By trading with Toronto the Hornets got a 9.6Mil TPE
Old 11-23-2010, 11:45 PM   #1 (permalink)
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Hornets By trading with Toronto the Hornets got a 9.6Mil TPE



No wonder they did this deal. Boy TPE are all the rage these days.

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Another issue was the salaries. Teams can acquire 25 percent (with a $100,000 fudge factor) more than the salaries they send away in a trade. The salaries of Jack, Andersen and Banks added up to $12.05 million, which means the Raptors could trade them for up to $15.16 million in salaries. But Stojakovic and Bayless are earning a total of $16.55 million this season, and Stojakovic has a trade bonus that would have pushed the total to $17.76 million. So how did Hornets GM Dell Demps and Raptors GM Bryan Colangelo pull this off?


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And Demps likely isn't finished. This deal generated a large trade exception for New Orleans, which Demps now has a year to use. There are multiple ways to configure this trade, with one possibility being to use the $6.2 million trade exception the Hornets received from the July 8 deal that sent Morris Peterson to the Oklahoma City Thunder. In this configuration, the Petersen trade exception would be used to accommodate Marcus Banks' $4.85 million salary. Demps would also use Bayless for Andersen, and Stojakovic for Jack. This would leave Demps with a new trade exception valued at the difference between the salaries of Stojakovic and Jack, or $9.656 million.
Larry Coon: How the New Orleans Hornets-Toronto Raptors deal went down - ESPN

Last edited by jeffb; 11-23-2010 at 11:48 PM.
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Old 11-23-2010, 11:47 PM   #2 (permalink)
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its was going to be wasted anyway
TPE's are highly overrated by Raptor fans. some people think someone like Iggy will come with it
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Old 11-23-2010, 11:49 PM   #3 (permalink)
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its was going to be wasted anyway
TPE's are highly overrated
Wasted? We still have 12.3Mil of our TPE left. This has nothing to do with our exception at all.
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Old 11-23-2010, 11:52 PM   #4 (permalink)
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Wasted? We still have 12.3Mil of our TPE left. This has nothing to do with our exception at all.
what was the TPE originally? $15.2 mil?
so we used it on getting Bayless only?
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Old 11-23-2010, 11:54 PM   #5 (permalink)
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what was the TPE originally? $15.2 mil?
so we used it on getting Bayless only?
We used about 3Mil of it to get it done. I believe it was used in the Peja deal...not sure though. I'm confused!
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Old 11-23-2010, 11:57 PM   #6 (permalink)
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Originally Posted by jeffb View Post
We used about 3Mil of it to get it done. I believe it was used in the Peja deal...not sure though. I'm confused!
so am I

Stern should cancel this whole TPE mess
NBA has the most confusing salary system (2 caps, bi annuals, MLE's, trade kickers, BYC, etc......)
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Old 11-24-2010, 12:08 AM   #7 (permalink)
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this part is especially fascinating:

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This deal also illustrated the asymmetric nature of NBA trades -- while this was really just one big five-player deal, each team did its own accounting, independent of the other team. In these cases, as long as each team structures the trade so that it is in compliance with league rules, there is no requirement that the accounting for each team is aligned. Thus we saw Banks, Jack and Andersen aggregated together for Stojakovic from the Raptors' viewpoint, while the three Raptors were brought over individually from the Hornets' viewpoint.
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Old 11-24-2010, 12:41 AM   #8 (permalink)
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Originally Posted by jeffb View Post
We used about 3Mil of it to get it done. I believe it was used in the Peja deal...not sure though. I'm confused!
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Originally Posted by Windex View Post
so am I

Stern should cancel this whole TPE mess
NBA has the most confusing salary system (2 caps, bi annuals, MLE's, trade kickers, BYC, etc......)
It's a well written piece, so it shouldn't be confusing at all. The only way anything could be confusing is if Coon is wrong.

