Trade Breakdown (’15 CLE/NY/OKC)

The following outlines the trade dynamics and future ramifications from a CBA and personnel standpoint of the Twitter-shattering three-team trade involving Cleveland, New York and Oklahoma City.

The Anatomy of a Three-Team Trade

Per league memorandum issued this past July, in any three-team trade scenario, each team must “touch” the other two teams, meaning one of the following must be exchanged in either direction:

1.Active Player Under Contract.

2.At Least $750,000 in Cash.

3.Future Pick That will be Conveyed.

4.Draft Rights to an NBA Prospect.

Thus, as the following will present from the vantage point of each team, #1 and #3 were exchanged in each direction, where in essence each team was engaged in a transaction with each of the other teams.

I.Cleveland Cavaliers

Outgoing: Dion Waiters to OKC ; Alex Kirk, Louis Amundson, and a 2019 Second Round Pick to NY

Incoming: J.R. Smith, Iman Shumpert, 2015 First Round Pick from OKC (Top 18 protected in 2015, top 15 protected in 2016 and becomes two 2nd round picks in 2017)

Three Separate Components of Trade

1.Simulatenous Trade for J.R. Smith

The first element of the trade from Cleveland’s perspective was trying to aggregate enough salary to trade for Smith in a simultaneous trade, considering Smith’s contract did not fall within either one of Cleveland’s two exceptions and Cleveland was over the salary cap. Heightening the complexity of the trade was Smith’s 15% trade kicker. Since Smith’s contract contained a player option for next season, only the salary remaining this season, prorated down for remaining games, was used to calculate the remaining trade bonus anount in the following fashion:

Smith ’15 salary: $5,982,375

Computation: .15 x $5,982,375 x (101 remaining days in regular season/170 total regular season games).

Trade kicker= $533,135

New Smith. Salary = $6,515,510

Thus, for trade purposes, the $6,515,510 increased Smith salary was treated as incoming team salary in the trade for the Cavs, even though New York actually had to pay the $533,135 bonus. Therefore, Cleveland had to aggregate $5,132,408 in outgoing salary (1.25x + $100,000 = $6,515,510) to make the trade legal, for as demonstrated below Cleveland had a post trade team salary over the luxury tax, invoking the more strict 125% of outgoing salary + $100,000 trade rule.

In terms of structuring, this means that Waiters, with an outgoing salary of $4,062,000, and Amundson’s actual $1,310,283 salary, were both required jointly to meet the $5,142,408 threshold. Multiple sites are reporting the Cavs received a $915,243 trade exception for Amundson (the cap hit of his contract), but that is false given that Waiter’s contract plus Kirk’s $507,336 contract was insufficient to meet the outgoing salary $5,132,408 requirement. The Cavs likely received a $507,336 trade exception for Kirk, who was dealt into a minimum salary exception for New York because his salary was not needed to be aggregated to make the trade legal, but Amundson’s definitely was. Thus, the simultaneous component of the trade took the following form:

Outgoing:

Amundson: $1,310,283

Waiters: $4,062,000

Outgoing Salary: $5,372,283

Can take back $6,815,353.75 (125% outgoing salary + $100,000)

Incoming:

Smith: $6,515,510

Trade Rules Satisfied.

2.Non-Simultaneous Trade: Alex Kirk ($507,336) into Minimum Salary Exception for Knicks.

As touched on above, Kirk’s salary as not required to make the simultaneous trade for Smith legal, thus he could have been traded independently directly into the minimum trade exception for New York, resulting in a trade exception for the Cavs in accordance with his cap hit ($507,336). However, being as though Kirk is a minimum salary player, there is no distinguishing factor between his exception and a minimum exception already available to the Cavs. Thus, the trade exception here has no real impact.

3.Non Simultaneous Trade: Shumpert into the Varejao Disabled Player Exception.

The Cavs possessed two exceptions prior to the trade that was consummated on Monday evening:

1.Keith Bogans Trade Exception $5,285,816 (plus $100,000 = $5,385,816)

2.Anderson Varejao Disabled Player Exception ($9,704,545/2 = $4,852,272.50 (+$100,000 = $4,952,272.50 in trade)).

