Tim Hardaway Jr. signed a four-year, $71 million offer sheet with the Knicks that still has some fans pleading for a re-do.
The face value of the contract is quite expensive, but it doesn’t stop there, the Knicks included a 15% trade kicker in the deal. Trade bonuses get the term “kicker” because if the cost of the contract doesn’t hurt enough, an added bonus makes sure to kick you one last time on the way out. Well, that’s not really why it is called a trade kicker, but you get the idea.
If the Knicks want to trade Tim Hardaway Jr., they will owe him 15% of the remaining value of his contract.
This sounds prohibitive in trying to eventually trade the shooting guard, but since the value of the kicker depreciates over time and it is spread over the non-option years of the contract, it doesn’t pose as big of a problem as people think.
Let’s get into the gritty details.
What is a trade kicker?
A trade kicker is a bonus that pays out if a player is traded during the guaranteed seasons of his contract, excluding option years. Trade bonuses can be a set dollar amount, a percentage of the remaining value of the contract, or a combination of both. A trade bonus cannot exceed 15% of the remaining value of the contract. This is why 15% is a common trade kicker percentage, since it is the maximum amount a player can negotiate. A player can decide to waive all or a portion of the trade bonus to facilitate a trade.
The team who trades the player is responsible for paying the bonus, while the receiving team is responsible for the cap hit that includes the trade kicker.
In what can be a bit confusing, the team trading the player with the kicker must use the pre-bonus salary in determining how much money they can accept back in a trade; the receiving team must consider the post-bonus salary in making sure they have enough cap space or outgoing salaries to make the trade work. More on this in a bit.
How much does Tim Hardaway Jr.’s trade kicker cost?
Since Tim Hardaway Jr.’s trade kicker is a set percentage amount, the nominal dollar value of the bonus depreciates over time. For example, if he was traded last summer, he would have been owed 15% of the remaining $35.5 million guaranteed on his contract; whereas, if he is traded this coming summer, he is only owed 15% of 18.1 million.
Remember, while the final season of Timmy’s contract is guaranteed, it is a player option, and player options are excluded in calculating the amount owed in a trade bonus.
So what happens if the Knicks find a way to trade him at this year’s trade deadline?
NOTE: The remaining value of his contract is calculated using a pro-rated value for 2018-19, which brings the remaining value owed for this season down to $6.3 million, if he is traded at the deadline.
The value of Tim Hardaway Jr.’s trade kicker will be $3.6 million at the time of this year’s trade deadline, February 7.
The trade kicker amount is split evenly between the remaining seasons on his contract, excluding option years. This means if the Knicks find a trade partner this February, only $1.8 million would be added to Tim Hardaway Jr’s 2018-19 salary as part of the trade kicker, with the remaining $1.8 million applied to his 2019-20 salary.
In short, trading Tim Hardaway Jr. at the deadline would only add about $1.8 million in salary considerations to make a trade work. Not a big deal.
Now back to the confusing part about which team must include the post-bonus salary in considering a trade.
If a non-taxpaying team wanted to acquire Hardaway Jr. at the trade deadline, and let’s assume this team is over the cap, instead of using his pre-bonus salary of $17.3 million to calculate how much salary they are allowed to absorb as incoming salary, they must use his post-bonus salary of $19.1 million. Since non-taxpaying teams are only allowed to accept $5 million more than what they send out when trading players within the price range of THJ’s contract, the team trying to acquire Hardaway Jr. would need to trade at least $14.1 million to make a deal work, which is about $2 million more than if they used his pre-bonus salary.
If the Knicks trade Hardaway Jr. as a non-taxpaying team who is over the cap, they can of course do the trade as outlined above, but if they wanted to add salary to their books, they would need to use his pre-bonus amount of $17.3 million, which would allow them to take back up to $22.3 million in a trade, or about $2 million less than if they uses his post-bonus salary.
Don’t worry. A lot of this doesn’t really matter. In fact, this is a really detailed way of saying, Tim Hardaway Jr.’s trade kicker is not worth enough to be concerned that it is a deterrent to making a trade.
At this point, I don’t see the trade bonus impacting Hardaway Jr.’s trade value. James Dolan has never been reluctant to eat money in escaping a deal, as we have seen from his recent firings of Phil Jackson and Jeff Hornacek, and recent waivings of Joakim Noah and Ron Baker. While the Knicks would have to pay an extra $3.6 million by trading the 26-year-old at the deadline, the cap hit would fall on the acquiring team, and I’m sure the Knicks would be willing to pay what essentially becomes a transaction fee for moving a large contract off their books.