Apr 5, 2014; Washington, DC, USA; Chicago Bulls forward Taj Gibson (22) shoots the ball over Washington Wizards forward Drew Gooden (90) in the third quarter at Verizon Center. The Bulls won 96-78. Mandatory Credit: Geoff Burke-USA TODAY Sports

Boston Celtics: What's a "Trade Exception"?

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Through the first few days of free agency you’ve probably heard terms including max contract, mid-level exception, bird rights, trade exception, amnesty clause, etc. Unless you’ve mastered the 450+ page NBA Collective Bargaining Agreement from 2011 you probably get some of these terms confused. But given the NBA’s soft cap, it’s essential to understand these terms in order to grasp how the league works. A teams “cap space” isn’t simply their payroll subtracted from the NBA’s salary cap. What do all these terms really mean? More importantly, how do they potentially impact the Boston Celtics?

Let’s start with the Traded Player Exception. That’s the one Celtics fans should be focused on in the immediate future, as the Celtics were granted a $10.3 million trade exception when they sent Paul Pierce and Kevin Garnett (oh yeah, Jason Terry too) to the Brooklyn Nets last offseason. At its most basic, a trade exception is what happens in a trade when one team moves more salary than it gets in return. The team that sent away all that salary receives a trade exception, which can be used over the next year to acquire a player earning up to the amount of the trade exception (in this case, $10.3 million) without having to send back salary in return.

 

A trade involving multiple players is in play as well but only if the team with the trade exception still isn’t taking back more salary than the exception can cover.

The trade exception is used primarily in draft pick/salary dumping trades. If a team needs to clear cap space, they can find a suitor with a trade exception and more or less give them one of their contracts worth up to the amount of the exception. Now usually, draft picks are included in the deal so the team giving up the player at least receives something. We also see it used fairly commonly in sign-and-trades, as the team sending away the player gets some compensation -draft pick and/or trade exception for use later- in return.

Trade exceptions last only a year, though. This means if the Celtics want to use their $10.3 million exception, they must do so by July 12th. The Celtics can find a free agent they like, even if he may appear too expensive on the surface, and potentially work out a sign-and-trade. This is why you still hear the Celtics’ name in Lance Stephenson rumors despite their fairly high payroll. The Celtics can also just do a straight up trade for a non-free agent without sending back equal salary. Once LeBron James, Chris Bosh, and Carmelo Anthony make their decisions (hopefully before the 12th) there will be multiple teams looking to clear salary and the Celtics will likely receive some calls.

Some of these potential “super-teams” will be forced to give up solid players. Let’s say the Chicago Bulls get Anthony. Even after amnestying Carlos Boozer they’d likely have to trade either Taj Gibson or Jimmy Butler to ensure current and future flexibility. Butler is still on a rookie contract, while Gibson is going into the 2nd year of a 4-year deal worth $33 million. Gibson is likely the guy they would move. Gibson is in his prime (29), effective (16.0 PER, .117 WS/48), and affordable (average of $8.25 million a year). He’d be an immediate and dramatic upgrade over any of the Celtics current bigs in every aspect of the game.

And who knows? A player of Gibson’s quality may very well be the difference in draft pick-based trade package competing for Kevin Love. The Celtics lack of quality and tradable players is why they reportedly fell behind the Bulls and Warriors in the Love sweepstakes a few weeks ago.

Chandler Parsons emerges as another possible casualty of the super-team if Chris Bosh chooses to accept Houston’s max contract offer. Parsons is a restricted free agent, and while it remains to be seen what his true value around the league is, he could emerge as a possible sign-and-trade candidate. Even if Houston loads up with James Harden, Dwight Howard, and Bosh, they’d still like to get something for a player as good as Parsons.

May 2, 2014; Portland, OR, USA; Houston Rockets forward Chandler Parsons (25) shoots over Portland Trail Blazers guard Damian Lillard (0) in the first half in game six of the first round of the 2014 NBA Playoffs at the Moda Center.Mandatory Credit: Jaime Valdez-USA TODAY Sports

Please keep in mind that the Celtics trade exception expires on the 12th. Trade exceptions often just expire without being exercised but $10.3 million is a rather large one. Danny Ainge should at least try and see what he can get with it.

Here are some other terms to know. Vocab quiz.

Soft Cap: A salary system that includes multiple exceptions that allow teams to exceed the determined salary cap. A league such as the NFL has a hard cap, where there is simply a salary cap number every year and teams cannot exceed it in any way.

Max Contract: Maximum amount of money a player can sign for. In most cases it is based on how long the player has played in the league. If he’s been around for 6 years or less he can get 25% of the salary cap (estimated $15.8 million for ’14-’15). Between 7-9 years of experience commands 30% of the cap (estimated $18.9 million for ’14-’15). 10 or more years of experience commands 35% of the cap (estimated $22.1 million for ’14-’15). The annual raise percentage on a max deal if 7.5% if a player re-sign with his team or 4.5% if he chooses a new one.

Teams can make one player, or two in the shady case of Oklahoma City, designated. This allows them to offer him a 5-year max contract while opposing suitors can only offer a 4-year deal.

