What is a trade exception in the NBA?

2021 NBA Free agency kicked off today and a plethora of names have already changed teams on the first day. Every team looks to bolster their roster, leaving fans and analysts busy calculating their team's cap space and salary structures.

However, a major factor in deciding any NBA team's roster are the trade exceptions a team holds.

As we head into Day 2 of NBA free agency, one must be aware of the trade exceptions their team holds and how they can use that to sign players. So let's take a look at what a trade exception means in the NBA.

NBA's trade exception explained

The Boston Celtics held the biggest trade exception in NBA history because of Gordon Hayward

The literal meaning of exception suggests that any player signed by a particular team doesn't count against the salary cap. They are essentially empty roster spots that the team can use to sign players of the same salary.

For example, the Detroit Pistons got a $1.9 million trade exception when they traded Derrick Rose to the New York Knicks. That exception expires on December 18th, 2021 and they can sign any player with that same salary.

Houston still has a $8.28M trade exception from the Victor Oladipo trade. Might be smart to take Theis in a s/t and preserve the $9.5M ML. This would give Chicago a big trade exception. https://t.co/oTvQtMZxH5

— Bobby Marks (@BobbyMarks42) August 3, 2021

The older Collective Bargaining Agreements paved the way for the current trade exceptions. Back when teams held onto salary "slots" when players left, allowing them to slip in other players with similar salaries in those vacant roster spots.

The NBA describes the current exceptions as,

"Only this is more like an old-fashioned gift card, with an expiration date before it loses its value. And oh yeah, if you use it, you have to spend the money."

Teams can let them slip off the books at the end of a season because a trade didn't materialize. It can also be used to save face for GMs and front office executives in tough situations, such as the famous Boston Celtics' $28.5 million trade exception when Gordon Hayward left.

Per source, the Celtics acquired Josh Richardson from Dallas using the rest of the Hayward trade exception.

— Adam Himmelsbach (@AdamHimmelsbach) July 31, 2021

"Bird rights" allow teams to sign their own players whether they are above the salary cap or not. The flip side to that is losing such a player doesn't open up cap space as we live in an era where teams exceed the salary cap by millions of dollars.

Hence, the trade exception is the expected solution. This happens if a team finds a deal they like and are really eager to push payroll or exceed the tax threshold.

NBA also describes the trade exception in another fashion,

"One way to look at a trade exception is like an insurance policy or an extended warranty. They are good to have, even if you never use them."