84. How do trade bonuses affect the salary cap and trades?
For the salary cap, the value of a trade bonus is applied to the team salary among the remaining years of the contract (excluding non-guaranteed years -- see question number 90, and years following an Option or ETO -- see question number 50), in proportion to the percentage of salary in each of those seasons that is guaranteed. For example, suppose the player from question number 83 is traded at the start of the fifth season of his contract. Per the chart in that question, the actual value of his trade bonus that season is $300,000. If every season of the contract is guaranteed, and there is no Early Termination Option, then $150,000 is charged to each of the final two seasons of the player's contract, so a total of $1,150,000 is included in the team salary in each of those seasons. (Note that the allocation is not proportionate to the salary, but rather to how much of the salary is guaranteed. If the player from question number 83 had a higher salary in the sixth season than in the fifth season, his bonus would still be allocated equally to those seasons. However, if the sixth season was only 50% guaranteed, then two-thirds of the bonus would be allocated to the fifth seasons, and one-third to the sixth season.)
Suppose the player has an Early Termination Option following the fifth season of his contract. In this event, the entire trade bonus will be allocated to the fifth season of the contract. The player will therefore count $1,300,000 against the team salary during that season.
For trades, trade bonuses can be a nuisance. When a team trades for a player with a trade bonus, it must count the portion of the bonus that applies to team salary in that season as incoming salary. Let's say a team wants to trade their $800,000 player for the player used in the example above, in the fifth season of that player's contract. Assuming there is no Early Termination Option or non-guaranteed season, the bonus counts $150,000 in the current season, so the trade cannot be made. The team trading the $800,000 player can accept $1,100,000 in return (see question number 68), but the player with the trade bonus counts as $1,150,000 in incoming salary.
The CBA allows the player to waive part of his trade bonus, if necessary to allow a trade to fit within the 125% plus $100,000 margin. To make the above trade work, the player would need to waive $100,000 of his $300,000 trade bonus. The bonus would then be worth $200,000, and $100,000 of that would be allocated to the current season. The player would therefore count $1,100,000 as incoming salary, which exactly matches the maximum the other team can accept in return for their $800,000 player. The player is not allowed to waive more than the amount necessary to make the trade legal.
Another potential difficulty is that a team trading a player with a trade bonus uses the player's pre-trade salary (without the bonus), when comparing salaries for trade. Here is another example, using the same player as before. This time, let's assume our player has an Early Termination Option following the fifth season of his contract, so if he is traded during the fifth season, the entire bonus is allocated to that season. This means that following a trade, $1,300,000 is included in his new team's team salary. Suppose a team wants to trade their $1,400,000 player for this player. The other team can accept $1,850,000 for their player, and since our player counts $1,300,000 as incoming salary, there's no problem on their end. But our player counts $1 million as outgoing salary, so the most we can accept in return is $1,350,000. This means the trade doesn't work from our end. And in this case, waiving a portion of the trade bonus will not help.
For contracts and extensions signed after the current CBA went into effect, the player's salary added to his trade bonus cannot exceed the maximum salary for that year (based on years of service). For example, in 2005-06 the maximum salary for a player with 7-9 years of service is $14,400,000. If such a player has a $14 million salary and a $1 million trade bonus, then his trade bonus is pared down to $400,000 when he is traded. This happens automatically -- the player has no say in the matter. For contracts and extensions signed before the current CBA went into effect, the player receives his entire trade bonus, even if it causes the player's salary to exceed the maximum.