With this free agent frenzy dominating the first week in July, sign-and-trade has become a household name, but what exactly is a sign and trade deal you ask? The details of the contract instrument are described below:
A sign-and-trade agreement is a type of contract allowed in the NBA collective bargaining agreement, wherein one team signs a player to a contract and trades him to another team. This is typically done to allow the eventual acquiring team to obtain a free agent player at a higher salary and/or a greater number of years than would ordinarily be permitted under the NBA salary cap.
The sign-and-trade helps teams to capitalize on assets that they are going to lose if they are unable to trade the player. Imagine a player, Mr X, who is planning on pursuing free agency in the coming off-season. His current team TeamA knows that at least one of the other teams will sign him. If this happens Team A will have got nothing out of Mr X other than his past accomplishments. However, because Team A is Mr X’s current contract holder Team A can offer Mr X more money per year than any other team and can sign Mr X to a longer contract. It is therefore in the economic interest of Mr X to be signed by Team A to the more lucrative contract and be traded instead of going to free agency. It is also in the best interests of Team A because Team A will then get something in return for Mr X such as some draftpicks or maybe some equally good players. If they had let Mr X go to free agency they would have received nothing.
Sign-and-trades are considered “atomic” transactions under league rules; if the acquiring team rescinds the trade for some reason (such as a failed physical examination), then the contract signed with the initial team is also voided. In this way, such an occurrence does not result in the initial team being stuck with a player they do not want, or under terms they might find unacceptable; the player is also protected from ending up under contract with a team he may no longer wish to play for. Such an event happened in 2005, when Shareef Abdur-Rahim was acquired by the New Jersey Nets in a sign-and-trade with the Portland Trail Blazers; the trade was subsequently cancelled by the Nets when a physical exam discovered scar tissue in Abdur-Rahim’s knee. As a result of the cancellation, Abdur-Rahim once again became a free agent; his contract with Portland (who had his Bird rights) was voided.
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