How the NBA Fell in Love With Sign-And-Trades, and Why They’re Not Going Anywhere
Yesterday, the Houston Rockets traded James Harden to the Brooklyn Nets. While the acquisition of Harden is certainly the most interesting thing about the deal, he wasn’t the only player on the move. The blockbuster deal was essentially several trades in one: The Rockets acquired players and draft picks from the Nets for Harden, then sent some of those players to other teams — Jarrett Allen and Taurean Prince to the Cavs, Caris LeVert to the Pacers — in exchange for even more assets. There are a few reasons the Rockets made these extra moves, almost all of them having to do with money. Rockets owner Tillman Fertitta has come under fire for his penny-pinching in the past, with Houston famously sending out multiple rotation players over his tenure in order to remain under the luxury tax. By sending out Allen, who will be a restricted free agent this offseason, and swapping LeVert’s three-year deal for Oladipo’s expiring contract, Houston ducked tens of millions of dollars in future salaries.
Almost as importantly though, Houston shed nearly $10 million in payroll for the current season. That money matters more than you’d think for the Rockets, thanks to a nuance of the NBA salary cap — the sign and trade, or S&T. A sign-and-trade involves a team exceeding the salary cap to re-sign one of their own players that has become a free agent, then immediately trading that player to a new team. The buyers get to hand out a larger contract than would normally be allowed; the sellers get something in return for a player that’s already headed out the door. For the Rockets, that player was Christian Wood. With Houston well over the salary cap, the most they could have offered Wood was around $9 million; by executing an S&T with the Pistons, they were able to sign him to a 3 year/$41 million deal.
While these moves seem like win-wins, they come with a price: the hard cap. The NBA’s salary cap is normally a soft cap, with no defined limit on how much money a team can spend if they somehow acquire a bunch of expensive players — like the Nets did. But nearly ten years ago, a rule was put in place for sign-and-trade deals. It decreed that a team that had acquired an S&T player would be hard-capped at the luxury tax, a predetermined figure that currently sits about $30 million above the soft cap. If a team exceeds that figure, they pay a fee for every dollar of payroll over the threshold. Normally, while teams over the cap are limited in the way they can acquire players, they have no restrictions on how much payroll they can carry, other than what they’re willing to pay in tax. A hard cap not only puts a ceiling on spending, it drastically limits a team’s financial flexibility. It also sometimes forces them to make tough choices in order to stay below the cap. While flipping Allen for a subpar first-round pick was about long-term money, it matters in the short-term too; Allen’s $4 million salary is fairly meager by NBA standards, but for a hard-capped team, every dollar counts. Houston will more than likely continue to dismantle its team, and shaving salary gives them flexibility they might need for another trade further down the road.
For this reason, among others, sign-and-trades were rarely employed in years past; there were none in the 2018 NBA offseason, and only four total in the three years before that. These deals usually constituted one franchise doing another a favour. When the Milwaukee Bucks signed Matthew Dellavdeova in 2016, they had the necessary cap space to sign him outright, but instead negotiated a sign-and-trade with the Cavaliers. In exchange, the Cavs received nothing more than a trade exception that they could use to acquire another player in the future. This negligible return was normal at the time; if a player was going to sign anyways, why would the team give up any real assets to acquire him? Even when LeBron James went to Miami in a sign-and-trade in 2010, the Heat gave up only two first-round picks — that ended up being the 30th and 24th picks in their respective years — and a handful of second rounders.
In the last two years, however, the number of sign-and-trades has spiked, especially with real assets heading back to the team doing the trading. In 2019, the Nets and Warriors swapped stars, signing D’Angelo Russell and Kevin Durant, respectively, then trading them to each other. The same offseason, Malcolm Brogdon went from Milwaukee to Indiana in exchange for a first rounder that ended up being the 24th overall pick in this year’s draft. And the deal that brought Christian Wood to Houston included the Rockets sending Detroit the rights to Isaiah Stewart, the 16th pick in the draft. Remember, a decade ago LeBron James only netted two first-round picks; now, acquiring an above-average starter might cost you a near-lottery pick.
All in all, more than a dozen players went to new teams in a sign-and-trade in the last two offseasons. Another that would have sent Bogdan Bogdanovic to Milwaukee fell through when the Kings illegally tried to trade Bogdanovic before he’d agreed to a new deal with the Bucks. But the question remains, why do NBA front offices have a sudden obsession with the sign-and-trade? There are likely a few answers, but several can be traced directly to another trend that has developed in parallel with the S&T — the home run swing. Yesterday’s trade is a prime example: a team dumping all their long-term assets, including a boatload of future first rounders, to acquire a superstar. Milwaukee took their swing just weeks ago, sending out multiple 1sts and pick swaps for Jrue Holiday. It happened in 2019 as well, with the Clippers and Lakers both unloading young talent and future draft picks in exchange for All-NBA level talent.
When a team makes such a dramatic win-now move, it can have devastating repercussions down the line, leaving teams in the NBA’s dumpster without the assets needed to climb out. It already happened to the Nets once in the last decade, with the Celtics using the assets they earned from sending Paul Pierce and Kevin Garnett to Brooklyn to draft Jaylen Brown and Jayson Tatum, as well as trade for Kyrie Irving. The result is a league of extremes: the win-now teams with stacked rosters but limited assets, and the rebuilding teams with tons of picks and salary to spare. But there’s a third category — the over-the-hill team, a team that mortgaged their future and is now living with the consequences. The Nets were the laughingstock of the league for years after their trade failed to bring them a ring; a few years from now, there could be five or more teams just like those Nets, totally depleted with no way out of the hole.
All of these teams can benefit from the sign-and-trade. A capped-out team that wants to compete right away can use it to acquire a player they couldn’t normally afford, like Houston did with Wood or what the Bucks tried to do with Bogdanovic. The Rockets didn’t need cap room or a significant amount of assets. Even a quality player like Wood, who’s a borderline 20/10 guy this year, only took a single draft pick to acquire. Conversely, a team that’s well over the cap can also use the S&T to extract value from a departing player. This was the impetus behind the Russell-Durant swap; with the Warriors looking down the barrel of a lost season with Durant moving on and Klay Thompson out with an ACL tear, they made the move for Russell rather than be left with nothing. They later flipped Russell to the Timberwolves for even more assets. Meanwhile, a rebuilding team can use the sign-and-trade to extract value out of players that don’t fit their timeline. After signing Jerami Grant and Mason Plumlee to large contracts, it was clear that Wood didn’t figure into Detroit’s long-term plans. By trading him, they got a first-round pick in exchange for a player that would have walked away for free. An over-the-hill team can be buyers or sellers in the sign-and-trade market; they can either acquire players without giving up draft capital they don’t have, or claw back some of their losses by trading away a departing star.
The increased incidence of sign-and-trades also creates opportunities for teams with cap room to leverage it for assets. When the Warriors acquired Russell, they needed to clear salary to get below the hard cap they had imposed on themselves. They did so by trading Andre Iguodala to Memphis, attaching a 2024 first rounder to make it worth the Grizzlies’ while. Memphis later flipped Iggy to Miami in a three-time deal that netted them Justise Winslow and Gorgui Dieng.
That’s two young players and a first-round pick in exchange for using up some cap space that they weren’t going to use anyways — a lucrative racket. And if, say, Harden and Durant walked away from the Nets, they’d be the perfect team to facilitate such a move — short on assets and long on unspent salary earmarked for their erstwhile stars. And with more and more teams taking home run swings, these kinds of deals will only become more commonplace. The buyers become the sellers, and vice-versa; the NBA circle of life continues.
