Sign and Trade Rules (’15 Love)

There has been much ado about what transpires with Kevin Love, particularly his contract situation after opting out. Opting out wasn’t a tell by any means, just a savvy business decision. Love was scheduled to make $16,744,219 had he exercised his option, while his maximum contract under an estimated ‘15/16 $67.1M cap for his 7 years of service tier is $18,922,200. Thus, Love is earning an estimated $2,177,981 raise just by opting out and re-signing for his max tier (which he is getting regardless of the team). What is less certain is what happens from here contractually. There has been much speculation about the Cavs potentially sign and trading Love as a last resort should Love and Cleveland fail to reach an agreement (or basically if Love wants to obtain higher usage on another team). As the following will outline, a sign and trade does not seem like a realistic possibility given Love’s contractual preference (with heavy weight afforded to the cap spike year in 2016) and the rules governing sign and trades in the CBA. We’ll start with the former.

I.Love’s Likely Contract Preference: 1 Year + 1 Year Player Option

Given the cap spike in 2016, it is likely Love will accept a 1 + 1 year player option contract construct for the following reasons.

1.Cap Spike

First and foremost, the obvious factor is increased pay. As explained above, Love’s estimated max starting salary in year 1 of his new deal signed this offseason is $18,922,200. If re-signed by the Cavaliers (could be up to 5 years) on a 3 year max deal for demonstrative purposes, his earnings would be the following (with 7.5% raises):

2015/16: $18,922,200

2016/17: $20,341,365

2017/18: $21,760,530

Total:     $61,024,095

If Love re-signs a 1 year deal with Cleveland, opts out after this season, and re-signs with Cleveland in ’16 assuming an estimated $89,000,000 cap in 2016, his three-year projected salary would be as follows:

2015/16: $18,922,200

2016/17: $25,098,000

2017/18: $26,980,350

Total:     $71,000,550

This doesn’t even take into account the final 3 years of a new contract if Love re-signed in ’16 with Cleveland (or final 2 years if he signed with another team), an exponential difference. The point is Love will surely sign a deal to capitalize on the cap spike, and that is largely known for most max level players (especially unrestricted free agents). However, there is another element for Love to consider: his health.

2.Combination of Security and De-Facto No Trade Clause

Under 1 year + 1 year player option construct, Love would have both the security to mitigate injury damage and a de-facto no trade clause. First, should Love undergo another setback to his back next season(assuming no contract language to the contrary), he’d simply exercise his player option and receive $20,341,365 in 2016. Second, under the CBA all free agents who sign 1 year contracts and have either early qualifying or qualifying free agent rights at the end of their season have a de-facto no trade clause that season (option years don’t count until exercised). Love would thus be able to dictate his future should the Cavaliers attempt to trade him, though he could leverage his situation regardless with his impending potential free agency status.

In conjunction with the spiking cap and especially the potential carrot of a guaranteed estimated 2016 salary of $20,341,365 serving as insurance for his back, Love will likely sign a deal of 1 year plus a player option for 1 season, either with the Cavs or as a free agent (where raises would be a lesser 4.5%) with the likely recourse being opting out if his health stands after next season. This outcome is only intensified when considering the rules regarding sign and trades in the CBA, which will now be explored.

II.CBA Rules Governing Sign and Trades

General Sign and Trade Rules

The following outlines the applicable sign and trade rules set forth in Article VII, Section 6 of the CBA:

A veteran and prior team may enter into a sign and trade with a new team only if:

1.Veteran player finished prior season on prior teams roster

2.Contract is for at least 3 seasons (not including an option year) but no more than 4 seasons

3.Contract is not signed through either MLE or disabled player exception

4.First season of contract is fully protected for lack of skill

5.Contract is entered into prior to the first day of the regular season

6.Team cannot acquire a player in a sign and trade if following the trade the teams tax level would exceed the apron, & if team receives a player in a sign and trade below the apron, it is hard capped at the apron for that salary cap year

The first three rules and #5 are easy enough to understand in terms of applicability: 1) Love finished the year on Cleveland’s roster (avoiding an Aaron Mckie retired sign and trade scenario in the Gasol trade outlawed by the current CBA); 2)Love’s contract must be for 3 or 4 seasons (not including an option year); and 3) Love’s contract must be signed either via cap space or his veteran free agents rights exception, in this case his qualifying rights exception. Lastly, sign and trades can only occur from the day following the moratorium through the day preceding the first day of the regular season, which in this case would be satisfied.

