A look at the intricacies of the creation and use of a TPE.
To simplify the conversation, I will use the Bosh NST as an example. I will use the dream scenario of receiving Okafor and Collison for the TPE (I know this is unlikely, but it is easier than using Player A, B, etc). As a note, the Bosh TPE was $14.6 million ($14.5 million starting salary + $100,000). Okafor's salary is $11.5M, Collison's is $1.4M.
A trade can be consummated in two ways. Simultaneously or non-simultaneously. A simultaneous trade occurs all at once, can include multiple teams, and multiple players from each team. All teams involved much receive no more than 125% of their players' outgoing salaries back in form of contracts.
A non-simultaneous trade (NST) is much more complicated. It is a single trade that occurs at different times. This concept of it being a single trade is very important. A team sending out salary that is more than 125% of the salary it receives in return must execute the trade as a NST. This can only happen in certain situations, following two primary criteria:
1) The team sending out more salary than it is receiving must only be sending out ONE contract in the NST. That is, one player. Draft picks, rights to players, and cash can be sent either way without violating this rule.
2) The team receiving the higher salary (that exceeds 125% of it's outgoing salaries) must be either under the cap to be able to absorb the excess salary (beyond the exact values of it's outgoing contracts+$100,000 - the 125% rule does not apply in NST), or have a traded player exception (TPE) that can absorb the ENTIRE incoming salary (the reason for this will follow later in the article).
After a NST is started (ie trading a player - Bosh - for nothing), the team that shed the excess salary in the deal has a traded player exception created as a cap hold. The TPE is created at the value of (Net outgoing salary + $100,000).
Use of TPEs
The use of a TPE is actually not considered a new trade. This is the main difference between the use of TPEs versus the use of expiring contracts. Expiring contracts can be combined together as salary to be used in simultaneous trades. TPEs cannot because the trade in which they are used is NOT A NEW TRADE. It is the same one that was initiated when the TPE was created.
As a note to the folowing uses, a TPE can be split to allow multiple players to be absorbed.
Outgoing: No salary. However, something must be outgoing for the trade to be legal, so most often a protected 2nd round pick is sent out.
Incoming: A single player, whose current year salary is not greater than the exact value of the TPE.
In our example, the $14.6M TPE will be used to absorb Okafor's contract, while sending our a future protected 2nd rounder. This uses up $11.5M of the TPE, leaving a $3.1M TPE intact for the Raptors. The New Orleans Hornets RECEIVE nothing, however, due to the difference in salaries, this becomes a NST for them and a TPE of $11.6M (11.5+0.1) is created.
The followup trade would be using the $3.1M TPE to absorb Collison's salary ($1.4M). Again, a protected 2nd rounder would be sent to New Orleans (the other protected 2nd rounder could be sent back if it was deemed important). This leaves Toronto with Collison's contract and a $1.7M TPE. New Orleans receives the 2nd rounder and nothing else, but, again, this becomes a NST for them and a $1.5M ($1.4+0.1) TPE is created for them.
Let's assume that Toronto then renounces the remaining TPE (it expires instantly) because it is of little use at $1.7M. This is the important part: the end result of Toronto's Non-Simultaneous Trade would then be:
Bosh ($14.5M) + 2nd rounder + 2nd rounder --> Okafor ($11.5M) + Collison ($1.4M)
That is the trade - not two trades. This is the finalized full trade that the Raptors would have done. Note that there was only ONE OUTGOING PLAYER. This is necessary for it to be a NST.
This is to address those that want to combine a TPE with an expiring contract to trade for a larger salary. For example, the Turk TPE (which has now been used) and an expiring for a larger salaried player, say around $8M. For the purposes of this article, we'll stick with the Bosh TPE we were using earlier. To simulate the suggestions about using it in conjunction with an expiring to get a bigger contract, we'll say we want to trade for Andrei Kirilenko ($17.8M).
Outgoing: Marcus Banks ($4.8M)
Incoming: Andrei Kirilenko ($17.8M)
The proposer of this trade would say that the $14.6M TPE Toronto has could absord the $13M in salary difference in this trade. However, let's look at what the full, non-simultaneous trade would be from the Raptors' perspective, when all is said and done.
Bosh ($14.5M) + Banks ($4.8M) --> Andrei Kirilenko ($17.8M)
This trade fits nicely within the 125% allowed for simultaneous trades, so it seems fine. However, this is a non-simultaneous trade, because a TPE was generated in the original Bosh transaction. And a NST can only have ONE OUTGOING PLAYER. This trade breaks this rule because in the full trade, there are TWO outgoing players. As such, this trade cannot be executed non-simultaneously. As such, it is outside the Raptors' power to do this trade.
As a note, the above incorrect trade could be accomplished by trading a group of contracts in a simultaneous trade for Kirilenko, then absorbing most of them back through the large TPE. However, to do this is very complicated, and no contracts with BYC, or trade kickers could be included. Also, the other team would need to be happy with several smaller TPEs generated for them (one for each player absorbed back to the Raptors), which they cannot use together in a trade.
Also, if the desired player has a salary lower than the value of the trade exception, a trade that appears to include an expiring can be done. However, it is actually two trades: the TPE absorbs the desired player, and the other team generates a TPE - which can then be used to absorb the expiring contract. It is important to note that this is only possible of the original TPE can absorb the entire other player, and the generated TPE (the size of the absorbed player's contract + $100,000) is large enough to fully absorb the expiring contract.