Very interesting article about trade bonuses and draft night trades

[saltlover]

Eric Pincus wrote a very interesting article a couple of weeks ago, regarding trade bonuses and the impending cap increase.  Essentially, when a player is traded, the bonus is paid out in full the season he is traded, but the cap hit is spread out equally over the remaining seasons of his contract (excluding option seasons).  So if a player has a $1 million trade bonus, and his contract has two seasons left on it, he gets paid $1 million for being traded, but the bonus counts $500k against the cap each year.

However, if the player above has a $1 million trade kicker, and would be a free agent after next season, and is traded by June 30th, that $1 million would count as $500k this year (when we don't care about the cap) and $500k next season.  If he were traded in July, the full $1 million would count towards next season.  Accordingly, the trade on draft night, or immediately thereafter, would save $500k in cap room.

But there's still another wrinkle.  A trade kicker cannot push a player over the maximum salary.  In other words, a player who signed a max contract last off-season that contains a trade kicker would not receive it if traded in June.  In July, however, when the maximum salary increases substantially, the player would be eligible.

How much does this matter?  It depends.  From a Celtics standpoint, Jimmy Butler  has a $2.6 million kicker.  Over three years, that's roughly $870k per year.  Because he's making the max this season, he'd lose all of it.  In the era of huge caps, however, $870k probably isn't enough to force  a trade in June rather than July.  But say, for instance, the Celtics were to swing a trade for Marc Gasol.  Again, he makes the max, so he cannot receive his trade bonus if traded this year.  But if he's traded in July, he'd receive a $10.2 million bonus, increasing his cap hit by $3.4 million per year for the next three years.  Carmelo Anthony would cost an additional $3.9 million per year if traded in July.  Blake Griffin, although unlikely to be traded, would have his cap number increase $5.8 million if traded in July.  Chris Paul, even less likely to be traded, would cost $7.1 million more.

Accordingly, these bonuses could create extra pressure to complete trades on draft night, or right after.  Keep in mind, also, that the incentive to make these trades is on both teams.  While the cap hit applies to the new team, the bonus is paid by the original team, so Memphis saves $10.2 million by trading Gasol in June rather than waiting to see what offers come in July.

http://www.basketballinsiders.com/nba-am-timing-is-crucial-for-trade-kickers/

[biggs]

Excellent post. TP +1

[chambers]

Great info. Helps the sense of urgency on both sides

[hwangjini_1]

Good stuff salty.  Thanks and a tp.

So, in your opinion,does this mean that teams are more likely to trade away players this mint, June,so as to avoid extra Payments? Or in July?

[saltlover]

Good stuff salty.  Thanks and a tp.

So, in your opinion,does this mean that teams are more likely to trade away players this mint, June,so as to avoid extra Payments? Or in July?

Well, it will be easier to trade players in July.  Everyone will have cap room, so you won't need to match salaries.  Therefore, I think teams are more likely to trade next month, because it's easier and there will be more potential suitors.  However, for teams who would have a similar trade structure now and in July, it would make sense to come together on an agreement rather than waiting to see if there's something better.

For a Celtics-Butler deal, I don't think the $870k will matter.  If they have a deal that works for salary cap reasons better in July, or they're playing chicken, then that won't happen.  But say they want to close a deal with Memphis -- I think that happens on draft night, because $3.4 million a year starts to become significant cap room.  And for a cash-conscious team like Memphis, $10.2 million is a lot.