Home > Learning > Clearing Up Some Sign-and-Trade Confusion

Clearing Up Some Sign-and-Trade Confusion

The following was reported today in the South Florida Sun Sentinel:

Should the Heat be able to pull off the maneuver, it would give Heat President Pat Riley unlimited resources to re-sign remaining current Heat free agents such as Udonis Haslem, Dorell Wright and Quentin Richardson — whichever are not included in such a sign-and-trade — without having to make those agreements work within the confines of the NBA’s “soft” salary cap.

In addition, such a maneuver would allow the Heat to retain its mid-level salary-cap exception for 2010-11, which it then could utilize to complete its planned signing of Washington Wizards free-agent swingman Mike Miller.

For the benefit of any dual readers who would certainly be confused and prematurely excited, allow me to clarify this ridiculous and impossible scenario.

For the Heat to be able to retain such incumbent free agents as Udonis Haslem, Dorell Wright and Quentin Richardson, the team would need to remain above the salary cap at all times. Teams above the salary cap can only complete trades by use of the Traded Player Exception.

This rule indicates that any team can take on up to 125% of the contract values they send out in a trade, plus $100,000. Conversely, it requires that a team to send away at least 80% of the contract values it takes on less $100,000.

In the case of Bosh and James at max $16,568,908 contracts, the Heat would be required to send at least $13,175,126 in player contracts to each of Toronto and Cleveland in order to comply with the Traded Player Exception (that’s $26,350,252 total). If it doesn’t do so in either case, the entire plan is shot.

But the Heat only has one player technically under contract – Mario Chalmers – and he only makes $854,389. That’s a bit shy of the necessary $26 million.

While the Heat could include its own free agents to complete such a dual sign-and-trade scenario, it is both (i) exceedingly unlikely to far stretches of all human imagination and (ii) impossible, technically, due to the existence of “Base Year Compensation,” a concept of the collective bargaining agreement incorporated specifically to prevent this type of scenario.

Base year compensation (or “BYC”) prevents a salary cap loophole. Without BYC, a team over the salary cap that wants to trade for a player, but can’t because of the Traded Player exception rules described above, could just sign one of its own free agents to a new contract that fits within the desired range, then complete the trade. BYC basically says that if you re-sign a player and give him a big raise, then for a period of time his trade value will be lower than his actual salary.

Typically, the salary used for comparison in trade is the player’s actual salary. But in the following circumstance, BYC stipulates that a different salary be used when comparing salaries for trading purposes: the team is over the salary cap (as the Heat would need to be), uses its Bird rights to re-sign the player (as the Heat would need to do), and the player receives a raise greater than 20%.

In such a case, the player is considered a “base year player.” When trading a base year player, the salary used for comparison is the player’s previous salary, or 50% of the first-year salary in his new contract, whichever is greater. The other team must use the player’s full salary. The disparity in treatment of the very same player among the two teams makes completing such trades nearly impossible.

Not that it matters anyway. There’s simply no way the Heat can pawn of in excess of $13 million of “talent” to each of the Cavs and Raptors using only the talent it possessed this past season. After all, it only has Quentin, Udonis, Dorell and a host of minimum contract players to offer (with O’Neal having already committed elsewhere).

It is certainly a nice thought, but the rules – coupled with all reasonably reality – do not allow it.

  1. Harara
    July 9th, 2010 at 16:29 | #1

    Thank you for the explanation.

  2. Brian T
    July 9th, 2010 at 16:32 | #2

    So this means haslem, q-rich and d wright are gone?

  3. Heat-Struck
    July 9th, 2010 at 16:43 | #3

    Seeing as Lebron and Cleveland are not friends anymore… I doubt a sign and trade will be done for Lebron to get more money. =P

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