According to Coon, Colangelo used $2.3 million of the TPE to absorb Blayless. Then, he swapped Banks, Anderson, and Jack for Peja's expiring. That's how Coon says BC could have filed the trade. The original Bosh TPE was $14.5 million, so that leaves $12.2 million.

No, Stern should NOT cancel this "TPE mess". There is nothing wrong with it. There is no mess.

That leads to another point I want to make. TPEs are not the "rage" these days. They've always been getting produced. Team just don't use them. When TPEs are produced, it's not necessarily a matter of a team really wanting one, it's simply a by-product of making a trade work. Also, teams will sometimes construct a trade in a manner that nets a TPE simply because they can, not because they want one for anything they anticipate doing. It's just increased flexibility, so you grab it when it's available. Why wouldn't you? The only thing that might be classified as the "rage" these days are particularly large TPEs. But TPEs are frequently floating around as a consequence of multi-player trades.

For example, last year, when Dallas pulled off a blockbuster with Washington, the Wizards structured the multi-player deal in order to send Haywood to Dallas for a TPE. As far as Dallas was concerned, it was a 2 stage trade, yet Washington filed it as a 3 stage trade. This really isn't new or original. It's just interesting because it relates to our team.
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Old 11-24-2010, 02:34 AM   #9 (permalink)
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Originally Posted by 'trane View Post
this part is especially fascinating:
I agree, I had no idea teams could record player transactions independently of one another... Interesting that, if you view the NBA as 'owning', or at least operating as some sort of umbrella for its franchises, can allow the teams to have accounting practices that paint each franchise in the most beneficial light, rather a picture that depicts reality.
I would be interested in seeing the guidelines the NBA has to follow in regard to accounting principles. Assuming that they operate according to GAAP, how is it legal that each franchise records transactions in a way that reflects the best possible situation rather than reality. Statements such as "the NBA lost/gained x dollars this year" imply that the NBA does own each franchise. Expanding on this, how can it be legal for the NBA to have such accounting practices?
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Old 11-24-2010, 03:40 PM   #10 (permalink)
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Originally Posted by Wiseguy View Post
I agree, I had no idea teams could record player transactions independently of one another... Interesting that, if you view the NBA as 'owning', or at least operating as some sort of umbrella for its franchises, can allow the teams to have accounting practices that paint each franchise in the most beneficial light, rather a picture that depicts reality.
I would be interested in seeing the guidelines the NBA has to follow in regard to accounting principles. Assuming that they operate according to GAAP, how is it legal that each franchise records transactions in a way that reflects the best possible situation rather than reality. Statements such as "the NBA lost/gained x dollars this year" imply that the NBA does own each franchise. Expanding on this, how can it be legal for the NBA to have such accounting practices?
Hey, I'm not formally trained in any kind of accounting principles so I could have entirely missed your point. I'll apologize in advance.

From what I can tell, the asymetrical nature of NBA trades is simply relates to the CBA trade guidelines. We're simply talking about how trades are pulled off. I don't see any reason why the passage 'trane quoted would extend into the realm of other more important NBA accounting practices.

Allowing teams to construct trades in the most "favourable" light simply means that they construct the trade in a way that conforms with the CBA from their own perspective. They aren't fudging payroll numbers or the financial realities of their booking in terms of gains and losses. The CBA is an agreed upon internal construct that could be changed at any time, and simply provides a mechanism for determining how teams can move players, at least when we're talking about trades (it also covers a whole host of other work related shit).

At the end of the day, when talking about gains and losses, my simple mind thinks that what matters is the total payroll of the teams and their additional operating costs (employees, rent, etc..etc..) and the revenue they bring in through all their mediums (ticket sales, television, etc...etc..).

None of that is changed by a CBA that allows you to file trades differently. If it is somehow, please explain it to me. How is the final payroll fudged? How is the revenue fudged? It seems to me that those are what matter. The only way it would be a problem is if somehow the NBA tried to scam people by claiming a TPE was actual salary being paid, rather than just a cap hold used for purposes of the CBA mechanism that dictates player movement and signings.

