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Trade Deadline Primer Part I: Trade Rules and Gersson Rosas’ Deadline History

With the trade deadline roughly two weeks away, I dive into baseline trade rules and Gersson Rosas’s history at the deadline as an executive.

2020 NBA Draft Minnesota Timberwolves Team Operations Room Photo by David Sherman/NBAE via Getty Images

If the seat beneath you at the proverbial poker table was warming rapidly, how would you respond? Would you check? Call? Raise? Go all-in?

For Gersson Rosas, an unabashedly bold executive with supreme confidence in his master plan, his response will ultimately decide not just his fate in Minnesota, but potentially the franchise’s as well.

Last week, with a 118-99 loss at home to the Phoenix Suns, the Minnesota Timberwolves passed the Tampa Bay Buccaneers for the worst franchise winning percentage (39.31%) in the history of American professional sports. With a sale of the team on the horizon, the clock is ticking rather loudly for Rosas and company to build a sustainable winner worthy of its potential new governor(s) keeping in Minnesota.

For many Timberwolves fans, it’s less about the losses and more about how the team is dropping games. New coach or not, the team looks utterly lifeless and directionless without D’Angelo Russell and Malik Beasley, who are out until late March at the earliest.

“I don’t feel like this is building something,” two-time Timberwolf and fan favorite Ricky Rubio said following the loss to Phoenix. “Of course we want to get better, but at one point we got to start wanting to change something, and it’s not happening.”

Rosas agrees; but, while Rubio believes that change can come from inside the building, Rosas likely sees things differently.

Following a loss to the New York Knicks on February 21, he relieved Ryan Saunders of his head coaching duties. Instead of elevating associate head coach David Vanterpool to interim head coach, Rosas made waves around the league by hiring Raptors offensive coordinator Chris Finch to a multi-year contract as head coach. In a rather awkward introductory press conference announcing Finch as head coach, Rosas alluded to his belief change wouldn’t come if the team hired someone from within to replace Saunders either on an interim or full-time basis.

After an 0-5 start to his head coaching career, Finch made it clear that Timberwolves fans will see a new team after the All-Star break: “It will be a whole new reality. We’re going to tighten it up and we’re going to find the guys that want to compete.”

Charlotte Hornets v Minnesota Timberwolves Photo by David Sherman/NBAE via Getty Images

Now, with a much needed break for Timberwolves players, coaches, and fans alike, Rosas will ramp up his aggression in pursuing external solutions that can effect the change he and Rubio both seek.

As Rosas works the phone lines, Timberwolves fans like yourself will certainly work the trade machine. Before you do that, though, there are plenty of trade rules that you need to keep in mind when weighing the feasibility of any trades you come up with.

Key Trade Rules to Keep in Mind

#1 - Luxury Tax

A major factor in any deal(s) the Timberwolves’ front office makes ahead of the March 25th trade deadline is the luxury tax.

It is essentially a tax that team governors must pay if the team’s payroll exceeds a certain dollar amount (also called a “line”) for that season, which is 21.52 percent higher than the salary cap line. This season, the salary cap is $109.1 million, while luxury tax line is $132.6 million.

Very generally, it is best for a team governor to avoid paying the luxury tax unless the governor’s franchise is chasing a championship or the franchise’s overall profit can justify paying it. Given that we’re in a pandemic and every team in the NBA has lost significant money over the past year, teams will make a point to avoid paying the luxury tax if they can.

So, how does it work?

For the business folks out there, the luxury tax is essentially a step variable cost, based on how much money over the luxury tax line a team’s payroll is.

For a team over the luxury tax line by an amount in between $x and $y, the tax rate is $z per dollar over the tax line.

If a team is over the tax by $12 million, so in the third bracket ($10 million - $14,999,999), they would first pay the incremental maximums for the first two brackets ($7.5 million and 8.75 million), which amounts to $16.25 million. The upper limit of the second bracket is $10 million, so you’ve already calculated the tax of the first $10 million.

