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Salary Cap Rules for a Potential Anthony Davis Trade

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With the Celtics' season and the NBA draft lottery in the rearview mirror, the focus of the franchise has shifted to potentially trading for New Orleans Pelicans superstar Anthony Davis. This post will address some of the rules, considerations, and timelines to know in thinking about trading for Davis. This is not an analysis of what would make a fair trade offer; any example trades are constructed to illustrate trade math or a rule and not a comment on talent or trade "fairness."

Designated Rookie Extensions

As has been discussed ad nauseam during the season, the Celtics cannot trade for Anthony Davis while holding Kyrie Irving's current contract. This is because the league does not allow a team to have traded for more than one active Designated Rookie Extension contract. These special deals signed after a first-round pick finishes their third season run for five years instead of the usual maximum of four seasons.

Irving will be opting out of that fifth season but the fourth year of his deal won't end until the league season concludes at the end of June. That means that the Celtics cannot officially acquire Davis until July. This is both fine (every year teams agree to trades in June that can't be finalized until July) and helps to simplify this conversation. All player contracts and salaries used from this point will be for 2019-20 and we can ignore laying out what it would mean to formally trade for Davis before the 2018-19 season comes to a close.

Salary Matching Rules in Trades

If a team makes a trade where they end up below the salary cap there are no rules for how much in current season salary they must be sending out. While it's theoretically possible that Boston could drop far enough below the cap to acquire Davis without needing to worry about salary matching, it would involve first Kyrie Irving to another team (or renouncing his free agent rights in anticipation of that) and likely also losing Al Horford via his player option before renouncing the team's rights to other free agents like Marcus Morris and Terry Rozier. It seems highly unlikely that Boston would even try to acquire Davis if both Irving and Horford had already left, so we will treat the Celtics as an over-the-cap team in these hypotheticals.

To acquire Davis, Boston will need to send out at least 80% of the total salary they receive, minus $100,000. The same rule would apply to New Orleans in the likely event that they also operate as an over-the-cap team, but they will probably be receiving less in salary than they send out.

Player Options

The Celtics have two players who have option decisions that could impact the structure of a Davis trade. Al Horford and Aron Baynes both have option decisions due by June 29. The draft, when a Davis trade could logically happen, is on June 20. Obviously, that means that the Celtics will not know either players' decision and so could not include them in any trade made before those option decisions are finalized without first consulting with the players.

Baynes's option is for $5,453,280 and it would be helpful if he were to opt-in and consent to being part of a Davis trade package. I doubt he gets that much on the open market, and he would be the presumptive starter on the Pelicans, so it seems possible that he would do that.

Horford's option is for $30,123,015. It seems less likely that he would agree to go to New Orleans as they will be in some state of rebuilding (though Jrue Holliday and Horford along with Zion Williamson and whatever else Boston were to send could compete for a playoff spot) and he'll be 33. That being the case, if he does opt-in you would think it would be to stay with the Celtics. It's possible that he could opt-in as part of a more complicated multi-team trade that lands him on a different contender, but that theoretical opens up too many possibilities to reasonably cover here. The one worth a cursory mention is the fever dream of Kevin Durant opting-in and facilitating a three-team trade to Boston that lands both KD and AD alongside a re-signing Irving, and Horford in Golden State.

Kyrie Irving also has a player option but that is both due before the draft and a certainty to be declined.

Trading New Draftees

Because the Celtics cannot officially acquire Davis until July, any players who the Celtics draft for inclusion in a trade, even if that trade is agreed to before the draft begins, will be wearing a shamrock on their hat when they take to the stage. New Orleans GM David Griffin may be telling Danny Ainge who to take for him, but they will forever list as a Celtics pick.

New draftees can be traded in two ways. First, they can be traded before signing their rookie deal. In this scenario, you are technically trading their draft rights, and they do not count for any salary in trade matching. Second, they can be traded after they have signed their contract, but you must wait at least 30 days from the signing to make the trade official. In this scenario, their rookie salary is included for matching purposes.

For this reason, it's possible that a Boston-New Orleans trade could be agreed to in principle on, or even before, June 20 and leaked to the media as completed. However, Boston could make selections for New Orleans at the draft and, if the draftees salaries are needed to make a valid money match, they could sign with the Celtics on July 1 and the trade could be held in limbo and not announced as official until at least July 31.