Again, I apologize if I'm missing the point. Maybe another financial type like 'trane also knows what you're trying to say and can explain it ?
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Old 11-25-2010, 12:59 AM   #11 (permalink)
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That is my point exactly... the article mentions that as long as each team structures the trade in accordance with league rules, each team can account for it differently resulting in both franchise's books representing the most favourable situation.

My point is that there is obviously some financial motivation for recording the structure in one way over another, or both teams would account the same way.

The fact that one structure would benefit the Raptors, and the other the Hornets, shows that these structures to not represent the reality of the situation. If the NBA owns both teams, and both teams record that they gave gained from the trade, then the NBA gains as well. In reality each team's records should balance.

Accounting, in a legal sense, is meant to record things as they are; it is legal to construct transactions in a "favourable light", so long as that structure is representative of the reality of the situation.

Essentially, you can record something however you want, as long as it ends up representing what actually occurred. If both teams can say they gained financially from a trade, than the sum of the parts will have gained as well. However, the teams' records do not balance and the NBA is recording a gain, when in reality there should have been no change.

Imagine the NBA as a company, and each franchise as a different department in the company. If two departments make a transaction, and both departments account for that transaction in a way that paints them in the most favourable light, then the company as a whole would gain financially as well. If these records to not align, does this not create 'something out of nothing'?

Touching on your point concerning operating costs... Each player's salary is a component of the total operating cost. If a franchise records the transaction in a way that does not represent what actually occured, it is fudging figures... If there was no financial motivation for structuring the trade in a certain way, then both teams would perceive the transaction in the same way.

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Old 11-25-2010, 02:28 AM   #12 (permalink)
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That is my point exactly... the article mentions that as long as each team structures the trade in accordance with league rules, each team can account for it differently resulting in both franchise's books representing the most favourable situation.

My point is that there is obviously some financial motivation for recording the structure in one way over another, or both teams would account the same way.

The fact that one structure would benefit the Raptors, and the other the Hornets, shows that these structures to not represent the reality of the situation. If the NBA owns both teams, and both teams record that they gave gained from the trade, then the NBA gains as well. In reality each team's records should balance.

Accounting, in a legal sense, is meant to record things as they are; it is legal to construct transactions in a "favourable light", so long as that structure is representative of the reality of the situation.

Essentially, you can record something however you want, as long as it ends up representing what actually occurred. If both teams can say they gained financially from a trade, than the sum of the parts will have gained as well. However, the teams' records do not balance and the NBA is recording a gain, when in reality there should have been no change.

Imagine the NBA as a company, and each franchise as a different department in the company. If two departments make a transaction, and both departments account for that transaction in a way that paints them in the most favourable light, then the company as a whole would gain financially as well. If these records to not align, does this not create 'something out of nothing'?

Touching on your point concerning operating costs... Each player's salary is a component of the total operating cost. If a franchise records the transaction in a way that does not represent what actually occured, it is fudging figures... If there was no financial motivation for structuring the trade in a certain way, then both teams would perceive the transaction in the same way.
We still don't see eye to eye. And I think that it might be because we have a different view of what "favourable light" means. I still don't see any fudging of payroll numbers. Both teams' respective book keeping will indicate that the same players moved, just in different numbers of transactions. And TPEs are generated as cap holds, but not real salary. A TPE is not recognized as a real operating cost, just a cap hold for the purposes of allowing a team to take on new salary if it wants. It's like a permission slip.

