Sign and trade

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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 TeamA will have gotten nothing out of Mr X other than his past accomplishments. However, because TeamA is Mr X's current contract holder TeamA 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 TeamA to the more lucrative contract and be traded instead of going to free agency. It is also in the best interests of TeamA because TeamA 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 gotten 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.