It's rare that trades take that long to finalize but common that there is a holding period between trade agreement and finalization. Sometimes the exact terms of the trade even change in this time; we'll get to a scenario where that could be helpful in the sign-and-trade section. It's also worth noting that David Griffin has experience in dealing with this. When he acquired Kevin Love as Cavaliers GM it was not a done deal until August because they were waiting for Andrew Wiggins to clear his 30-day trade restriction after signing his rookie deal.

Anthony Davis's Trade Bonus

Like many superstars, Davis's contract includes a 15% trade bonus, sometimes referred to as a trade kicker. This provision says that if Davis is traded his salary will increase by 15% or up to his maximum salary, whichever is lower. Option years do not count in this calculation so we can ignore Davis's fifth-year option and just treat his contract as a one season deal.

Davis is scheduled to make $27,093,018 so if he is traded that would increase to as much as $31,156,971. He will be entering his 8th season in the league so if the salary cap is set at the projected $109M his maximum salary will be $32.7M. The maximum is more than his currently scheduled salary plus 15%, so he would be eligible to collect the entire 15% bonus.

The Pelicans would be responsible for paying the $4,063,953 bonus but the amount would be added to the cap sheet of the acquiring team. If the Celtics were to trade for Davis, it's reasonable to think that they would send cash to New Orleans to offset the payment of that bonus. Teams will be able to send and receive a total of approximately $5.6M in trades during the 2019-20 season.

Davis does have the ability to waive his bonus. He could do this to tip the scales in favor of his preferred destination, which seemed to clearly be Los Angeles in the past but we don't know for certain now, both by making it less costly for New Orleans and making the salary matching easier. He can also waive any part of his bonus; it's not an all-or-nothing question.

If an over-the-cap team were to acquire only Davis and he did not waive his trade bonus, the receiving team would need to send out at least $24,825,577 in total 2019-20 salaries. If he were to waive the entirety of his trade bonus that figure drops to $21,574,414.

One additional note: for the purpose of Pelicans-side salary matching Davis will count as $27,093,018 regardless of if he takes or waives his bonus.

Sign-and-Trades

A common question or idea when it comes to acquiring Davis is "what about a Terry Rozier sign-and-trade?" It's a reasonable one as Rozier clearly seems to want out of Boston and getting to that magical $24.8M in outgoing salary can be hard to do. However, sign-and-trade (S&T) deals have their own set of rules and leverage dynamics that make them much less common in reality than they are in fantasy proposals.

Base Year Compensation

If a player is re-signed for the purpose of a S&T using Full or Early Bird Rights to a contract above the minimum that gives them a 20% or greater raise, their outgoing salary for the purpose of trade matching will be considered the greater of their prior season salary or 50% of their new salary. However, the receiving team counts the entire new season salary for their own salary matching math. This rule would almost certainly apply to both Marcus Morris and Terry Rozier were they to be moved via S&T.

Rozier currently makes $3,050,390 so let's imagine that he signs a new deal starting at $10M in 2019-20. For the purpose of salary matching, he would count for $5M in outgoing salary for Boston (50% of $10M being greater than his prior $3M salary) but $10M for the receiving team.

Morris currently makes $5,375,000 so if he were to sign the same new deal starting at $10M in 2019 he would count for that $5,375,000 in outgoing salary. Marcus will likely sign for more than that, but this is just to illustrate how the rule works.

Baynes (were he to opt out) and Daniel Theis could also be subject to this rule, but I doubt that either could get a new contract large enough to make any more than a small difference in calculation.

Direct S&T Leverage

There are multiple problems with trying to include either Rozier or Morris in a direct S&T to New Orleans. First, the Pelicans would have to want the player on their new contract. Second, the player would have to want to go to New Orleans over their other options. Third, the player (and agent) would know that they have a huge amount of leverage and could demand a larger contract than what they would otherwise get, possibly making it so that the Pelicans would no longer want them.

The risks in engaging in a direct S&T negotiation with Rozier or Morris would be significant if you're basing your ability to complete the trade on including one. It may make sense to sound them out as part of due diligence but not to rely on them as a necessity in making a trade.

