How Monday’s Trade Worked Financially

The teams involved in Monday’s three-way swap had divergent motives, as is so often the case in trades. The Thunder secured a scorer in Dion Waiters to help their title push. The Cavs, another title contender, gave up that scorer to shore up their defense. The Knicks took part in the deal seemingly with next year in mind, receiving only minimum-salary players in return for a pair of key perimeter players.

Each team accomplished those ends using different financial means. The simplest transaction was the Thunder’s. They possessed a $4.15MM trade exception as a vestige of Thabo Sefolosha, as our list of outstanding trade exceptions shows. GM Sam Presti created that exception when he convinced the Hawks to make their signing of Sefolosha this past summer a sign-and-trade rather than an outright signing. It was a move that appeared to have no real benefit to the Hawks, other than to create goodwill, and it’s clear after Monday’s trade that Presti owes Atlanta a favor. Waiters, who makes $4.062MM this season, fits neatly within that Sefolosha exception. Oklahoma City didn’t relinquish any players other than the minimum-salaried Lance Thomas to make the deal happen, as the team would have had to do if not for the exception.

The Knicks had a trio of exceptions to make the trade work on their end, but those weren’t exceptions that team president Phil Jackson or GM Steve Mills created. Instead, they used three different instances of the minimum-salary exception to absorb Thomas, Lou Amundson and Alex Kirk. The minimum-salary exception is a renewable resource of sorts. A capped-out team can use it as many times as it wants to sign players, trade for them, or claim them off waivers, as long as that team didn’t trigger a hard cap. The Knicks have no hard cap, and so they were free to employ the exception as they saw fit. In so doing, they’re allowed to create two new trade exceptions that are significantly more valuable than the minimum-salary exception. Offloading J.R. Smith lets New York come away with a trade exception equivalent to his $5,982,375 salary and another trade exception equal to the $2,616,975 salary for Iman Shumpert.

There’s a different salary figure for Smith as it pertains to the Cavs. Smith has a 15% trade kicker on his contract. Now that he’s been traded, that provides him with a bonus equivalent to 15% of the remaining value of his deal, excluding next year’s salary, since Smith has a player option for next season, and player options don’t count for trade kickers. Monday was the 70th day of the NBA’s 170-day regular season, so the prorated bonus works out to about $533K, making his new salary for this season come to about $6.516MM. Smith inked his deal after the existing collective bargaining agreement came into being, so the Knicks have to pay the bonus that Smith receives for having been traded. However, the salary for Smith that was on the books prior to the trade is the one that counts as outgoing salary in the trade from New York’s perspective, limiting the value of the new trade exception the Knicks can create. Conversely, Cleveland had to make the salaries match based on Smith’s new, bonus-enhanced salary.

The combined salaries of Smith and Shumpert were too much for the Cavs to absorb if they only gave up Waiters, Amundson and Kirk and didn’t use any exceptions. Cleveland has been holding onto a $5,285,816 trade exception left over from Keith Bogans since September, but the team recently gained another exception of similar value. The league granted the Cavs a disabled player exception worth $4,852,273 to compensate for the season-ending injury to Anderson Varejao. That disabled player exception expires March 10th. The Bogans trade exception doesn’t expire until September 27th. So, it makes sense that Cavs GM David Griffin used the asset that would disappear first, and that’s what they’ve done here, as Jason Lloyd of the Akron Beacon Journal confirms they’ve used the Varejao disabled player exception (Twitter link).

That exception wouldn’t work for Smith, since Smith’s not on an expiring contract, and disabled player exceptions only work for deals that don’t extend beyond a single season. Smith’s salary, both before and after the trade kicker, was too large for either the Varejao disabled player exception or the Bogans trade exception, anyway. Shumpert’s deal, set to come off the books at season’s end, fits the bill in terms of length, and his $2,616,975 salary works in terms of value. That leaves Cleveland to match Smith’s trade-kicker-enhanced salary, a task the team can accomplish by combining Waiters’ $4.062MM pay with Kirk’s $507,336 minimum salary and Amundson’s $915,243 cap hold. Smith’s salary is within 125% plus $100K of the combined salaries for Waiters, Kirk and Amundson, so it’s kosher under the salary matching rules for taxpaying teams, which apply to the Cavs since they slipped over the tax line in the deal.

Amundson’s salary is more than $1.3MM this year as an eight-year veteran, but the Cavs were only responsible for the equivalent of the two-year veteran’s minimum salary of $915,243, since he’s on a one-year minimum-salary contract. The league picks up the bill for the rest. For the most part, the league’s help with veteran’s minimum contracts benefits teams, but in this case, it combines with Smith’s trade kicker to prevent the Cavs from creating a trade exception equivalent to Kirk’s salary. If Smith didn’t have the trade kicker, or if Cleveland could plug Amundson’s full salary into the matching math, Amundson and Waiters alone would be enough to match for Smith, allowing the team to come up with an exception for Kirk. Still, trade exceptions equivalent to the rookie minimum salary are rarely useful, so the Cavs don’t miss out on too much.

Teams have choices when it comes to creating and using trade exceptions, so aside from the news that Lloyd reported, there’s no confirmation that the paths I’ve explained here are the ones the teams took. However, these are the most logical scenarios, and in many cases, as with the Thunder, they represent the only way Monday’s transaction could have taken place within the bounds of the collective bargaining agreement. The move leaves plenty of loose ends, especially as far as the Cavs and Thunder are concerned, since it appears to have brought both teams above the $76.829MM tax threshold. Teams aren’t subject to the tax unless they’re above that line on the final day of the regular season, so that suggests more moves are on their way for Cleveland and Oklahoma City.

The Knicks remain above the tax, but they, too, have set the seeds for more trades. The removal of the threat that Smith would exercise his nearly $6.4MM player option for next season gives the team additional flexibility, and the ability to create two new trade exceptions allows the team added means to put that flexibility to use.

Larry Coon’s Salary Cap FAQ and the Basketball Insiders salary pages were used in the creation of this post.