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Friday, July 11, 2014

"Consideration In Trades And Trade Structure" - a league instruction manual

At the end of the July Moratorium each year, the league sends out a memo containing all of the findings from the audit it conducted during it. That audit is what the moratorium period is for - the moratorium is one long end-of-season book-keep in which it crunches all the numbers related to revenue, BRI, escrow, tax and the like, and makes determinations on both the past and the future. That memo generally filters through to the mainstream media - it has to, because it contains all the things that will make the league work next year, such as the salary cap numbers and exact size of the luxury tax threshold. It also contains things such as the latest projection of the season after next ($66.3 million salary cap, $80.7 million luxury tax threshold) and the sizes of next year's exceptions.

This year, however, the league sent out a second memo. Entitled "Consideration in Trades and Trade Structure", it is a reminder and/or clarifier to teams about some of the specifics of what they can and cannot do in trades. Seemingly, they felt this was necessary

Considering the presence of this memo suggests that some teams do not entirely understand the rules (or, perhaps, have been intent on pushing them back a bit), it is self-evidently the case that those of us outside of the league will not fully know them either. So, here goes.



The memo is divided into two parts. The first part of the memo deals with what constitutes 'consideration' in trades, and is itself split into two parts.

Part two of this first section concerns consideration in trades for non-playing personnel. Seemingly, in light of recent de facto coaching trades (whereby a team receives compensation for letting a non-playing member of staff out of their contract to sign with the other team), those rules needed some clarification. And the clarified rules are stated in the memo as follows:

a) As long as they accord with all other trade rules (e.g. Stepien rule, cash limits), draft picks and cash are allowed to be traded in this way.
b) Players and draft rights to players are not.
c) The two teams involved in such a trade cannot make another trade between themselves for the earlier of (i) one calendar year of the day the non-playing member of personnel was released from the original contract, or (ii) if the release took place in between two regular seasons, after the final game (including playoffs) of the upcoming seaaon for both teams. This includes, and indeed is primarily about, trades of players.

Fair enough. This is not a well documented area, so it is good to see some clarity.

Part one of this consideration section, however, is where the real eyebrow raisers are found.

First of all, the memo establishes what the league considers now to be 'minimum consideration', parameters it says that have been established over time and through precedent. Section (a) states that the minimum consideration to be given in all trades regardless of the number of teams involved is thereafter to be one of the following, with teams required to give and receive at least one of them:

i) a player under contract,
ii) a future draft pick, the maximum protection of which is 55 spots,
iii) a player's draft rights, but specifically those of a player with a 'reasonable' chance of signing in the NBA one day (something judged at the discretion of the NBA), or
iv) $75,000.

Further to this, in multi-team trades (i.e. three or more), the parameters are different. Section (b) states that the minimum consideration in trades involving more than two teams is thereafter to be one of these following, with teams required to give and/or receive at least two of them:

a) a player under contract,
b) a future draft pick that, whilst it may have protection, must be unprotected in at least one season and thus must be conveyed at some point,
c) a player's draft rights (the same definition is not given, but the same wording is, thus the same definition can be assumed), or
d) $750,000.

In all multi-team trades, all parties to the trade must meet the parameters of both sections. In practical terms, this means they must both give and receive something, with 'something' defined as being one of the four pieces listed in section A. In addition to this, they must at least send or receive something to at least two parties in the deal, sending or receiving at least two of the four pieces listed in section B.

This does not mean teams have to send and receive something to all parties in the deal. It is still OK for a team C to receive a player from team A and cash from team B, sending only a draft pick to team A. However, the higher minimum thresholds of consideration given in section B necessitate more impactful assets being dealt in these trades in the future. And in particular, the much larger amount of cash makes it more difficult for multi-player trades to merely use nominal amounts of cash in the future. You can still trade only $75,000 to a team in a multi-player trade if you want, but the other two things they are giving and/or receiving are going to have to be more toothy to make up for it.

The memo states this because the NBA has become all too aware of the usage of multi-team trades involving third teams receiving mixed bags of assets and liabilities whilst sending out remarkably little in return. See for example Milwaukee's role in the three team trade that sent Kevin Martin to Oklahoma City - for taking on the unwanted salary of Luke Ridnour, the Bucks received a second round pick and cash for their troubles and only had to send out the draft rights to Szymon Szewczyk to the Thunder, a player who meets the NBA's requirement of 'starting or rotation player in a reputable league' but who isn't going to join the NBA. In letting it be known that the minimum requirements for 'consideration' are to be tougher, the NBA seeks to make this more difficult to do, citing as their reasoning the fact that 'trades involving three or more teams typically provide teams with salary cap or other advantages beyond what could be accomplished via successive two-team trades', something they do not like seeing outside of what they call 'bona fide' trades.