Then, you subtract the upper maximum of the bracket below the one the team salary over the tax falls in from the total salary over the tax. Being $12 million over the tax falls in the third bracket, so you subtract the upper limit of the second bracket — $10 million — from the $12 million, which leaves you with $2 million.

From there, you multiply the $2 million by the tax rate ($2.50 per dollar), totaling $5 million. Finally you add those two up and get a final tax bill of about $21,625,000.

Here’s the breakdown, which is screen-grabbed from Larry Coon’s CBA FAQ.

h/t Larry Coon’s CBA FAQ
http://www.cbafaq.com/salarycap.htm#Q18

For example, last season the Timberwolves were over the tax line by $916,271, so they paid a tax of $1.50 for each of those 916,271 dollars over the line, resulting in a luxury tax of $1,374,406.50, per Spotrac.

You may be asking, “Why does paying a $1.37 million tax matter to Glen Taylor, who has a net worth of roughly $2.5 billion?”

Well, that’s because there’s an additional penalty for teams who are “repeat” luxury tax-payers. Teams who pay the luxury tax in three of the past four seasons must pay the “repeater” tax, in which each step variable cost tax rate raises by one dollar per every dollar over the tax line. For

h/t Larry Coon’s CBA FAQ
http://www.cbafaq.com/salarycap.htm#Q18

For teams deep into the luxury tax as a repeater, which is where Wolves may end up if they want to be a legit, consistent playoff team in the stacked Western Conference, the financial impact puts seismic pressure on team success.

If Minnesota was $21 million over the tax line as a repeater after the 2022-2023 season, they would be in the fifth bracket.

They would first have to pay the incremental maximums for each of the four brackets below them (totaling $65 million).

The upper limit of the fourth bracket is $20 million, so they would have $1 million left over to be taxed by the fifth bracket. $1 million multiplied by the tax rate ($4.75 per dollar) equals $4.75 million.

If you add that to the $65 million in incremental maximums, you get a ginormous tax bill of about $69,750,000.

The luxury tax is a very slippery slope, especially for repeaters, and simply is not a sustainable bill to foot unless the team assembled creates a profit big enough to justify it.

For a full breakdown of how much a team would pay based on its payroll, see below.

https://hoopshype.com/2018/10/11/nba-luxury-tax/

Given that the Timberwolves paid the luxury tax last season, it is likely the Wolves will do everything in their power to avoid paying it again this season. When you make your fake trades, make sure the Wolves are under the tax line. If the team is over it, make sure you have another deal handy that would allow the team to get under it.

Minnesota Timberwolves v Washington Wizards Photo by Will Newton/Getty Images

#2 - Money: Matching Salaries and Trade Exceptions

Matching Salaries

Another key element of making a trade legal is matching salaries.

Teams that are non-taxpayers (NTP) have more flexibility with matching salaries than teams that are taxpayers (TP) do, because NTP are allowed to take back more money in incoming player salary than TP.

Note that, in regard to trades, the determination on whether a team is treated as a NTP or TP is made based on whether the team is over or under the luxury tax line after the proposed trade. So, if a team is below the tax line before a trade but the trade puts them over the tax line, they would be treated as TP.

Here is the breakdown for how much total money in salary a NTP can acquire based on how much total money they send out, assuming they are over the salary cap after the deal:

h/t Larry Coon’s CBA FAQ
http://cbafaq.com/salarycap.htm#Q86

For TP, it is simpler. They can take back 125 percent of their outgoing salary, plus $100,000.

The rules I laid out above does not need to apply to teams who have the cap space to acquire incoming players. However, teams below the cap (after the trade) can play by those rules if they wish.

For example, if Team A has $20 million in cap space and acquires a player from Team B whose cap hit is $10 million in a two-team trade, Team A would only have to send Team B one of:

  • Cash considerations of at least $110,000
  • A draft pick, rights to a previously drafted player (such as Leandro Bolmaro, for example), or rights to a pick swap
  • A player under contract

Trade Exceptions

Very basically, trade exceptions are created when a team has the cap space to acquire a player, like I just laid out.