You said:

Quote:
If a franchise records the transaction in a way that does not represent what actually occured, it is fudging figures... If there was no financial motivation for structuring the trade in a certain way, then both teams would perceive the transaction in the same way.
Ah, but there is other motivation for structuring the trade differently. Again, the TPE is like a permission slip. The accounting of professional sports is, I would think, a little different than regular business in the sense that CBAs govern the movement of talent (players) as well. Again, the teams books will both reflect the same players moving, but by structuring it differently, it allows one team to create a more advantageous permission slip to take on more talent or spend more money. You need to remember that the CBA is also limiting spending and talent movement. There are other incentives beyond fudging numbers. I think maybe you're taking "accounting" too literally. It's about more than financial assets. A TPE is an asset in terms of hypothetical basketball talent, but no team tries to pass it off as an operating cost. It's just a cap hold. It doesn't count in the operating costs. Essentially, as I understand it, teams have two sets of books: the real financial books, such as payroll and operating costs, on the one hand, and their books in terms of operating under the CBA, such as their real payroll and cap holds (the cap holds can be removed or disgarded in most cases so they don't count in reality or on the financial books when you're looking at profits or losses from the business angle), on the other hand.

Again, I don't speak accounting language. I'm viewing this from a different angle, so I apologize if my explanation is strawmanning you. I interpret "favourable light" as meaning permission to execute the trade given certain salary cap restrictions, as well as obtaining permission slips to spend more (in the form of absorbing a salary without giving anything away). I think this "favourable light" business needs to be viewed in the context of the second set of CBA related "accounting" practices, not traditional financial practices. The league can't possibly show up to a CBA meeting with the players reps claiming that a TPE is an operating cost. If they do, that's insane. But I don't think that's happening.
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Old 11-25-2010, 09:54 AM   #13 (permalink)
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I didn't think of TPE gained from the Thunder as being used to offset the imbalance of the financial numbers. I wasn't including the TPE as a real operating cost though, because, as you said, it is just a cap hold and does not have any real monetary value.
I think I see what you are saying. The Hornets are not saving any tangible dollar amount by structuring the trade a certain way, they are just creating a TPE. So, rather than adding together all three Raptor contracts, the Hornets structure each player as coming over separately, creating a larger TPE for themselves.
The only thing that I don't understand is that the article says the Hornets traded Stojakovic's salary for Jack's salary. I don't really see how this could be done considering the $9 million difference. If you understand how they would be able to do this, I would like to know
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Old 11-25-2010, 10:48 AM   #14 (permalink)
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I don't quite see how did they receive 9 mil TPE?
I thought Stojakovic for Jack would be legal only if Raptors were below salary cap (and that capspace was being traded and morphed into TPE)

Edit: I think I got it now
If first you trade Bayless for Anderson and Banks for TPE then Raptors would indeed be below cap

Why then wasn't it arranged like that from Raptors perspective? Why waste some of Bosh TPE? Where is that piece of TPE now in this shit anyway? And another piece from Mopete TPE that should've gone to Toronto? both vanished in the bookkeeping?

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Old 11-25-2010, 02:51 PM   #15 (permalink)
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so is this accurate? Did we really drop 9.6mil of our TPE?
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Old 11-25-2010, 03:42 PM   #16 (permalink)
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Im pretty sure I understand it now. New Orleans was able to structure the trade the way the did becuase of Toronto's TPE. They used their own TPE to absorb Bank's contract. They then traded Bayless for Anderson, which needed no help because their salaries are similar. The next part was where it got a little tricky.

The Hornets traded Stojakovic for Jack, a difference of $9.6 million in salary. The reason this could go down was because Toronto's TPE allowed them to absorb the remainder of Stojakovic's contract. So, our TPE let us absorb the difference. This resulted in Jack being shipped to New Orleans along with the creation of a that $9.6 million TPE for New Orleans. Again, I stress, this is occuring from New Orleans' point of view. To answer your question Sprocket, we did not actually lose that $9.6 from our TPE.

This is what the little excerpt, posted by 'trane, was talking about. Each team can structure the trade differently; from New Orlean's perspective, we used $9.6 of our TPE to acquire Peja, thus creating a $9.6 million cap hold for the Hornets. From our point of view, we packaged all three players together, which allowed us to use only $2.3 million of our TPE.
I hope that clears it up for everyone.
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Old 11-25-2010, 04:09 PM   #17 (permalink)
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Im pretty sure I understand it now. New Orleans was able to structure the trade the way the did becuase of Toronto's TPE. They used their own TPE to absorb Bank's contract. They then traded Bayless for Anderson, which needed no help because their salaries are similar. The next part was where it got a little tricky.

