Deadline is here: NBA trade deadline

(This is a post I wrote on last Wednesday, a day before the NBA trade deadline.)
While trying to find what to write about on today's post, I realized I was so exhausted by today's exam questions on macro economy. Also, I have recently been writing about monetary policy pretty much, so I thought why I shouldn't write about something totally different but still related to economics.

Tomorrow, February 20th is the last day on which the National Basketball Association (NBA) teams are allowed to trade their current players. For people who follow the professional sports, this kind of trade deadline is pretty familiar. Major European professional soccer leagues and American professional sport leagues have this deadline.

For people who might not be familiar with the NBA roster system, it is like this:

New players out of college basketball or foreign countries enter the NBA draft in each summer to get selected by the NBA teams, And the team and the player signs a contract which is guaranteed at least for two years. In other words, the player is now the teams's asset. (You remember a guy named Trey Burke, right? Well, he isn't doing bad out there)  The team has full control over where the player plays until the contract expires. In other words, if the team wants to trade the player, the team can do it without an agreement from the player in general. Once any given contract between a team and a player expires, the player can sign with any team he wants (with some exceptions). A player with no current contract is called a free agent.

Right now, I am pretty sure almost all 30 managers of the NBA teams are phoning each other to offer a trade to other teams. The main reasons any given NBA team wants to use this deadline and trade players are following:

First, a team believes they are contender for the championship, therefore it tries to maximize its possibility of becoming champion by adding better players to their current roster, This decision is almost a pure basketball decision. We can see this type of trade offers from the Houston Rockets to the Boston Celtics for Rajon Rando.

Second, a non-contender team which has a very good player whose contract is expiring after this year might want to trade this player for the best possible returns if the star player is unlikely to sign again with the team. This decision is half basketball and half financial decision. Since the team wants solid players whose contracts aren't expiring in next year in return for their star player, it still considers its future basketball success. But also the team doesn't want to just let the star player go away in the summer and leave the team with nothing in return. Therefore, the team is trying to maximize the benefit from the player by trading him. This type of decision is made for economic reasons. Again, the Boston Celtics is a team that might want to trade their superstar point guard Rajon Rondo because of his expiring contract.

Third, some trades could be seen as a pure financial decision. A team with a player who has very high salary but doesn't have great value to the team might want to trade this player for some players with low salary before the deadline. By doing so, the team will have more salary space under the salary cap, which is the upper total salary limit for any team, and it will be able to sign a big contract during the summer. In other words, the team is emptying its balance sheet to have enough space to sign a big contract in the future. The team doesn't really care about its success in this season, so it is not a basketball decision in short-run. Right now, one of the hottest trade rumors has been circling the Los Angeles Lakers and Pau Gasol, whose contract says he will make $19.3 million next year compared to average NBA player salary of $3.8 million (even though that says average, that is still...)

I hope, as a basketball fan, to see one or two blockbuster trades involving a superstar or two before tomorrow trade deadline. I am sure NBA team general managers will surprise me tomorrow. The clock is ticking.