Both exceptions could have been utilized to fit in Shumpert’s $2,616,975 salary, but the Cavs rightfully utilized the more restrictive exception. The Varejao DPE was set to expire March 10th, and could only be used to acquire one player with an expiring contract in that time period. The Bogans trade exception conversely expires September 27th of 2015 and can be used to acquire multiple players with any number of remaining salary years that fit within an increased $5,485,816 amount. Thus, Shumpert, being a RFA after this season, satisfied the more stringent qualifications of the DPE, and the Cavs were able to utilize their inferior exception.

Looking Ahead: Luxury Tax and Roster Implications

Smith’s $533,135 trade bonus included in team salary actually vaulted Cleveland from under the $76,800,000 luxury tax to $113,261 over the tax with 14 players currently on the roster. The Cavs could duck back below the tax by waiving A.J. Price’s nonguaranteed salary by 5:00 p.m. EST tomorrow (January 7th). Waiving Price would result in the following savings:

Price (signed 11/30): $866,789 x (42 days on roster & waivers/170 total days of season)= $214,147.87

Savings:  $652,641.13

However, Cleveland will likely attempt to use the aforementioned Bogans trade exception to acquire a big man, which would keep Cleveland over the tax, and considering the fact they already have an open roster spot, waiving Price is not absolutely necessary. Equipped with an extra first round pick after the trade, the Cavs can present a more enticing package for priority target Timofey Mozgov, having already possessed Memphis’ 2015 first rounder.   It should be noted however that trading Waiters makes aggregating salary to return a player like Brook Lopez or Roy Hibbert more difficult, and virtually impossible without including Haywood’s valuable contract.

In terms of personnel, I noted on Twitter recently Shumpert being a potential target for Cleveland as one of the few “3 and D” players available on the trade market.  While currently sidelined with a dislocated shoulder, Shumpert when healthy affords the Cavaliers with a much needed perimeter defensive threat.  Shumpert is also better suited to play an off-ball offensive role consisting of largely spot up shooting and cutting than the more ball-dominant and defensively deficient Waiters.  Overall, Shumpert serves as a better fit for the Cavs roster as currently constituted.  The addition of Smith provides the Cavs bench with some offensive firepower, as Smith is one of the finite amount of bench players who can single-handedly alter the course of playoff games.

II.Oklahoma City Thunder

Outgoing: 2015 First Round Protected pick (1-18 in 2015, 1-15 in 2016 and two second round picks in 2017) to Cleveland;  Lance Thomas to NY.

Incoming: Dion Waiters

The cap gymnastics on OKC’s end was far simpler and involved two components.

1.Non-Simultaneous Trade: Dion Waiters traded into the $4,150,000 Sefolosha Trade Exception.

The Thunder had a $4,150,000 trade exception available from signing and trading Thabo Sefolosha this summer that could be used to take back $4,250,000 in salary. Waiters’ $4,062,000 salary fit into that exception almost perfectly. The only other complication was freeing up a roster spot to acquire Waiters, being as though OKC was at the full 15 roster limit, which is why Lance Thomas and his $943,163 non-guaranteed salary was sent to New York.

2.Non-Simultaneous Trade: Lance Thomas Traded into New York’s Minimum Salary Exception, Resulting in a $915,243 Trade Exception for OKC.

Oklahoma City had a full 15 man roster pre-trade, thus they had to trade Lance Thomas to free up a spot. Thus, the Thunder traded Thomas into New York’s minimum trade exception, and received a trade exception for Thomas’ cap hit, $915,243, being a veteran of three or more years experience on a one year minimum deal.

Looking Ahead: Luxury Tax and Roster Implications

Post trade, the Thunder, similar to Cleveland, went from under the luxury tax to $2,297,610 over the tax. Being as though Oklahoma City has not paid the tax in the past, it is a fair assumption that they will attempt to duck below it. Skirting the tax could be accomplished in two steps:

1.Waiving Ish Smith’s $923,373 non-guaranteed salary ($861,405 as team salary) prior to 5:00 PM EST January 7.

Doing so would amount to the following savings:

Smith’s Salary: $923,373 x 65/170 = $353,054.38

Savings: $861,405-$353,054.38 = $508,350.62

2.Trading Jeremy Lamb’s $2,202,000 salary.