Using that same example, Team A would create a $10 million trade exception, which is essentially a salary credit you can use in a future trade that expires one year from its creation.

Trade exceptions can be applied in place of player salaries to make a trade work. For example, if Team A wants to make a future trade that results in them being over the salary cap for a player whose salary is $20 million, they would have to send out at least $16,100,000 (which is 20M/1.25 + 100k) in total salary.

If Team A wanted to use the trade exception instead of using $16.1 million in player salary, they would only have to include $6.1 million in player salary and could then use the $10 million trade exception. If the Team A wanted to use, say, $6 million of of the $10 million trade exception, they could send out at least $10.1 million in player salary and still have a $4 million trade exception to use (before the exception expires) in a future trade.

Note that the Timberwolves do have one trade exception (worth $879,813) to use, which was generated by the Gorgui Dieng trade with Memphis on March 20, 2020. It expires on March 20th of this year.

There are more complex ways to generate a trade exception, but for the sake of keeping this pretty simple, I won’t get into that here. Check out Larry Coon’s CBA FAQ for more.

These restrictions makes trades particularly tricky to pull off, because many times Team A calling Team B about Player X may not have a player that 1) matches salaries one-for-one or 2) Team B is even interested in. As a result of this, NBA teams often have to scramble to either add picks into the deal or find a third team to help facilitate the trade.

Lastly, note that a team’s total payroll cannot exceed the hard cap apron, which is $138,928,000 this year.

Tools like TradeNBA’s trade machine are a great resource to make sure your trades are legal.

COLLEGE BASKETBALL: FEB 27 Oklahoma State at Oklahoma Photo by William Purnell/Icon Sportswire via Getty Images

#3 - The Stepien Rule and Trading Draft Picks

The Stepien Rule

The Stepien Rule carries a very simple definition: a team cannot trade its first-round pick in consecutive years. Given that the Wolves may not have their first-round pick in the 2021 Draft, this rule will play a major factor in how the Timberwolves will proceed in the next 17 days.

Right now, as it currently stands, Minnesota is unable to trade a first-round pick until 2024 because of the protections on the pick they sent to Golden State in the Russell/Andrew Wiggins trade prior to last year’s deadline. As you probably know, if the pick falls in the top three of this year’s draft, the Wolves will keep the pick. If it falls to #4 or lower, the Warriors will receive the Wolves’ 2022 first-round pick with no protection on it. Because the draft lottery won’t happen before the trade deadline, Minnesota has to act as if the pick will go to Golden State in 2022 to honor the Stepien Rule.

Despite the rule’s restriction, there are workarounds with it.

Minnesota traded a first-round pick in 2019 and again in 2020. In 2019, they traded their own pick for another first-round pick, so that was a wash and doesn’t count towards the restrictions of the Stepien Rule. In 2020, they already drafted at #1 before trading #17, so again, it was a wash.

In order to trade a first-round pick before 2024, the Wolves would have to acquire another first-round pick in the year they want to trade one, or acquire one in the preceding year. So, if Atlanta demanded Minnesota’s 2023 first-round pick for John Collins, the Wolves would have to go get an additional 2022 or 2023 first-round pick in order to satisfy the Stepien Rule.

Trading Draft Picks

NBA Teams are eligible to trade picks up to seven drafts into the future. So, teams have access to trade their 2021 through 2027 draft picks assuming they still satisfy the Stepien Rule, of course. After the 2021 NBA Draft, teams will gain access to their 2028 picks.

The only other thing to keep in mind here is that teams can protect draft picks in trades pretty much any way they want to, as long as both teams agree involved in the trade agree to the terms of the protections. Some protections can span multiple years, as well. An example of this would be:

A first-round that is Top-10 protected in 2021, then (if it doesn’t convey) becomes lottery protected in 2022, then (if it doesn’t convey) becomes two second-round picks in 2023.

