Inside the Front Office: How Trades Work
Inside the Front Office
March 12 - How Trades Happen
This is the first in a regular series of articles answering fans' questions for the front office. If you have a question for the front office,
. Our web staff will pick one question each month or so to forward to Mike Zarren, the team's Assistant Executive Director of Basketball Operations. We reserve the right to select whichever questions we feel like asking...
This month's question: What actually happens when a team wants to make a trade? How does it work?
-Dorothy, Swampscott, MA
MZ: Trades are more complicated than most people think. In addition to finding players that each team wants to exchange, there are many things that each team must evaluate besides the players' performance on the court. As a result, each NBA trade requires a number of steps that fans at home don't often consider. I'll list most of them here, but keep in mind that during an actual trade, these things are often happening simultaneously.
1. Salary Cap Calculations. Most teams can't just exchange any players they want, due to the collectively-bargained salary cap rules. These rules are too complicated to explain here; you can find decent, though not necessarily always complete or correct, descriptions at the ESPN Trade Machine and Larry Coon's CBA FAQ. Each team must calculate (a) whether the trade works under the rules, and (b) how the trade will affect the team's future player salary and luxury tax plans. Further complications in these calculations may arise from factors such as trade bonuses (contractually required to be paid to certain players in the event of a trade).
2. Exchange of Medical Information. Each team is required to disclose in writing all medical information held by the team that might in any way relate to the relevant players' abilities to play basketball. (Yes, HIPAA lawyers, the players have validly consented to this.) Each team then scrutinizes this information, usually before agreeing to the deal. In addition to reading written descriptions of players' conditions, team doctors often examine MRIs, X-rays, EKGs, or other test results as part of this step.
3. Exchange of Insurance Information. Each team also must disclose any insurance policies that cover the relevant players' salaries. The receiving team for each player must then determine if it wishes to assume any such policies, and, if it's a mid-season trade, the teams must also agree on what portion of the policy premiums will be paid by each team. This step sometimes involves detailed consultation between teams' finance departments.
4. Bonus-Assumption Decisions. In mid-season trades, the teams must also agree on what portion each team will pay of any player's incentive bonuses if the player ends up qualifying (under the terms of his individual contract language) for bonus payments at the end of the year. A team acquiring a player in February might not want to pay all of a player's bonus when the player earned more than half of the bonus while playing for another team!
5. No-Trade Clauses / Trade-Bonus Reductions. In rare situations, a player may have the right to refuse a trade. In other situations, the trade might not work under the salary cap rules unless a player agrees to reduce a trade bonus that the acquiring team would owe him. If a player's consent is required (either to execute the trade or to reduce the trade bonus), the general manager of the player's current team often will hold lengthy discussions with the player's agent. In these cases, however, neither the sending nor the receiving team is allowed to offer a player any additional incentive for his consent -- the player is free to consent or not consent as he pleases.
6. Draft Considerations. If draft pick rights are part of the trade, the teams must specify exactly which picks are being exchanged. In some cases, it's as simple as "Boston's 2006 second round pick," or "The 2nd round pick Boston previously received from Phoenix in the Walter McCarty trade." However, in other cases the teams include "protection" against a pick being high in the draft, or they determine that Team A will not receive the draft pick of Team B until Team B receives or sends another, previously-traded, pick to or from Team C. Writing the language that governs exactly which pick(s) will be traded will often involve team and league legal counsel -- in the case of one heavily-protected pick traded from Minnesota to Boston in the Ricky Davis / Wally Szczerbiak trade, the language covered most of a page. (Amusingly, this pick was later traded back to Minnesota in the Kevin Garnett deal, and none of the language on the page -- which we spent several hours crafting -- ever took effect.)
7. Sign-and-Trade / Extend-and-Trade Deals. In some cases, one team will have the right to sign a player to a new contract of a certain size, but another team (which wants to acquire that player) will not have this right. The two teams can then agree to a trade in which the first team signs the player to a new contract that contains a clause saying the contract is only effective if the player is traded to the second team within 48 hours. This is called a "sign-and-trade" deal; in these deals, the first team grants the second team the right to talk to the relevant player. If the player and the second team agree to new contract terms, the first team signs the contract with the player and then trades him to the second team. These trades can take longer to complete: not only must the two teams negotiate the terms of a deal, but one of the teams also must make a deal with the player (involving even more salary calculations). Also, because new contracts can also have legal and tax consequences for both the team and the player, a player's lawyer or tax counsel may be involved, in addition to the player's agent, while payment schedules and other terms are discussed. The Kevin Garnett trade was the NBA's first "extend-and-trade," deal: KG signed a contract extension (that we had negotiated with him) with Minnesota, and then was immediately traded to Boston. (The extension contained a clause providing that the extension only took effect if the trade to Boston was completed.) Because it was the first deal of its kind, the collective bargaining agreement clauses governing this type of deal had never before been relevant to an actual transaction. Application of these rules by the league and the players' association for the first time added even more complexity to the deal.
8. The Trade Call. Once all of the things listed above have been considered and agreed upon for a particular trade, the teams draft an email detailing the terms of the trade, which each GM must then send to the league. And all this must be done before the trade deadline! Then representatives of each team, along with league lawyers, participate in a recorded conference call during which the terms of each player's contract, along with all other terms of the deal (including all of the details described above), are read aloud and agreed to by each team's representatives. Each team must also certify that there are no side deals or additional agreements, either between the teams or with any player, that were not disclosed in the trade email or on the trade call. Assuming that this all goes smoothly, the teams then agree upon a timeline for announcing the trade and holding press conferences. Sometimes, this timeline is short -- we completed a trade call with Seattle about 20 minutes after they selected Glen Davis at #35 in this past year's draft, and within 30 minutes of the trade call we held a press conference to announce the acquisitions of Davis and Ray Allen. Other times, teams want more time to draft press releases, etc., and the trade will not be announced for several hours or until the next day.
9. Reporting and Physicals. One final topic that's discussed on the trade call is how long each player has to report to his new team, and whether the trade will be dependent on each player passing a physical. The collective bargaining agreement gives players several days to report to their new team, but the teams may agree to provide even more time, especially over the summer. In any event, the trade is not officially complete, and no player may suit up for his new team in a game or practice, until all players report to their new teams and pass a physical exam. (Sometimes the teams agree to waive the physical exam requirement.) In addition, players near the ends of their contracts and those players' agents are required to sign forms certifying that there are no undisclosed "side deals" involving new contracts as part of the trade. As a result of the reporting deadlines and required physicals and certifications, a trade usually doesn't become "official" until long after it is announced at a press conference. For example, this past summer we traded for Kevin Garnett on July 31st. The trade call ended just before 1PM that afternoon, and Garnett immediately flew into town for a press conference that evening with Ray Allen and Paul Pierce. However, the trade was not officially complete until nearly a week later, on August 7th, at 6:00 PM, when the league informed both teams that all conditions (including physicals and certifications) had been met.
So that's how a trade happens. Of course, in addition to all this stuff, there are the negotiations involved in setting up a deal. Each team is also constantly having internal discussions between owners, the GM, finance people, lawyers, coaches, scouts, and (sometimes) players about the players involved in any potential deal. Plus, we'll often be seeking information about players by contacting their former coaches and teammates, in addition to conducting detailed statistical and video-based analyses of how the addition or subtraction of any particular player might help (or hurt) our team. As you can see, trades are not always simple, and we have to take many of these steps even for potential trades that don't end up actually happening -- that's why the week of the trade deadline is often one of the busiest of the year.
Mike Zarren is the Celtics' Assistant Executive Director of Basketball Operations.