These whatever-the-opposite-of-bona-fide type of deals still will happen, no doubt. But it will cost those involved more to do it now. And in light of the description of the required threshold for a player's draft rights - which may not be new, but which is new to me - we now get to see which rights to long-since-drafted players are suitable or not. If you are into your esoterica, there are some questions created here that we can look forward to not having answered. Someone try to trade for Venson Hamilton and see what happens.



The second part of the memo, the part concerned with trade structure, is primarily a short and somewhat terse message. It reads thusly:

Please be reminded that anti-circumvention rules apply to all proposed trades. Accordingly, among other things, teams cannot structure a trade to defeat or circumvent provisions of the CBA or other league rules.

The elaboration subsequently given states that a team cannot split one trade into more than one trade 'to evade a CBA prohibition or to gain a particular Salary Cap advantage'. It elaborates no further than this, however, and no specific example is given. Indeed, the memo goes on to say that transactions that may run foul of this will be addressed on a case-by-case basis, which is unhelpful in establishing the parameters of this reminder, as well as what triggered it.

This is an interesting point, because it suggests the frowning-upon of a practice involving the creation and usage of trade Exceptions via non-simultaneous trades. This practice is a long-standing but ill-covered one which I have attempted to clarify on multiple occasions this season, partly in this piece, but primarily in this one. From that latter link comes this description of the conduct potentially in question:

[E]ach team is able to structure the trade in the way which suits them best, even if said structure is different to how other parties do it. There can be multiple ways to conduct the same trade, and this is evident and important in the creation and usage of TPEs.

This confusing process is best illustrated by way of example. Suppose team A has an $8 million player X, a $5 million TPE and a $3 million TPE, while team B (conveniently!) has a $5 million player Y and a $3 million player Z. Suppose players Y and Z from team B are traded for the $8 million player X from team A alone.

From team B's perspective, the deal is simply players Y and Z and their $8 million aggregated salary in exchange for player X from team A. However, team A can structure the deal so that player Y is absorbed by the $5 million TPE and player Z by the $3 million TPE, thereby allowing them to send out player X for no incomming salary, thereby creating a fresh $8 million TPE for player X. It is perfectly permissible to structure the trade in this way despite it being different to the structure used by the other party, as long as the structure for each party satifies the CBA. And the rule whereby all parties to a trade must give up something in the deal is satisfied by the fact that player X is traded.

Essentially, the trade is both one big deal and three parallel smaller ones at the same time. The need to trade something for something is satisfied in the overall deal and thus does not need to be satisfied in each parallel smaller one.

The relevant passage in the memo suggests that it is this practice that may be under threat. However, in the trade that the quoted passage above was in reference to (the MarShon Brooks/Steve Blake trade from the last deadline day), provisions were not circumvented. Provisions were not defeated. Things were worked around, yes, specifically Golden State's inability to aggregate Brooks's salary in trade. But the Warriors and Lakers (mainly the Warriors) did all their finagling within the rules set forth by the Collective Bargaining Agreement. They did not do anything here other than what they were permitted to do, and even if they had done, the league still approved the trade.

With this in mind, it would seem as though moves of this nature are not the sort of thing the passage refers to. But if they are not, then what are? The catch-all words "among other things" are deliberately open ended, and, to be honest, there are not all that many ways to structure a trade in the first place. So the scope of the conduct the league seeks to reminds its teams of must be more limited than the wording suggests.

If the NBA feels that manoeuvring in the manner of the Warriors and Lakers above is contrary to the spirit of the Traded Player Exception and specifically to the use of non-simultaneous trades, then, fine. It pretty much is - on all but the most technical of levels, Brooks and Bazemore were traded for Blake in one deal, with only minutiae stating others. But it was also perfectly allowed by the very clauses the league signed up to in the Collective Bargaining Agreement. And if this is not the kind of matter that this passage of the memo refers to, then we will have to see what it is, because I have no other guesses.

Nevertheless, whatever it is, this could be an interesting thing to watch develop. The NBA may be seeking to outlaw a practice it simultaneously permits. We shall see over time where the new boundaries lie.

Or rather, we probably won't.

2 comments:

  1. From what I gather, the component of the the Brooks/Blake trade that was gray (and arguably circumventing) was the inclusion of Bazemore's minimum contract. As Brooks had been traded by the Celtics recently, it feels the spirit of the rule wasn't followed as he was effectively traded in a 2 for 1 deal instead of 1 for 1. What is the point of restricting a recently traded player to only 1 for 1 deals if there are ways like this to get them into 2 for 1 or other combination deals?

    Anyway, the Warriors got out of the tax again which was clearly important to them. It seems unlikely the Lakers really wanted to add Bazemore's contact without the combined salaries of Brooks and Bazemore still be lower than what they were paying Blake.

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