3rd Team S&T

A better way to approach a S&T could be to just see how the market plays out for Rozier and Morris (and Baynes, if he decides to leave) in July. As already covered, the two teams could be in a position where they've agreed on the principals of a trade but are waiting for 1st round pick contracts to pass 30 days before including them in salary matching.

Let's say that Davis is not willing to waive his trade bonus and the Celtics and Pelicans have agreed to a trade centered on Jayson Tatum, the 14th and 22nd picks, plus the future Memphis Grizzlies pick. There is an understanding that the trade will not be finalized until August 1 when the players picked 14 and 22 can have their salaries aggregated. At that point, Boston is $11,164,897 short of a valid trade but has committed to finding a reasonable solution by August 1. If they cannot, they will be obligated to include Marcus Smart.

In Mid-July Marcus Morris agrees to a 3/$36M deal with Dallas, starting at $12.6M and descending annually at 5%. The Celtics offer their own protected 2020 draft pick to the Mavs if they're willing to handle the signing as a S&T in a 3-team deal. As a Base Year Compensation player, Morris would count as $6,315,790 in outgoing salary for the Celtics; Dallas has the cap space to sign him outright and so don't need to worry about matching Morris's new salary in outgoing contracts.

The Celtics are now $4,849,107 short of a salary match and so send Guerschon Yabusele and Robert Williams to New Orleans. For the cost of these two players plus a future pick, they are able to keep Marcus Smart. The final trade, executed on August 1, is Anthony Davis for Tatum, Yabusele, Williams, and three picks to New Orleans plus Marcus Morris on a S&T to Dallas along with a future 1st round pick from Boston. Dallas also swaps a near valueless asset just to clear the "touching rule" on multi-team trades. The Celtics clear their salary matching obligation by $206k, the Pelicans create an $8.2 million trade exception (TPE), and the Mavericks receive a pick just for facilitating.

Tax Apron Considerations

A team receiving a player via S&T must remain under the luxury tax apron (projected at $6.21M above the tax line) for the entirety of the 2019-20 season. A team sending a player out via S&T is not subject to this restriction, unless they also receive a S&T player in that season.

Mid-level Exception Replacement S&T

A Three Team S&T like the hypothetical outlined above is much easier when working with a team under the cap. If the team were trying to sign the outgoing S&T player with their Mid-Level Exception it would mean that they were above the cap and so required to send salary back out, further complicating matters.

Kyrie Irving S&T

If Irving decides to leave Boston, the Celtics could make this same type of offer to his new team, regardless of an Anthony Davis trade. Assuming Kyrie would be signing for his maximum salary with a cap space team who, by nature of having gone under the cap will not be threatening the tax apron, they could offer to convert that into a S&T that would create a $20.1M trade exception for Boston in exchange for a draft pick. That TPE would not be large enough to fit Davis, and the decisions related to acquiring Davis on a team without Irving are challenging, but it could also be rolled into a 3-team S&T like what's outlined above. The TPE could also be used to acquire a different player to go alongside Davis either in the summer or during the season, though TPEs cannot be combined with other exceptions or players and so could not be used to acquire a different max-level player.

EDIT: This section has been updated to reflect that Irving would be a base year compensation player if used in a sign-and-trade. The original posting incorrectly said that he could be moved to create an exception up to $32.7M.

Final Considerations

While the odds of Boston acquiring Davis are certainly less than 50/50 at this point, it is worth discussing how the process could play out. A reasonable trade could range from the simple (the Celtics send enough current salary to New Orleans to complete the trade on July 1) to complex (a framework is agreed to but not finalized for over a month) so multiple avenues are open. One helpful thing is that the Pelicans now have a GM in Griffin who is creative in maneuvering around the cap and who has experience with the waiting game that sometimes needs to happen on blockbuster deals like this.

In fact, the biggest move of his Griffin's career, signing LeBron James in Cleveland, was facilitated by one Danny Ainge taking Tyler Zeller and Marcus Thornton off the Cavs' cap sheet in exchange for a draft pick. If two motivated and creative front offices find that their asset values line up, you can be confident that they'll find a way to make the rules work in their favor too.