#4 begins to haze the rules a bit, as it deals with non-guaranteed or partially guaranteed money, and is really the sticking point to the entire sign and trade predicament here. In conjunction with rule #2, any sign and trade agreement with Love must be for 3 seasons, but the latter 2 can be completely unguaranteed, permitting a team to waive Love prior to (based on chosen contract guarantee date/partial guarantee amount) prior the end of three years.

Thus, Love’s potential contract in a sign and trade agreement could hypothetically be the following (with reduced 4.5% raises under sign and trade rules):

2015/16: $18,922,200

2016/17: $19,774,699 (Non-Guaranteed)

2017/18: $20,625,198 (Non-Guaranteed)

Total:     $59,322,097

This sounds great in theory: Love can be signed and traded, the assignee team can waive him after one year and he can re-sign for an escalated salary under the cap spike. However, this scenario is impractical for the following reason.

Love would have to be placed on waivers for 48 hours, and any team with cap space or a trade exception + $100,000 large enough to absorb Love’s contract could claim Love. The latter likely wont apply, but the former certainly will: Love would assuredly be claimed by a team with cap space (most likely Philadelphia), and Love would not have an option other than to play out the remaining two years of his contract (assuming a three-year deal).

This basically outlaws the idea of a sign and trade unless Love wants to sign a guaranteed 3 year deal and not capitalize on the cap spike as soon as he could, but as outlined in the first section, that outcome is unlikely.

There is also an additional CBA element that will be touched on below that hinders the sign and trade process.

*As a point of clarification, the Cavs likely operating over the Apron does not prohibit them from SENDING OUT a player in a sign and trade, only from ACQUIRING a player in a sign and trade (which #6 alludes to).

Base Year Compensation Element

In certain situations pertaining to sign and trades, an additional component (known unofficially as base year compensation) making it more difficult to match trade salary is triggered by the following conditions.

Conditions For Base Year Compensation, Outlined in Article VII Section 6 of the CBA:

1.Veteran is a Qualifying or Early Qualifying Free Agent.

2.Team salary is at or above cap AFTER Signing the Player

3.New contract provides for increase in salary/raise 20% of players last year previous contract (and > minimum salary w/ no unlikely bonuses)

Then, player’s outgoing salary greater of:

1)the last season salary of the previous contract OR

2)50% of the salary in first yr of the new contract

Love is a Qualifying free agent, thus the first element is satisfied. Second, the Cavs are not only over the $67.1M salary cap, but almost assuredly over both the luxury tax and apron, satisfying the second element. Lastly, Love’s contract is obviously for greater than the minimum, and if the estimated $18,922,200 max salary of a vet of 7 years service holds, Love will sign a contract for about $59,326 over a the 20% increase over his contract in the previous year ($15,719,062 ), satisfying the final element. Love could of course accept slightly less and do away with BYC, but assuming a full max offer in year 1 of his new salary under a sign and trade construct, it would apply.

The effect is that Love’s outgoing salary for trade matching purposes would be $15,719,062, the salary of his immediately preceding year (which is greater than 50% of his new contract), but his incoming salary for the assignee team would be the new contract amount, estimated at $18,922,200. This complicates salary matching a bit, though not as much as a player whose previous year salary was $2M but signed a new contract under a sign and trade for the max, but it certainly increases complexity, depending on the assignee team’s cap predicament.

III.Applicability of a Sign and Trade Overall

Regardless of the CBA implications essentially wiping away the idea of a sign and trade as it pertains to Love’s desired contract, a sign and trade would only be sensible for Love if he desired to go to a team over the cap, and only desirable for Cleveland if it was to a team possessing a plethora of low-cost assets mitigating their luxury tax blow. Houston is a team of such qualification, possessing low-cost productive players such as Terrence Jones and Donatas Motiejunas, as well as valuable 3&D ace Trevor Ariza and Kostas Papanikolaou’s rare non-guaranteed contract to match salaries, satisfying Cleveland’s end, and the Harden/Dwight talent combination to satisfy Love’s contending desires (though again you’d have to question usage). For a suitor such as LA or Boston who could simply sign Love using cap space, there would be no incentive for the assignee team to conduct a sign and trade, affording Cleveland a $19,022,200 trade exception, unless the assignee team was compensated themselves by Cleveland, which seems impractical.  Also, as touched on above, the new CBA gave the same contractual setting to sign and trades that exist for players simply changing teams as free agents, giving Love no contractual incentive to seek a sign and trade.

IV.Likely Recourse: Love Re-Signs With Cleveland on 1 Year + 1 Year Player Option Contract

 Based on the combination of the above, all signs point to Love re-signing with Cleveland on the aforementioned 1 year + 1 year player option format. While Love could conceivably sign with a team such as the Lakers under the same contract structure with cap space, the takeaway here is that with this structure a sign and trade is impossible.

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