With Waiters on board filling the backup two spot Lamb is bumped out of the rotation and rendered expendable. Considering Lamb’s draft status it is reasonable to assume the Thunder could trade him for a second round pick. Doing so would clear $2,202,000 in salary (and likely create another trade exception), and paired with waiving Smith would get the Thunder back under the tax threshold.

The acquisition of Waiters also serves as an insurance policy for soon-to-be restricted free agent Reggie Jackson. Waiters fills an immediate shot-creating dynamic need for OKC, and should Jackson depart Waiters’ bench scoring would be vital. Waiters is locked into a reasonable $5,138,430 salary next season.

III.New York Knicks

Outgoing: J.R. Smith and Iman Shumpert to Cleveland; Waived Samuel Dalembert

Incoming: Louis Amundson, Alex Kirk, Lance Thomas, 2019 Second Round Pick from Cleveland

From the Knicks perspective, this trade was broken down into 6 non-simultaneous components, three of which will be subsumed under one general component below.

1.Non-Simultaneous Trades: Lance Thomas, Alex Kirk and Louis Amundson into three independent minimum salary exceptions.

This component actually comprises of 3 different aspects, but contains the same overall concept. Thomas’ $943,163 salary, Kirk’s $507,336 salary ad Amundson’s $1,310,283 salary were all minimum salary contracts either fully non-guaranteed or partially guaranteed. Framing the trade this way was crucial, as it permitted New York to gain two large trade exceptions in accordance with the following.

2.Non-Simulatenous Trade: J.R. Smith to Cleveland, creating a $5,982,375 (+$100,000 = $6,082,375) Trade Exception.

While Smith’s incoming salary for the Cavaliers included Smith’s 15% trade bonus, his outgoing salary was his pre-bonus salary cap hit, or $5,982,375.   Thus, New York created a $5,982,375 trade exception, which can be used to acquire a player with a $6,082,375 salary that expires 1/5/2016.

3.Non-Simultaneous Trade: Iman Shumpert into the Cavaliers DPE, creating a $2,616,975 (+$100,000 = $2,716,975) Trade Exception.

In trading Shumpert into the Cavaliers’ DPE, the Knicks created a trade exception that can be used to acquire a player up to $2,716,975 in salary that expires 1/5/2016. Similar to Smith, Shumpert’s cap hit, or in this case actual salary, was used to determine the trade exception amount.

4.Knicks waived Samuel Dalembert to clear a 15th roster spot to make the trade legal.

Dalembert’s contract, totaling $4,051,527, was only $1,984,245 guaranteed if waived before January 7th at 5:00 pm EST waiver date prior to the January 10th contract guarantee date. Thus, the Knicks saved $2,067,282 in pre-tax savings in the process of making the trade legal (New York had to have available roster spots for all incoming players prior to the trade being completed).

Looking Ahead: Luxury Tax and Roster Implications

This trade was clearly team salary savings driven. In trading Shumpert and Smith the Knicks cleared $8,599,350 in team salary this year. Furthermore, in going from approximately $13,305,050 over the tax pre-trade to $4,380,812 over the cap post-trade, the Knicks saved the following amount in luxury taxes:

3,305,050 x $2.50= $8,262,625

Incremental max for $5-$9.99M Tier= $8,750,000

$619,187 x $1.50 = $928,780.50

Total Savings = $17,941,405.50

The Knicks could incur further savings by waiving two of the following three non-guaranteed contracts by 5:00 EST tomorrow:

1.Lance Thomas: $943,163 actual salary only counts $915,243 against cap.

Savings: $943,163 x (75/170) = $416,101.32. $915,243 – $416,101.32 = $499,141.68

2.Alex Kirk: $507,336

Savings: $507,336 x (75/170) = $223,824.71

3.Louis Amundson: $1,310,283 ($915,243 cap hit)

Savings: $1,310,283 x (75/170) = $578,067.35. $915,243-$578,067.35 = $337,176.97

Most importantly, the Knicks saved $6,399,750 on next years cap in wiping out Smith’s likely exercised option year, clearing out enough room to offer a maximum contract coupled with a respectable midlevel player this summer.  Smith’s departure also allows increased playing time for young players such as Tim Hardaway Jr. in the rotation.  While the Knicks could have certainly pawned Shumpert off in the past for a richer return, the trade could still be a win if the Knicks are able to utilize Smith’s cap savings in free agency.

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