In U.S. basketball, a sign-and-trade agreement is a type of contract allowed in the NBA

National Basketball Association

The National Basketball Association is the pre-eminent men's professional basketball league in North America. It consists of thirty franchised member clubs, of which twenty-nine are located in the United States and one in Canada...

 collective bargaining agreement, wherein one team signs an unrestricted free agent to a contract and trades

Trade (sports)

In professional sports, a trade is a sports league transaction involving an exchange of players' contracts or draft picks between teams. Cash is another commodity that may be packaged together with contracts or draft picks to complete a trade...

 him to another team of the players choosing. This is typically done to allow the eventual acquiring team to offer the player a higher salary and/or a greater number of years than would ordinarily be permitted under the NBA salary cap

NBA Salary Cap

The NBA salary cap is the limit to the total amount of money that National Basketball Association teams are allowed to pay their players. This limit is subject to a complex system of rules and exceptions and as such is considered a "soft" cap....

.

Provides league stability

The sign-and-trade helps teams to capitalize on assets that they would otherwise lose if a player became a free agent. It is a factor in the departing player's increased salary and extended contract. It helps the team gaining the player by offering a better and more competitive contract to the player than otherwise would be allowed under league rules. Often circumstances arise where a team, knowing that a player is planning on pursuing free agency in the coming off-season, knows that at least one of the other NBA teams are sure to sign him and the current team will get nothing in return. However, because the team is the players current contract holder, the team can offer the player more money per year than any other team and can sign the player to a longer contract (per the NBA collective bargaining agreement). It is therefore in the economic interest of the player to be signed by his current team to the more lucrative contract and then traded rather than pursue free agency. The player's current team will receive players or draft picks in return for the player they are losing.

Rescinding sign-and-trades

Sign-and-trades are considered "atomic" transactions under league rules; if the acquiring team rescinds the trade for some reason (such as a failed physical examination), then the contract signed with the initial team is also voided. In this way, such an occurrence does not result in the initial team being stuck with a player they do not want, or under terms they might find unacceptable; the player is also protected from ending up under contract with a team he may no longer wish to play for. Such an event happened in 2005, when Shareef Abdur-Rahim

Shareef Abdur-Rahim

Shareef Abdur-Rahim is a retired American professional basketball player and current assistant general manager for the Sacramento Kings. He last played for the Kings of the National Basketball Association . On the basketball court, he played both forward or center positions. Abdur-Rahim was a...

 was acquired by the New Jersey Nets

New Jersey Nets

The New Jersey Nets are a professional basketball team based in Newark, New Jersey. They are members of the Atlantic Division of the Eastern Conference in the National Basketball Association...

 in a sign-and-trade with the Portland Trail Blazers

Portland Trail Blazers

The Portland Trail Blazers, commonly known as the Blazers, are an American professional basketball team based in Portland, Oregon. They play in the Northwest Division of the Western Conference in the National Basketball Association . The Trail Blazers originally played their home games in the...

; the trade was subsequently canceled by the Nets when a physical exam discovered scar tissue

Scar tissue

Scar tissue can refer to:*Granulation tissue, a product of healing in major wounds*The tissue of a scar*"Scar Tissue", a Red Hot Chili Peppers song*Scar Tissue , the autobiography of Anthony Kiedis, lead singer of the Red Hot Chili Peppers...

 in Abdur-Rahim's knee. As a result of the cancellation, Abdur-Rahim once again became a free agent; his contract with Portland (who had his Bird rights) was voided.