construct 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 desired the trade exception that stemmed from what seemed to be a skewed deal.

The Celtics created 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 one or multiple players whose salaries total up to that amount, without increasing their cap and luxury-tax liabilities.

The value decreases in proportion to the salaries of the players brought in. For example, if the Celtics bring in a player worth $10 million, they would be left with $18.5 million on the exception. It’s important to note that these rules only apply to trades, not to free-agent signings. Only teams without cap space can avail this; teams that can freely manage under the cap cannot. 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 older Collective Bargaining Agreement (CBA) structures where teams kept salary “slots” when players departed, enabling them to replace those players with others of similar salaries into empty roster spots. However, it’s more akin to a traditional gift card, which loses its value after a certain period. Plus, when you decide to use it, it’s mandatory to spend the money.

The quieter side of the trade-exception process involves many teams allowing them to expire after a year if a suitable trade doesn’t materialize. This could be due to a change in priorities from the front office or a decision from the ownership to not spend the money.

At the very least, they are excellent for tidying up the books produced during the season. They also allow general managers to maintain their dignity in scenarios like the Hayward decision, by rescuing something from a deal when their salary cap situation wouldn’t normally allow a swap of salaries.

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 devised as the solution. It can be utilized by a team that finds suitable deals and is keen on increasing 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 definitely under some pressure to utilize all or a portion of the trade exception by March 25. Holding on to an asset considered as the most significant in NBA history naturally draws additional scrutiny on its eventual use.

Boston’s lackluster performance, which has them just above .500 and toying with a lower playoff seed, combined with the higher expectations for this team, has fans anticipating some moves. These changes are expected either immediately or definitely before the exception fades 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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