NBA teams should be able to trade cap space and exceptions

In the NBA, trades can include players currently under contract, future draft picks, draft rights to players previously chosen, and cash. Players, draft picks, and draft rights all considerably affect the future of clubs when trades are made, but cash doesn’t have a similar effect. Cash acquired in a trade goes straight to the owner’s pockets, with no tangible, direct effect on the team. The CBA caps a team from sending out unlimited cash to limit immensely rich owners from buying up the league’s best players; in a sport where no-trade clauses are rare, this is important to ensure trades are as fair as possible to each side.

Still, it seems as though the cash moving between teams could do more than simply grease the skids or satisfy the league’s touch rules. What if there was another form of “cash” that teams could send back and forth in trades actually affected their salary cap flexibility? No actual dollars would change hands, but instead teams could trade part of their available cap space or exceptions to another team.

For simplicity’s sake, the rest of this article will still refer to the amounts as “cash”, even though there isn’t technically any actual money being transferred between teams.

This idea would give teams another avenue to create spending power where none existed previously. Cash received in a trade could increase a team’s available cap space or give them a boost to their non-taxpayer mid-level exception. Cash sent in this way would have the opposite effect, lowering available cap room or pulling money out of an over-the-cap exception.

Cash sent or received would not affect a team’s luxury tax or apron thresholds, but it could affect the spending power of the various over-the-cap exceptions or raise or lower that team’s salary cap in order to create more cap space for later moves. A team could only apply the outgoing or incoming cash to what they actually have available to them; a room team could not trade $1 million of their taxpayer mid-level exception, but they could trade $1 million of their room exception, provided they still had $1 million remaining of that exception and had already used enough of their cap space to trigger the room exception’s availability. An over-the-cap team could not trade cap space they don’t have, but they could trade a portion of whatever over-the-cap exceptions they have available.

Any amount sent or received would not affect a team’s salary floor either. As things are currently constructed, teams have to spend at least 90 percent of that year’s salary cap. If a team changes their salary cap in a trade, the league-wide floor would still apply to their team salary.

Just like cash, there would be a limit on how much a team could send and receive so that teams with lots of cap space don’t just trade a full max slot to a team right at the salary cap. For the 2019-20 season, actual cash is capped at $5.617 million; teams can send and receive (in separate calculations) up to that amount throughout this league year. This new idea could be capped at that same amount, giving teams a lot of extra options in trading their extra financial flexibility or applying what they’ve received however they see fit.

Trading part of an exception or part of a team’s cap space would be akin to using it – a team that trades part of its taxpayer mid-level exception would have essentially “used” some amount of that exception and therefore would operate as a tax team throughout the rest of that league year, regardless of whether that move or their other moves would take them far enough below the apron to be a standard over-the-cap team.

The only exception to this rule would be the same as it is for contracts in the current system. A team that trades away part of its non-taxpayer mid-level exception can convert that amount traded to the taxpayer mid-level exception, just like teams that sign a player with the NTMLE can convert that contract to the TMLE, provided that the contract also fits the parameters of the TMLE. Since the threshold for cash sent is less than the TMLE, there would be no situation in which a team sent out too much money in a trade to lose their conversion rights.

The cash sent between teams under this idea could also be applied to match salaries in a trade, should the sending team end up short of minimum required salary to acquire the contracts they want. For example, if an over-the-cap team wants to trade for a player making $15 million, they could trade away a player making $9 million and $1 million in cash in order to match that incoming salary. They would have to have that cash available to them through a previously-unused exception, such as the non-taxpayer mid-level exception or bi-annual exception, but assuming they had $1 million leftover in one of those exceptions, they could send that along with the $9 million player to acquire the $15 million player.

If the above trade happened at the deadline, it’s unlikely the receiving team is going to have much use for that $1 million immediately. They can apply it to an over-the-cap exception or their cap space, but there isn’t a whole lot a team can do with extra flexibility like that during the season. To combat this problem, amounts received would not have to be applied immediately; like a traded player exception, any cash received in a trade could be applied as the team saw fit for up to one calendar year. However, if the cash received goes unused at the end of the year, it’s automatically applied to the largest available place, rather than simply disappearing. Whether the team has cap space or an exception available to them, any cash that has reached its expiration date will be automatically applied to that exception in order to ensure teams are still spending money to compete.

Taking everything into account, our example team would net three assets for relinquishing their $15 million player: the $9 million player coming back to them, the $1 million in “cash” they could apply to their cap space or over-the-cap exceptions at a later date, and a $5 million traded player exception that operates exactly like it does under the current rules.

