Each year when July rolls around, we see a ton of free agent contracts signed and at least a handful of trades consummated. However, on a few occasions, these two forms of transactions are combined into something called a sign-and-trade deal. Sign-and-trades occur when a team re-signs its own free agent, only to immediately send him to another team in exchange for players, draft picks, and/or cash.
In order for a sign-and-trade deal to be completed, the following critera must be met:
- The free agent must be signed-and-traded by the team with whom he finished the season. For instance, the Jazz could sign-and-trade Paul Millsap this summer, but another team couldn't sign Millsap and immediately move him.
- If the free agent is restricted, he can't be signed-and-traded after signing an offer sheet with a rival team.
- A team acquiring a player via sign-and-trade cannot be over the tax apron ($4MM above the tax line) after the deal.
- A team acquiring a player via sign-and-trade cannot have used the taxpayer mid-level exception.
- The free agent cannot be signed-and-traded once the regular season is underway.
- The free agent can't be signed using the mid-level exception or any other exception that doesn't allow for a three-year contract.
Sign-and-trade contracts can be worth any amount up to the player's maximum salary (with 4.5% raises), and must be for either three or four years. However, only the first year of the deal has to be guaranteed. For instance, last summer, the Hawks acquired DeShawn Stevenson via sign-and-trade as part of the Joe Johnson blockbuster with the Nets. Stevenson received a three-year contract, but only the first year was guaranteed.
If a sign-and-trade contract includes a signing bonus, either team can agree to pay it, though generally the team that signs the player pays the bonus. As for trade bonuses, they would kick in upon any subsequent trades rather than as part of the sign-and-trade transaction itself.
Under previous Collective Bargaining Agreements, there was more incentive for players to work out sign-and-trade deals, since the contract restrictions weren't as strict. For example: As we've discussed numerous times, Dwight Howard can receive $30MM+ more in guaranteed money from the Lakers than from any other team this summer. If the Lakers were to sign-and-trade Howard, his contract couldn't exceed the four-year, $87.59MM max deal that another team could offer him straight-up. In previous CBAs, a sign-and-trade would have allowed Howard to earn the full $117.95MM max as well as getting to the team of his choice, but that is no longer the case.
Under the new CBA, there is less incentive for teams and players to participate in sign-and-trades. Generally, if a player wants to change teams, it makes more sense for him to sign with the new team outright, rather than making that new team give up assets to complete the acquisition. Even the player's old team may prefer to simply let the free agent walk and claim the cap space, rather than taking back unwanted assets in a sign-and-trade.
If a potential suitor is over the cap and under the tax, and wants to sign a player for more than the mid-level amount, then a sign-and-trade could make sense, particularly if they can offer the free agent's prior team something of value. But these transactions are becoming less frequent than they once were.
The Stevenson/Johnson case from last summer provides an example of a sign-and-trade benefiting both the player and the team. Atlanta needed to add more incoming salary to make the Johnson trade work under CBA rules, so acquiring Stevenson via sign-and-trade allowed the Hawks to give Stevenson the bare minimum salary required ($2,240,450) to make the trade legal. From Stevenson's perspective, that $2.24MM salary was likely higher than he would have received on the open market, so even though the final two years of his contract may not become guaranteed, he still made out well in the deal.
Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.