The Financial Implications Of The Lakers Rushing To Complete The Anthony Davis Trade, Explained

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A report from Adrian Wojnarowski on Sunday morning left basketball fans confused. Wojnarowski brought word that the blockbuster Anthony Davis trade will go through on July 6, rather than July 30, leading to questions about why that timing matters and what it means for Davis, the Los Angeles Lakers, and the New Orleans Pelicans.

Los Angeles and New Orleans have agreed to the parameters of what’s being traded, but timing is important for both sides, as the trade will be structured differently based on when it officially goes through with the league.

From a trade math perspective, deals can be in one of two ways. The team receiving more salary in the trade is the one that matters more, as they’re the ones who have to abide by the league’s rules, whereas a team receiving less salary has no such issue. Those rules are moot if the team receiving more salary, in this case the Lakers, have enough space to simply take the extra salary without going over the cap, which is how a lot of lopsided trades get done when teams are dumping bad salary on a team’s books.

Otherwise, if the Lakers are to operate as an over-the-cap team, they’d have to abide by the league’s salary matching rules. The Lakers will be the team receiving more salary in this trade, no matter what the timing is, and they’re the ones for whom the timing affects most.

The timing revolves around the league’s rules for trading signed draft picks — a team can trade a player’s draft rights at any time, but as soon as that player actually signs a contract, then the team must wait at least 30 days to trade him. There are advantages and disadvantages to signing the player before trading him, most notably with respect to the trade math. If a player signs his contract and is traded 30 days later, then he counts as part of the salary moving back and forth. If the teams trade his draft rights, then he counts for nothing.

The first option is to put the trade through as quickly as possible, as it seems the two teams are going to do. This means that the Lakers will be using cap space to trade for Davis, as the players they’re sending out don’t add up to enough salary to match his new $31.2 million cap hit. They do, however, have the available cap space to simply take him in, almost as if he were an outside free agent signing with the team but without the actual negotiating of a contract.

By doing the trade before the rest of their summer business, Davis will count at his full amount on their books as they move into free agency, which leaves them with between $23.7 million and $27.7 million in available cap space, depending on whether Davis wants his full trade bonus. This avenue is the simplest, as it knocks the trade out early and makes it clear how much money the Lakers have to spend going forward, but they could have made things better for themselves had they convinced the Pelicans to wait until July 30 to do the deal.

Putting the trade off until July 30 would have been necessary to satisfy the CBA’s 30-day wait period before trading a draft pick once that player has signed his contract. This would have come with significant advantages for the Lakers, as they could have operated throughout the month of July as if the trade weren’t taking place, then made the trade at the end of the month as an over-the-cap team once they used all that cap space.

Before this trade was agreed, the Lakers were looking at $32.5 million in cap space to use to remake their roster this summer. Had they waited to complete the Davis trade until the end of the month, they would have retained Lonzo Ball, Brandon Ingram, Josh Hart, and all those picks throughout July and could have used up that $32.5 million in space, whether to sign a single max free agent or spread it around to multiple players to fill out the roster. Once the cap space was used up and the 30-day waiting period had expired, the trade would have been made official with the Pelicans and the league, with the Lakers taking Davis in as an over-the-cap team, rather than using their cap space to do the job.

Taking Davis in as an over-the-cap team would require them to match his salary, which means trading at least $24.8 million in salary to do so. Teams at that level can take back up to 125 percent (plus $100,000) of the money they’re sending out, but adding up enough salary to get to Davis’ $31.2 million cap hit means that they’d have to include the No. 4 pick’s salary in the deal, which triggers the 30-day waiting period. It’s very similar to the trade that brought Kevin Love to the Cleveland Cavaliers in 2014; the Cavaliers needed Andrew Wiggins’ salary to add up with the other players they were sending out in order to match Love’s salary, so they had to wait 30 days after Wiggins officially signed his rookie scale contract to complete the deal. On the league’s ledgers, that trade was completed on August 23, 2014, even though it had been agreed more than a month before that date.

This situation would have been very similar, as the No. 4 pick would have signed his contract with the Lakers on July 1, then the two teams would have gone about their separate business for a month, with Los Angeles using up to $32.5 million in space to sign free agents or make other moves. Then, after the 30-day waiting period, they would have consummated the deal with New Orleans, sending Ball ($8.7 million), Ingram ($7.3 million), Hart ($1.9 million), and the No. 4 pick (now valued at $7.1 million in a trade, since he signed his contract) to the Pelicans for Davis. Those guys add up to $25 million, just over the $24.8 million threshold needed to trade for Davis as an over-the-cap team.

For now, this version of the trade will not come to fruition, as the teams will reportedly complete the trade on July 6 as their first piece of summer business. Doing so zaps up to $8.9 million in available cap space for the Lakers and gives them no extra advantage. Like everything else in this trade, it was a matter of negotiation between the two parties involved, and it seems they’ve come to the conclusion that July 6 will be the official date.

That can always change through further negotiation, but until that happens, the Lakers will go into their summer with far less cap space than they could have had otherwise.