There are specific exceptions however, like…

Derrick Rose” Rule: Most elite players coming off rookie contracts are designated to the “5 year/25%” explained above due to their experience, so they get 25% of the cap. However, if   a player meets certain criteria during his first four seasons he can qualify for a “5 year/30%” deal where he gets 30% of the salary cap. The player must either have started in 2 All-Star Games, made 2 All-NBA teams, or won an MVP. Obviously, this is rare. It was nicknamed the “Derrick Rose Rule” because when it was put into action during the 2011 CBA, Rose was the only player in the league eligible to receive it.

The only players other than Rose currently playing under this contract are Blake Griffin and Paul George.

“Bird Rights”: The Larry Bird exception enables teams to go over the salary cap to retain their own free agents. A team can sign their own free agents who have “Bird Rights” and go over the cap up to amount of a max deal. To obtain Bird Rights, a player must play with a team for three seasons. This, along with the annual percentage raise on max contracts, is designed to help teams keep their own players. Specifically their own star players. Whether it’s working or not, ehh…

The Celtics were the first team to take advantage of this, going over the cap to retain Larry Bird. If a player with Bird Rights is traded, they retain those rights.

Mid-Level Exception: The MLE, which can be used once a year, allows team to go over the cap to sign free agents to a league-determined annual amount. The MLE increases by 3% every year and is determined by a teams current payroll. If a team has cap room, their MLE is worth about $2.6 million. If a team is over the cap and over the luxury tax threshold, their MLE is worth about $3.2 million. A team over the cap but under the tax line has an MLE worth about $5.3 million.

A teams available MLE in any given year can be spread out amongst multiple players and often is how teams budgeting for multiple max contracts fill out the remaining core of their roster. (See: Miami Heat sign Josh McRoberts).

Last season, the Celtics used their MLE to sign Phil Pressey and Vitor Faverani.

Minimum Salary Exception: Allows a team to go over the cap by filling their roster with as many minimum salary players as possible. The minimum depends on how long you’ve been in the league, ranging form $507,336 (for rookies) to $1.4 million (for players with 10+ years of experience).

This exception is also in play during trades. You can go over your cap space in a trade if you need to acquire minimum salary players for your roster.

Reinstatement Exception: If a player is reinstated to the league after a drug-related ban, his previous team may exceed the cap by signing him up to the value of his previous contract. If another team wants to exceed the cap to sign him, they must use their MLE or give him a minimum salary offer.

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Unrestricted vs Restricted Free Agency: Simple. An Unrestricted Free Agent is fair game and every team has a (sort of) equal shot at signing him. A restricted free agent is allowed to explore other teams but his team is allowed to match any offer and retain hims, as long as they extended him a qualifying offer before free agency. If another team signs an RFA to an offer sheet, his current team has 3 days to decide whether to match or not.

Avery Bradley was a restricted free agent but the Celtics agreed to terms with him rather quickly and no one else reportedly agreed to an offer sheet with him.

Amnesty Clause: A new feature in the 2011 CBA that allows teams to get out of a bad contract, the Amnesty Clause allows you to release one player prior to the start of the season without having their salary count against you cap space or luxury tax threshold. The stretch for the life of the amnesty clause only extends until before the ’15-’16 season. And only players signed before the last CBA are eligible to be amnestied. A team can only use it once as well.

If a player is amnestied, other teams can bid on them at a reduced amount and acquire them while their old team pays the remainder of their salary (though it doesn’t count against the cap). If a team is over the salary cap, they can only offer an amnestied player the veterans minimum.

Notable amnestied players include Gilbert Arenas, Chauncey Billups, Baron Davis, Brandon Roy, Metta World Peace, and Carlos Boozer. The life of the amnesty clause is almost up. In fact, the only players in the NBA still eligible to be amnestied are Al Horford, Rajon Rondo, Mike Conley, Kevin Durant, Kendrick Perkins, Nick Collison, John Salmons, and Tony Parker.

Luxury Tax: The luxury tax threshold for the ’14-’15 season is projected to be $77 million while the cap is projected to be somewhere around $63.5 million. So while you can exceed the salary cap using the exemptions listed above (and others), there is still a penalty for exceeding the cap by too much.

The 2011 CBA made the Luxury Tax more complicated as instead of it being a dollar-for-dollar rate it is divided into brackets and there is also a stiffer penalty for repeat offenders. The tax numbers for next season aren’t available yet but here are the ones from last season. A repeat offender is currently defined as a team over the limit for the last three seasons.

Screen Shot 2014-07-08 at 9.34.46 AM

Brooklyn, with a giant ’14-’15 payroll of $91.7 million, is the only team currently over the tax threshold but there’s good chance that the Clippers, Thunder, and Bulls will jump over it (amongst other possibilities). The tax is designed to prevent you from buying a team but some owners and franchises are simply so rich that they don’t mind spending and extra $20+ million just in penalties.

Keep all these terms in mind when looking at the NBA offseason. It’s never as simple as it seems. There’s a reason NBA team employ salary cap experts in their front offices. The CBA is a complex document to navigate and understand.

 

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Tags: Boston Celtics Chandler Parsons NBA Free Agency 2014 Taj Gibson

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