As written, the sign and trade penalty applies ONLY to extensions, not free agent signings.
Reviewing the Rule:
Team A has Babe Ruth on team on Dec 1st. Has had him for 2 seasons.
Team A extends Ruth 3 year deal in January.
Team A trades Ruth to team B in February.
Team A would pay penalty of 50% of 1st year's salary.
Other Scenarios:
Team A signs Ruth to 3 year deal in January.
Team A trades Ruth to team B the following November.
NO penalty due to a World Series ending the season.
Team A signs Ruth in September to 3 year deal.
Team A trades Ruth to team B in November
NO penalty due to a World Series ending the season.
Team A signs Lou Gehrig as free agent in December
Team A trades Gehrig to Team B in January
NO penalty, as an extension did not occur.
Team A signs Lou Gehrig as free agent to 1 year deal in December
Team A EXTENDS Gehrig in July to 2 year deal
Team A would be then be penalized if traded that same July to another team.
Long story short, it only applies to extensions and only applies to the current league year (world series to world series)
Reviewing the Rule:
Team A has Babe Ruth on team on Dec 1st. Has had him for 2 seasons.
Team A extends Ruth 3 year deal in January.
Team A trades Ruth to team B in February.
Team A would pay penalty of 50% of 1st year's salary.
Other Scenarios:
Team A signs Ruth to 3 year deal in January.
Team A trades Ruth to team B the following November.
NO penalty due to a World Series ending the season.
Team A signs Ruth in September to 3 year deal.
Team A trades Ruth to team B in November
NO penalty due to a World Series ending the season.
Team A signs Lou Gehrig as free agent in December
Team A trades Gehrig to Team B in January
NO penalty, as an extension did not occur.
Team A signs Lou Gehrig as free agent to 1 year deal in December
Team A EXTENDS Gehrig in July to 2 year deal
Team A would be then be penalized if traded that same July to another team.
Long story short, it only applies to extensions and only applies to the current league year (world series to world series)