Trade exceptions: What they are and why they matter

As the NBA trade deadline of March 25 fast approaches, it’s worth noting that there is a significant 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.

Which is not to say, however, that a trade exception is entirely bloodless and without its own excitement. Since when isn’t $28.5 million exciting?

Consider the Celtics again, who currently hold the biggest trade exception in history — that $28.5 million — thanks to some maneuvering by team president of basketball operations Danny Ainge as free-agent swingman Gordon Hayward was packing his bags to join the Charlotte Hornets prior to this season.

The timeline of the deal and the generation of the trade exception went something like this:

• The Celtics wanted to keep Hayward, but didn’t control the decision (he opted out of his deal and became an unrestricted free agent).
• Ainge reportedly talked with other teams about a potential sign-and-trade, assuming the 30 year old could be enticed to participate. One of those teams was the Indiana Pacers, but talks that focused on center Myles Turner fizzled.
• The Hornets offered Hayward a four-year, $120 million contract.
• Boston realizes it is going to lose an important piece of its Eastern Conference contender for nothing in return. And given the Celtics’ capped-out payroll with or without Hayward, replacing his talent becomes a problem.
• Ainge scrambles to work out a sign-and-trade with Mitch Kupchak, his counterpart with the Hornets. Charlotte had been prepared to simply sign Hayward outright — it was in the process of opening the necessary salary space by dealing the contract of veteran Nicolas Batum. But Ainge persuaded Kupchak to swap several second-round Draft picks to build the Hayward deal as a sign-and-trade.

Bottom line, the Celtics gave up two future second-round picks for the privilege of waving goodbye to Hayward. Why? Because Ainge wanted the trade exception created by the apparently lopsided deal.

By trading Hayward to Charlotte and taking nothing back in salary, the Celtics created the trade exception equal to Hayward’s first-year salary, in this case $28.5 million. The exception can be used to trade for a player or multiple players with salaries adding up to that amount without adding to their cap and luxury-tax liabilities.

The value goes down with salaries of the players taken in — a $10 million player acquired by the Celtics would leave them with $18.5 on the exception. Oh, and these are for trades only, not free-agent signings. They’re available only to teams without cap space, not those able to maneuver freely under the cap, which is $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 concept of a trade exception harkens back to older CBA systems in which teams actually held onto salary “slots” when players left, allowing them to slip other players of similar salaries into vacant roster spots. Only this is more like an old-fashioned gift card, with an expiration date before it loses its value. And oh yeah, if you use it, you have to spend the money.

That’s the quieter end of the trade-exception process, the fact that so many teams simply let them slip off the books when the year is up, because a proper trade didn’t materialize, the front office shifted priorities … or ownership decided against spending the money.

They at least are great for cleaning up the books in the season generated. They also enable general managers to save face in situations such as the Hayward decision, to salvage something out of a deal when their cap situation otherwise would not permit an exchange 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 the intended solution. If a team uses it, if a team finds deals to its liking, if a team actually is eager to push 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.

Do Ainge and the Celtics face some pressure to use all or some of the trade exception by March 25? Sure. You can’t hold any asset that rates as the biggest in NBA history without focusing extra interest on what becomes of it.

Add Boston’s lackluster performance that has them barely above .500 and flirting with a lower playoff seed, with the much loftier expectations for this group, and fans expect to see some moves, now or certainly 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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