Cohen: Trade Exception Could End Up Helping Magic in Multiple Ways

By Josh Cohen
October 15, 2012

ORLANDO -- Somewhere concealed in their back pocket, the Orlando Magic possess a “gift card” worth $17.8 million.

And like most “gift cards,” this token has an expiration date: Aug. 10, 2013.

In essence, the Magic are permitted to use this “gift card” just like any shopper would at any of their favorite outlets. You hand the clerk at the register your “gift card” and you can purchase any item/s that’s worth up to the amount on the card.

The card doesn’t have to be used all at once, naturally. Let’s say, for example, you were given a $100 gift card to one your preferred department stores. On Monday, you decide you need a new vacuum for your living room carpet, which costs $75, and then later in the week you add some cleansers and deodorizers worth $25 to freshen up the room.

This “gift card” is more formally identified as a trade exception in the NBA. And while my shopper analogy is an exceedingly rudimentary way to explain an NBA trade exception, it just seems like the best way to elucidate it without scrambling your brain.

An NBA trade exception is basically store credit, in which a team has a full calendar year to spend it.

The Magic’s $17.8 million trade exception was acquired in the four-team blockbuster Dwight Howard trade and it is the largest trade exception in NBA history.

It’s rather complicated, but essentially Orlando completed what is known as a non-simultaneous trade.

By technicality, the Magic fulfilled four separate deals when they sent Howard to the Lakers. And ultimately, Orlando netted the $17 million-plus exception, which now allows it to acquire a “replacement player” to match salaries of one of those four trades (which actually was Howard for Nikola Vucevic).

It’s very intricate to assess whether general manager Rob Hennigan will opt to utilize this massive trade exception, largely because Orlando is presently bordering the salary cap threshold and certainly wouldn’t want to run the risk of surpassing the luxury tax penalty line.

However, there are two very appealing facets of this exception.

First off, while a team is not permitted to use its trade exception to sign a free agent, it can splurge its “gift card” to negotiate a sign-and-trade that involves a free agent.

So for instance, if Orlando was interested in acquiring any of the marquee free agents available next summer (ex. Monta Ellis, James Harden, or Al Jefferson), it can do so via a sign-and-trade even if the Magic were slightly over the cap.

The Lakers obtained Steve Nash this way after they had netted an $8.9 trade exception from the Lamar Odom-to-Mavericks trade last December. Although very interestingly, this trade would be prohibited next summer and beyond because teams that are at least $4 million above the tax threshold (like the Lakers) are disallowed from completing sign-and-trades starting in 2013-14.

The Jazz attained Jefferson from the T-Wolves in 2010 with a trade exception after working out a sign-and-trade with the Bulls for Carlos Boozer just a week prior.

And remember, the Magic have until Aug. 10 of next summer to use this exception. So theoretically, since it remains possible Orlando will have some cap space by July 1 to make a play for one max-level free agent, it could actually attain a second star free agent by using the trade exception.

Secondly, there are a plethora of teams that carry an undesirable and unfavorable contract that they would love to unload.

Part of the negotiation could entail the Magic accepting one or more of these contracts but requiring the opposing team/s to include draft picks as part of the trade.

It’s particularly attractive if Orlando negotiates with teams that are potentially draft lottery bound this year and the pick/s are unprotected or have minimal protection.

So for example, if Team Z has a player with $30 million left on his contract over the next two seasons and desperately wants to eliminate this contract from its payroll to avoid luxury tax penalties or simply to evade the salary cap line, this team may consider relinquishing a high first round draft pick just so they can rid themselves of this financial obligation.

It’s apparent the Magic don’t want to steepen its payroll too much over the next few years, but it could be extremely advantageous to bite the bullet, accept the “overpaid” player just so they can gain one or more high future first round draft picks.

Here is a look at some players that have uninviting contracts, but with Orlando’s trade exception, could be valuable in also netting high draft picks. And keep in mind; the idea with this list is not at all focused on what these players would necessarily offer the Magic on the court, but what the potential reward would be with Orlando’s trade exception.

Carlos Boozer (owed $47 million over three years) – While Boozer’s contract is extremely unflattering from a salary cap standpoint, would Chicago be willing to send as many as two unprotected future first round picks in a deal involving the underachieving power forward?

With Derrick Rose out indefinitely, it would seem possible that the Bulls could miss the playoffs entirely this year and would be headed for the draft lottery next June.

Boozer’s contract would destroy Orlando’s quest to be well under the salary cap for the next two years, but hypothetically, would you accept that if you were given a top 10 draft pick? Bear in mind, nonetheless, the Bulls still can use the one-time amnesty provision on Boozer after this season. But while his contract would not count toward the team’s salary cap if Chicago chose this option, the Bulls would then be forced to still pay Boozer.

Andrea Bargnani (owed $33 million over next three years) – Just like the Boozer theory, Bargnani would shatter the Magic’s chase to be well under the cap for the next couple of years.

However, one would assume Toronto will not make the playoffs this season and if the Raptors were willing to surrender an unprotected draft pick in 2013, again, would you be willing to sacrifice cap spending for a high lottery draft pick?

Emeka Okafor (owed $27 million over next two years) – Another team with another potentially high draft pick in 2013. The Wizards are certainly not expected to advance to the playoffs this season, but would probably crave to eradicate Okafor despite trading for him this past summer.

Washington already has Nene at center so the presence of Okafor seems illogical. But would the Wizards be eager to trade an unprotected draft pick to rid themselves of Okafor’s contract?

David Lee (owed $55 million over next four years) – Considering the amount of years remaining on Lee’s deal, one would probably want more than one draft pick in any trade.

With Lee still being a very formidable power forward, however, you have to flirt with this idea especially if Golden State was willing to capitulate multiple first round draft picks in a deal involving the former Florida Gator.

And again, one would assume the Warriors would be headed back to the draft lottery after this season.

These are just some examples of players with inauspicious contracts that could enable the Magic to obtain more future first round draft picks if that was the route they chose to travel.

More realistically, rather than the aforementioned list it’s more likely Orlando would only accept a player/s with far less money remaining on his deal so it doesn’t harm its cap situation.

However, one would assume that teams would not relinquish unprotected lottery picks unless they were able to stamp out those substantial, salary cap-damaging contracts.

It remains to be seen if Orlando decides to use its considerable trade exception by next August. But, it would seem valuable to consider it if it nets a star free agent via sign-and-trade next July or future draft picks that could continue to help the Magic rebuild.

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