71. How are draft picks handled in trades?
Draft picks (both first and second round) count $0 for salary matching purposes. This is true both before and after the draft, until the player signs a contract. This can make it very difficult to construct a trade that is equitable in both trade value and basketball talent. For example, Vancouver selected Steve Francis with the #2 pick in the 1999 draft, and traded his draft rights to Houston. When the trade was finally engineered, it included three teams (Orlando was also involved), 11 players (including Francis) and two future draft picks.
Once the draft pick signs a contract, his actual salary becomes his trade value.
Note that even though a draft pick's trade value (for salary matching purposes) is $0, a first round pick is included in the team's team salary at 100% of his scale amount once he is selected in the draft, unless he signs with a non-NBA team (see question number 41). If an unsigned first round draft pick is traded, then 100% of his scale amount is included in the acquiring team's team salary as soon as the trade is completed. An unsigned second round pick does not count toward team salary.
Teams can only trade draft picks five years into the future (for example, if this is the 2005-06 season, then the 2010 pick can be traded, but the 2011 pick can't). It is common to "protect" picks depending on their position (e.g. "we keep it if it's in the lottery, otherwise you get it"), to avoid a repeat of some unfortunate past trades, such as the 1982 trade between the Cavs and Lakers, where the pick LA received turned out to be the first overall pick and was used to draft James Worthy. Now, it is common to see picks traded with protection that relaxes over several years -- for example, a first-round pick in 2005, unless it is in the lottery, in which case a first-round pick in 2006, unless it is one of the top three, in which case an unconditional pick in 2007.
In addition, teams are restricted from trading away future first round draft picks in consecutive years. This is called the "Ted Stepien Rule." Stepien owned the Cavs from 1980-83, and made a series of bad trades that cost the Cavs several years' first round picks. As a result of Stepien's ineptitude, teams are now prevented from making trades which might leave them without a future first-round draft pick in consecutive years.
This rule applies only to future first round picks. For example, if this is the 2005-06 season, then teams can trade their 2006 first round pick without regard to whether they had a 2005 pick, since their 2005 pick is no longer a future pick. But they can't trade away both their 2006 and 2007 picks, since both are future picks. Teams sometimes work around this rule by trading first round picks in alternate years.
In addition, teams are required to have only a first round pick, and not necessarily their first round pick. So teams may trade away their own future picks in consecutive years if they have another team's first round pick in one of those years.
A team cannot sign and immediately trade a draft pick in a sign-and-trade arrangement (see question number 76).
