A trade exception is like a gift card with an expiration date. Those of you who just received gift cards for Christmas will relate – you have an amount of money you can spend. You can keep using the card until either: 1) You have exceeded the spending limit; or 2) The card expires.
For example in one of the trades I listed above, the Clippers sent Randolph to the Grizzlies for Richardson last July 17. Since Randolph made about $7.3 million more than Richardson, the Clippers received a $7.3 million credit, with an expiration date of July 17, 2010. They used part of this credit last August 12 to acquire Rasual Butler. The remaining $3.4 million is still available for the Clippers to use until July 17. Any amount still outstanding on July 17 will simply vanish.
Since Butler was acquired with the Clippers' trade exception, his acquisition was considered to be a part of the Randolph-Richardson trade. Therefore the Clippers did not have to send away any additional salary last August 12 in order to acquire Butler.
Here are some other facts about trade exceptions:
- When determining whether a trade is simultaneous or non-simultaneous, and the amount of any trade exception, only current contracts are considered. Any cash, draft rights and future draft picks are ignored.
- Trade exceptions are known by many names, so be on the lookout when you're reading information from different sources. They are sometimes called Traded Player Exceptions, or simply TPEs. There is no definition for trade exceptions in the Collective Bargaining Agreement. Even worse, the CBA uses the term Traded Player Exception to refer to something else – the entire process by which teams can make trades when they are over the salary cap.
- Trade exceptions can't be added to anything. A team can acquire 125% of the salary they trade away (in a simultaneous trade). So if they have a $10 million player, he can be traded for up to $12.5 million in incoming salary. If they also have an outstanding trade exception for $5 million, they can't add it to the $12.5 million in order to acquire a player making $17.5 million. The trade exception can only be used to acquire a player or players making the amount of the exception or less (plus a $100,000 fudge factor).
- Trade exceptions can't be added to other trade exceptions, either. Right now the Lakers have two trade exceptions – one for $2.5 million, and the other for $1.9 million. They can't combine them to acquire a player making $4.4 million. The $2.5 million exception can only be used to acquire a player making $2.5 million or less, and the $1.9 million exception can only be used to acquire a player making $1.9 million or less (again, each also has a $100,000 fudge factor).
- People commonly refer to teams trading their trade exceptions. This doesn't happen. A team never acquires a trade exception from another team. However, in the same trade a team might use their existing trade exception, while the other team generates a new trade exception of their own, which they then have a year to use.