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 exactly why this scenario is impossible.

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.

The Traded Player Exception allows any team to 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 contracts that start at approximately $15.6 million, the Heat would be required to send at least $12.4 million in player contracts to each of Toronto and Cleveland in order to comply with the Traded Player Exception (that’s $24.8 million total). If the Heat 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. Clearly, they can’t trade away $24.8 million!

While the Heat could include its own free agents to complete such a dual sign-and-trade scenario, it is technically to give its own free agents enough money to meet the $24.8 million. That’s because the collective bargaining agreement has a concept, called “Base Year Compensation,” specifically designed to prevent this type of scenario.

Base year compensation (or “BYC”) closes a salary cap loophole. Without BYC, a team over the salary cap that wants to trade a player, but can’t because of the Traded Player exception (which says teams can’t take back more than 125% of the salary they trade away), could just sign the player to a new contract that fits within the desired range, then do the trade. BYC says “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 any 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% (as the Heat would need to give).

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 $12 million of “talent” to each of the Cavs and Raptors using only the talent it possessed at the end of this past season. After all, it only has Quentin Richardson, Udonis Haslem, Dorell Wright and a host of minimum contract players to offer (with Jermaine O’Neal having already committed elsewhere).

It is certainly a nice thought, but NBA rules prevent it.