The Hornets traded Stojakovic for Jack, a difference of $9.6 million in salary. The reason this could go down was because Toronto's TPE allowed them to absorb the remainder of Stojakovic's contract. So, our TPE let us absorb the difference. This resulted in Jack being shipped to New Orleans along with the creation of a that $9.6 million TPE for New Orleans. Again, I stress, this is occuring from New Orleans' point of view. To answer your question Sprocket, we did not actually lose that $9.6 from our TPE.

This is what the little excerpt, posted by 'trane, was talking about. Each team can structure the trade differently; from New Orlean's perspective, we used $9.6 of our TPE to acquire Peja, thus creating a $9.6 million cap hold for the Hornets. From our point of view, we packaged all three players together, which allowed us to use only $2.3 million of our TPE.
I hope that clears it up for everyone.
Nope, not quite.

From New Orleans perspective, our TPE doesn't make a lick of difference.

The rules are: a team cannot take back more than 125%+100,000 of the salary they send out. NOTE: Any team, at any time can take back as little salary as they like. It is only the restriction on the other team (of only receiving 125%+100,000) that prevents this from happening very often.

The trade happened two ways - one from either perspective.

TO's perspective: TOR sends Banks and Andersen and Jack for Peja. This works because Peja's contract fits in that 125%+100,000 restriction that TO can take back (after he sacrificed a bit of his trade kicker). TOR uses 2.3M of TPE to get Bayless.

NO's perspective: NOH send Bayless for Andersen (fits within 125%+100,000). Then, NOH uses 5M of their 6M TPE (from an earlier Mo Pete trade) to absorb Banks' contract. Then, NOH send Peja for Jack - they are taking back LESS salary, so they are allowed to do this, and because they are sending out ONE player, and receiving less salary, a TPE in the amount of the difference (9.6M) is created.

Note that we didn't actually need to have a large TPE for this deal to happen, only a small one to use on Bayless. This is why so much of our TPE is left over (12.2 M).
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Old 11-25-2010, 05:57 PM   #18 (permalink)
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Nope, not quite.

From New Orleans perspective, our TPE doesn't make a lick of difference.

The rules are: a team cannot take back more than 125%+100,000 of the salary they send out. NOTE: Any team, at any time can take back as little salary as they like. It is only the restriction on the other team (of only receiving 125%+100,000) that prevents this from happening very often.

The trade happened two ways - one from either perspective.

TO's perspective: TOR sends Banks and Andersen and Jack for Peja. This works because Peja's contract fits in that 125%+100,000 restriction that TO can take back (after he sacrificed a bit of his trade kicker). TOR uses 2.3M of TPE to get Bayless.

NO's perspective: NOH send Bayless for Andersen (fits within 125%+100,000). Then, NOH uses 5M of their 6M TPE (from an earlier Mo Pete trade) to absorb Banks' contract. Then, NOH send Peja for Jack - they are taking back LESS salary, so they are allowed to do this, and because they are sending out ONE player, and receiving less salary, a TPE in the amount of the difference (9.6M) is created.Note that we didn't actually need to have a large TPE for this deal to happen, only a small one to use on Bayless. This is why so much of our TPE is left over (12.2 M).
Bravo.

This is the kind of stuff that gives me a brain boner.
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Old 11-25-2010, 05:59 PM   #19 (permalink)
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totally... it also shows us how fucking hard it is to make a deal nowadays.... jesus man, it's hard work!
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Old 11-25-2010, 06:05 PM   #20 (permalink)
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totally... it also shows us how fucking hard it is to make a deal nowadays.... jesus man, it's hard work!
It highlights why a good organization should have capologist. Some GMs are comfortable speaking the language of the CBA but I'm sure many of them know less than hardcore fans. As with politics, it's probably important for certain people to have good advisors.
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