How the Wizards have two large trade exceptions

The underreported part of the two trades the Wizards made last February is that the Wizards also acquired two trade exceptions in the deals.  One is a $6 million trade exception from dealing Brendan Haywood to Dallas, and another is a $4.5 million trade exception from trading Drew Gooden to the Clippers. 

In a nutshell, a trade exception allows you to trade for a single player that makes around the same amount of money as the value of the exception.  There's more on trade exceptions here.  It's a more valuable tool for teams already over the cap, but it does allow for some flexibility even for a team well under the cap like the Wizards.

I was confused, though, about how the Wizards got those trade exceptions when the salaries in both trades matched up perfectly.  I asked Michael Lee and he told me this:

@MikePradaSBN I believe it is because DAL was already over the luxury tax and took on more salary with Haywood's inclusion.    

Still stumped, I looked for others to help explain this to me.  Luckily, Joseph Treutlein of HoopData, an expert in the CBA, filled me in on how the Wizards got these exceptions.  His explanation, and more, below the jump:

First off, I encourage you to read this section of Larry Coon's CBA FAQ, which explains how teams can trade the same players in different combinations of trades to suit their needs and create what's known as a "non-simultaneous trade," which is how teams get trade exceptions.  

Let's say a team has a $4 million player and a $5 million player, and uses the Traded Player exception to trade for an $8 million player. Even though they trade away more salary ($9 million) than they receive ($8 million), the fact that they aggregated the two players means they do not gain a Traded Player exception. However, it is sometimes possible to reorganize these trades so that players technically are not aggregated. A good example of this occurred in 2004 when Houston traded Steve Francis, Cuttino Mobley and Kelvin Cato to Orlando for Tracy McGrady, Juwan Howard, Tyronn Lue and Reece Gaines. As a single trade, it could only be simultaneous since multiple players were moving each way. However, Houston was able to reorganize the trade into three separate trades. In one trade, they acquired McGrady and Gaines for Mobley and Cato. In another trade, they acquired Howard and Lue using an existing Traded Player exception from their earlier Glen Rice trade. That left them trading Francis essentially by himself for nothing, which generated a new Traded Player exception in the amount of Francis' base year value. From Orlando's perspective, it was a single, simultaneous three-for-four trade.

I bring up the Orlando-Houston example because that's essentially what happened with the Dallas trade.  As Treutlein explains via e-mail:

In the deal with the Mavericks, the Wizards actually made three trades from their end, as follows:

Trade #1: Caron Butler ($9,780,970) and Deshawn Stevenson ($3,883,929) for Josh Howard ($10,890,000), Quinton Ross ($1,033,342), and Drew Gooden ($4,500,000)

The Wizards sent out $13,664,899 in the trade, enough to bring back $17,181,124 (in trades you can receive 125% + $100,000 of the salary you sent out). Howard, Ross, and Gooden combined to make $16,423,342, well under the amount the Wizards were allowed to take back.

Trade #2: 1.45million Trade Exception for James Singleton ($1,030,189)

The Wizards had a 1.45million trade exception from the Minnesota deal this summer (Pecherov). They used this exception to take back Singleton here in a separate trade, as his salary wouldn't have fit into the first trade.

Trade #3: Brendan Haywood for nothing

This created a $6,000,000 Trade Exception for the Wizards, because they took no salary in return for Haywood. 

So how could the Wizards trade Haywood for nothing? Here's where things get interesting. From Dallas' perspective, they actually only made two trades, as opposed to the Wizards' three. Here's how things worked for them:

Trade #1: Josh Howard ($10,890,000), Quinton Ross ($1,033,342), and Drew Gooden ($4,500,000) for Caron Butler ($9,780,970), Deshawn Stevenson ($3,883,929), and Brendan Haywood ($6,000,000)

The Mavericks sent out $16,423,342, enough to bring back $20,629,178 (125% + $100,000). From the Wizards, they received $19,664,899, well below what they were allowed to take back.

Trade #2: James Singleton ($1,030,189) for 1.45million Trade Exception

This is the same as Trade #2 for the Wizards.

In other words, because you can fiddle with the combination of players in trades as long as the trades still work salary-wise, the Wizards could send Haywood out for nothing even though the Mavericks didn't have a corresponding $6 million trade exception already.  It created a new exception - it did not transfer a Mavericks' trade exception on the Wizards.

So that's the $6 million trade exception.  What about the $4.5 million one? Treutlein explains again.

Moving on to the Clippers trade, something similar happened. The Wizards again made two separate trades, as follows:

Trade #1: Antawn Jamison ($11,641,095) for Zydrunas Ilgauskas ($12,121,522) and Al Thornton ($1,900,200)

The Wizards sent out $11,641,095, enough to bring back $14,651,369. They actually brought back $14,021,722, well within the limits.

Trade #2: Drew Gooden ($4,500,000) for the rights to Emir Preldzic ($0)

Again, this created a $4,500,000 Trade Exception for the Wizards, because they took no salary in return for Gooden.

From the Clippers' perspective, they made one trade, trading Sebastian Telfair ($2,500,000) and Al Thornton ($1,900,200) for Drew Gooden ($4,500,000). From the Cavs' perspective, they also made one trade, trading Zydrunas Ilgauskas ($12,121,522) and the rights to Emir Preldzic ($0) for Antawn Jamison ($11,641,095) and Sebastian Telfair ($2,500,000). These trades both fit within the 125% + $100,000 parameters.

Basically, the same thing happened.  Because the trade worked in multiple combinations, the Wizards could afford to send out Gooden for nothing, creating the $4.5 million exception.  As Treutlein explains:

So for those who are still a bit confused, the $6,000,000 and $4,500,000 Trade Exceptions the Wizards have now didn't exist prior to these deals happening. The Trade Exceptions came into existence directly from the trading of Haywood and Gooden, as the CBA allows these Trade Exceptions to be created when you trade a single player for no salary in return. The trades were made possible because of the 125% rule, which allowed the deals to be structured differently from the Mavericks' and Clippers' perspectives.

Treutlein also explains what these trade exceptions mean for the Wizards going forward.

Ultimately, these Trade Exceptions could have no impact on the Wizards' situation, as if they still have them when free agency starts, they'll need to renounce them in order to use their available cap space (the exceptions take up cap space equal to their dollar amount until they are renounced). It does give the Wizards some flexibility prior to free agency, however, as the Trade Exceptions can be used in draft night deals, where as their cap space can not be used until the free agency period begins.    

 

Putting two and two together, this is exactly the mechanism that would allow the Wizards to, say, trade for Michael Beasley.  They could use their trade exception to do it before July 1, giving Miami more cap room and the Wizards something for nothing, literally.  I still wouldn't be for that move, but still, the exceptions the Wizards got in February make it possible.

I suspect it was someone other than Ernie Grunfeld who figured out how to structure those February deals creatively, as most front offices have a cap expert (pretty sure it's Tommy Sheppard for us).  Still, as someone who has accused the Wizards' front office of lacking creativity at times, I have to do a bit of a mea culpa here.  It's their job to be creative, and at least they're fulfilling that part of the job.