That Weird Sign-and-Trade Rule

As mentioned in my Tristan Thompson piece, the Cleveland Cavaliers do have the option to sign-and-trade Thompson. If this ever came to fruition, the Cavs could only receive future assets and a trade exception in return. The trade exception, however, would not reflect whatever Thompson’s new salary would be. Instead, the exception is limited by the greater of the last year of the previous contract or the first year of the new contract because the Cavs are over the salary cap. The exact language is below:

“If a Qualifying Veteran Free Agent or Early Qualifying Veteran Free Agent and his prior Team enter into a Player Contract in connection with an agreement to trade the Contract in accordance with Article VII, Section 8(e), the Team’s Team Salary is at or above the Salary Cap, and the new Contract to be traded provides for a Salary for the first Season of such new Contract greater than one hundred twenty percent (120%) of the Salary for the last Season of the player’s immediately prior Contract (and greater than the Minimum Player Salary with no Unlikely Bonuses), then for purposes of calculating the assignor Team’s Traded Player Exception, the player’s Salary shall be deemed equal to the greater of (i) the Salary for the last Season of his preceding Contract or, in the case of an Extension, the last Season of the original term of the Contract, or (ii) fifty percent (50%) of the Salary for the first Season of his new Contract (or extended term, if applicable).” NBA Collective Bargaining Agreement, Article VII, Section 6(j)(4).

So why does this rule exist? The answer here is pretty simple. It prevents a team from creating false cap space via a trade exception by simply getting rid of one of their free agents. Essentially, every team could do this with a free agent (restricted or unrestricted) they are not interested in keeping on their roster and receive a windfall giving them significant cap flexibility. The Cavs currently have a team salary of over $90M, far above the $70M salary cap. Ignoring any roster spot limitation, their ability to add players is severely limited. Because they already used their Taxpayer Mid-Level Exception in free agency, they can only add players through a trade exception or the Minimum Player Exception. For our purposes here, assume neither the Cavs nor Thompson want to resolve their contract dispute and the parties wish to go their separate ways. The Cavs are not interested in signing him and Thompson wants to play for another team. Hypothetically, the Cavs and Thompson could make a behind the scenes agreement to sign-and-trade Thompson to a team of his pleasing for $17.6M. Thompson would also agree not to sign any offer sheets. In this scenario, Thompson would get the money he wants and Cleveland would suddenly have a $17.6M trade exception with which it could later use to trade for a very expensive player they otherwise would not have been able to sign.

In other words, teams that are over the salary cap would be rewarded for parting ways with valuable free agents that do not want to play there anymore. It would seem unfair, for instance, to give the Miami Heat a $20.6M trade exception simply for parting ways with LeBron James last summer in a sign-and-trade when he did not want to stay there anyway. On the other hand, it would also be unfair to entirely restrict teams over the cap from making a sign-and-trade. So while it is a strange rule, it prevents backdoor agreements that create a windfall for teams over the cap while still allowing them to take advantage of beneficial CBA provisions.

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