#4 - Roster Spots

While it can be fun to send another team six players in exchange for a star on the trade machine, there’s a reason that usually never happens. Teams only get 15 roster spots, plus two slots for two-way players.

Most contracts that were non-guaranteed before their trigger dates (on which the contract becomes fully guaranteed and teams can’t waive them without any cap repercussions) have become fully guaranteed, teams are very unlikely to waive any incoming players that take them over maximum 15 roster spots without buying them out. Teams can buy out players to free up a roster spot, but that mostly happens with players whose contracts expire after the current season.

Minnesota Timberwolves Introduce New Players - Presser Photo by David Sherman/NBAE via Getty Images

Gersson Rosas’s Deadline History

Before his hire as President of Basketball Operations on May 1, 2019, Gersson Rosas spent 11 seasons as a key executive in the Houston Rockets basketball operations department. Four of those 11 seasons came as director or VP of Player Personnel, while the final seven came as EVP of Basketball Operations serving alongside Daryl Morey. During the duo’s time in Houston, the Rockets became notorious as one of the most aggressive teams in the league at the trade deadline.

The Rosas/Morey battery in Houston made 17 trades involving 54 players (acquired 24), 15 draft picks, and 37 teams throughout their 11 years together. Only twice (2016 and 2018) did the pair sit out and not make a trade within a month of the deadline.

In part because the Rockets weren’t short on veteran players during their time together, Morey and Rosas were unafraid to acquire unproven young players before the end of their rookie contracts or those on their second contracts. Eight of the 24 players (33 percent) Houston acquired were either pending restricted free agents, or had team/player options for the upcoming season. If you expand the criteria to include players on their rookie or second contracts, that number jumps to 11 of the 24 players (46 percent). In doing so, Houston was unafraid to part with veterans, second-picks, and cash.

While every deadline deal didn’t work out (most didn’t, actually), Houston did bring in two future All-Stars at the deadline (Kyle Lowry and Goran Dragic). The Morey/Rosas duo never traded for a proven All-Star, but made three very good bets (Lowry, Kevin Martin, and Dragic). It’s safe to say their better work was done in the offseason with free agent signings, trades, and the NBA Draft.

Minnesota Timberwolves v Golden State Warriors Photo by Noah Graham/NBAE via Getty Images

There is no doubt that Rosas’s experience operating at the deadline in Houston has shaped his evident willingness to 1) bet on unproven young talent and 2) think outside the box with complex deals in his first two seasons as the leader of the Minnesota basketball operations department.

Last year, Rosas acquired three players 25 years old or younger in the same trade — Malik Beasley, Juancho Hernangomez and Jarred Vanderbilt — and signed two more in the offseason before his first season (Jordan Bell and Noah Vonleh). In a 24-hour span, Rosas and EVP of Basketball Operations Sachin Gupta made two trades involving six teams, which sent out six players and two picks in exchange for seven players and one pick. That included one of the most complex deals in the history of the trade deadline, in which 12 players and four teams were involved.

For a full move-by-move list and by-the-numbers view of Rosas’s history at the trade deadline, click here.

It is safe to say that over his 12 trade deadlines in the war room, Gersson Rosas has proven he is completely unafraid of making moves that shake the status quo and display the creativity he possesses in his approach to team-building. Given he has only sat out two trade deadlines over 12 years — and that his team is currently the worst in the Association — I fully expect Rosas and his diverse team of forward front office thinkers to make at least big bet via trade in the next two-plus weeks.

After hiring Finch as head coach, Rosas said during Finch’s introductory presser that the team “needed to be bold and direct with this opportunity.” Now, he has another opportunity to improve his team that will again need him to be bold and direct.

The man at the center of Rosas’s rebuilding effort, Karl-Anthony Towns, put it best following the Wolves’ loss at home to close the first half: “Thank God for the break.”