CBA 101: Trades

Hey all. Welcome to the third in a series of posts where I'll be outlining the basic rules of the NBA Collective Bargaining Agreement.

Again, useful sources for more information on the salary cap include the CBA itself and of course Larry Coon's CBAfaq.com.

In the last post, I talked about the luxury tax, wrapping up our big picture discussion of the cap thresholds.  In this post, we'll move on to the first of our more specific topics: trade rules.

Salary Matching

In our first post, we discussed how teams are free to operate under the cap, and if they want to exceed the cap, they have to use specific exceptions to do so.  So right there you can see there are two scenarios for trades - trades by teams under the cap, and trades that teams are using to exceed the cap.

Teams Under the Cap: These teams do not need to concern themselves with matching salaries in trades.  Whether a team is under the cap, and thus free from needing to match salaries, is determined after the trade is completed - so a team under the cap that moves over the cap with a trade has to follow the rules for over-the-cap teams in that trade.

Teams Over the Cap: There are salary matching rules they need to follow, as part of using the Traded Player Exception to increase their team salary.  A team is free at any time to decrease their salary by any amount in a trade.  But when increasing team salary, the Traded Player Exception must be used, and there are strict limits on the salary a team can take back in a trade.

For small outgoing salaries (less than $9.8 million total), a team can take back up to 150% of their outgoing salary, plus $100,000 (a buffer amount to make small differences in salary matter less).

For larger outgoing salaries ($9.8 million to $19.6 million total), a team can take back up to $5 million more than their outgoing salary.

For even larger outgoing salaries (more than $19.6 million total), a team can take back up to 125% of their outgoing salary, plus $100,000.

Teams Over the Tax: The rules for teams over the cap apply, and whether a team is over the tax is determined after the trade, just like when determining if a team is over the cap.  The difference is that no matter what amount of outgoing salary they have, they are only allowed to take back 125% plus $100,000.  So tax teams are more restricted in small-to-medium sized deals than non-tax teams.

Note that in all of these cases, if a team takes back less salary than they send out, that fits under the allowable salary return.  In other words, in terms of salary matching, a team can take back as little as it likes - there is no minimum salary return in a trade.

Trade Exceptions

So the above list of rules apply to most trades.  These trades are called simultaneous trades, as the entire trade happens at one time.  There are specific cases where trades can be completed at a later date - in other words, players get traded immediately, but the trade transaction is technically left open and can include other players later.  These are called non-simultaneous trades, and they must meet very specific requirements.

First, only one player can be outgoing for a trade to be completed non-simultaneously.  If you are aggregating two players' salaries to acquire a higher salary player, that has to be a simultaneous trade.

Second, you cannot take back extra salary in a non-simultaneous trade.  Simultaneous trades follow the 125-150% rules listed above.  Non-simultaneous trades require the incoming salary to stay at 100% + $100,000 (same buffer as before) of the outgoing salary or less.

Third, the deal must be completed within 1 year of being started.  So a non-simultaneous trade done now would need to be "completed" by today's date next year.

Now, how exactly does this work in practice?  Well, to keep track of non-simultaneous trades that are still open and can have players added to them, the league keeps track of Trade Exceptions (commonly and confusingly shortened to TPE's).  A TPE represents the amount of absorbable salary left out of that 100% + $100,000.  Best to use an example.

When Andrea Bargnani was traded to the Knicks (LOL), the Raptors sent out only one player in the deal.  So it fit the first criterion.  They also took back less salary than they sent out (Bargnani made $10.75 million; Camby, Novak and Richardson counted as a combined $8.13 million).  So that's the second criterion met.

So, given that, the Raptors were awarded a $2.72 million TPE (the remaining amount of Bargnani's $10.75 million plus $100,000).  At some point in the year following the Bargnani deal, they would be able to absorb a salary that is $2.72 million or less without needing to match that salary with an outgoing one, since the acquired player would technically have been acquired in the Bargnani trade.

Trade Exception Rules

So there are always fans trying to use these TPE's in trades, and most suggestions on how to use them are incorrect, because people don't understand the concept of a non-simultaneous trade.  You can use TPE's however you like, so long as you don't violate the rules I outlined that determine that the trade is non-simultaneous.  This translates into several simple things you cannot do with TPE's.

1) You cannot add a player's salary and a TPE to absorb a bigger salary.  This one is simple - by including both the TPE and a new player in the deal, your outgoing salary is no longer just one player.  Remember, using a TPE is simply continuing the original trade in which the TPE was created.  So adding in another outgoing player violates the first criterion for non-simultaneous trades.

2) You cannot add TPE's together.  This is essentially the same thing.  To use two separate TPE's, you are combining the two original trades - meaning you have more than one outgoing player.  Can't be a non-simultaneous trade.

3) You cannot trade a TPE.  It is just a way to absorb salary.  It is not a moveable asset like a draft pick.  Nonetheless, quite often it appears that a team trades a TPE, since the other team, moving a player's salary into the original TPE, usually meets the criteria for a non-simultaneous trade, meaning they create a TPE of their own.

Other Trade Rules

Some other quick hits to help with understanding trades.

1) Teams have to both give and take in a trade.  No "something for nothing" trades allowed.  There is a very low threshold for what entails "something" though.  $75,000 in cash is enough.  As is a prospect, a pick (even a heavily protected pick), or a player.

2) In three-team (or more) deals, those requirements become more stringent.  Teams have to "touch" each team involved in the trade (in at least one direction, receive or send).  In this case, the threshold for touching is a little higher - $750,000 or a pick, player or prospect.

3) Minimum salaries are a funny thing in trades - they can be acquired in the trade using the Minimum Salary Exception instead of the Traded Player Exception, meaning that they don't count as incoming salary for trade purposes.  This loophole leads to bigger TPE's being generated.  In fact, Quentin Richardson didn't count as incoming salary in the Bargnani example above - that is why the TPE was generated as a $2.72 million TPE and not as a $1.32 million TPE.

Finally, it should be noted that teams can construct trades to their liking, and often the construction is reported differently to the league office depending on which team is doing the reporting.  One team can structure the deal as several non-simultaneous trades, while the other can structure it as a simultaneous trade.  So long as all the same pieces are moving, and everyone follows the rules from their own point of view, the league has historically had no problem with this.

So there you have it.  Those are the basic rules that apply to trades.  In the coming installments, we'll get into more detail on extensions and restricted free agency, as those two things are pretty important for the Raptors over the next two summers.

As we go along with this, I'll try to answer any specific questions related to the post in the comments, but if there are any larger topics you want covered, sound off in the comments as well, and I'll dedicate a future post to covering it in-depth.