Traded player exceptions would operate the same way as they do now and could not be split up and sold off like the other over-the-cap exceptions. For example, the Dallas Mavericks could not have traded part of the Harrison Barnes trade exception to a team looking for extra cap space in exchange for a draft pick, but they could have used part of their NTMLE or bi-annual exception to make that same deal. The only pieces of financial flexibility that can be traded would be cap space and the four standard over-the-cap exceptions: room exception, non-taxpayer mid-level exception, bi-annual exception, and taxpayer mid-level exception. Teams could not trade all or part of a disabled player exception, a traded player exception, nor a minimum salary exception, since any over-the-cap team literally has an unlimited supply of minimums.

Since cash sent and received counts toward the calculation of trade exceptions, they would have to be matched; a team could not receive $2 million to apply to their non-taxpayer mid-level exception in exchange for a future draft pick unless they had a traded player exception worth at least that amount. Teams who are already under the cap and are using the cash received to create more cap space would not be bound by this restriction, the same way they’re not bound by matching rules in trades right now, as long as they complete the trade under the cap.

A final addendum: Any amount traded away in the current league year must be replaced if a team makes a trade to later acquire cash.

For example, if Team A trades $2 million of their bi-annual exception to Team B in exchange for a second-round pick, then later that league year trades a player making $4 million for $4 million in cash, $2 million of that received cash MUST go back to their bi-annual exception for that league year immediately, then the remainder can be used in any way they see fit. If they instead received $1.5 million in the second trade, then that entire amount would go back to their bi-annual exception and any future acquired cash would fill the remainder, up to $2 million in total.

A few real-life examples from this past offseason, to give you a better idea of how this idea could be used:

The Los Angeles Lakers are absolutely in win-now mode and wanted to maximize their cap space. The Atlanta Hawks had so little interest in using space that they had $5.3 million left when the season started. The Lakers could have sent a second-round pick to the Hawks in exchange for some of their cap space in early July. The Lakers get some extra space to use on the margins and the Hawks get a second-round pick for money they were not likely to spend anyway.

The Golden State Warriors were hard-capped at the apron as a result of the acquisition of D’Angelo Russell. As a hard-cap team operating over the cap, they have the non-taxpayer mid-level and bi-annual exceptions available to them, but their proximity to the apron make it impossible for them to actually sign players with those exceptions. Under the current rules, that spending power evaporated into thin air, but under the rules laid out in this article, the Warriors could have traded some of those unusable exceptions to teams (like the Lakers, perhaps) who needed some extra spending power.

Introducing this extra bit of flexibility in trades would open up innumerable options for front offices as they discuss swaps with their counterparts around the league. Teams who need to squeeze out an extra bit of cap space could do so without having to part with one of their players to lower overall team salary; instead, they could trade a draft pick for a bit of extra cap space. Teams limited to the non-taxpayer mid-level exception to add to their team could, to some extent, still get into negotiations with a player who wants more money than the exception could normally pay him by swapping a young player for a few million dollars to attach to their NTMLE. Teams looking toward the future could swap their current players for money they could apply to next year’s cap space. The possibilities aren’t literally endless, but it would certainly open up a lot of interesting discussions surrounding trades and loosen things slightly to ensure that teams can simultaneously serve their own interests in trades.

Negotiations between the players and owners to include an idea like this in the next Collective Bargaining Agreement would be interesting. In theory, a team acquiring another team’s unused financial flexibility would lead to teams spending more money on player contracts, which should entice the players association to consider such a proposal. Teams see their over-the-cap exceptions go unused nearly every year, but if they were able to send that cash to a team that would use it, an extra contract or two would be signed with money that would have disappeared otherwise.

The players would be less inclined to agree to such a proposal because trades are incredibly uprooting to the lives of the players who get moved, particularly in the middle of the season. Perhaps the players would ask for an expansion of the rules surrounding no-trade clauses, to help offset the extra trades that would theoretically be completed with these rules in place.

From the league’s perspective, teams would benefit from gaining more financial flexibility without necessarily being forced to use these new tools. A team looking to save money could trade their financial flexibility for future draft picks, which would limit costs for an owner, while owners with more open pockets would be glad to pick up that flexibility in order to strengthen their team in the short term.

While this proposal doesn’t technically change anything about how much total money is available throughout the league, it would put more of the available money in the hands of the teams that actually want to use it, which should be a positive for both sides in CBA negotiations.