A Stroll Down Memory Lane
Do you remember the last time the Heat had substantial cap space?
It was the summer of 1996.
Owner Micky Arison had hired basketball’s most celebrated coach the year prior with one goal in mind: to build a championship-caliber roster. This was Pat Riley’s chance.
Without hesitation, Riley traded away Glen Rice, Khalid Reeves, Matt Geiger, Kevin Willis, Bimbo Coles, Billy Owens and Kevin Gamble in moves designed to create more salary cap room for the summer’s free-agent shopping spree, giving him maximum maneuverability in what was considered at the time to be the NBA’s biggest free-agent market ever.
The Heat began the offseason with just $3.8 million in salary commitments to three players (Sasha Danilovic, Kurt Thomas and Keith Askins), leaving $20.6 million of available room below the $24.4 million salary cap.
Free agent guard Tim Hardaway and center Alonzo Mourning were the cornerstones of the team’s vision. The rest was to be filled on the open market.
One minute after the new labor agreement was finalized at 4:59 p.m. on July 11, the NBA’s free agent marketplace officially opened.
Riley kicked off the summer by turning his sights to budding young superstar Juwan Howard, in what was soon to become one of the most heated and controversial battles in league history.
Boosted by gaudy per game averages of 22.1 points, 8.1 rebounds and 4.4 assists, Howard had opted-out of his existing contract with the Washington Bullets in favor of the big payday. Pairing Mourning with the 23-year-old first-time All-Star forward was expected to instantaneously boost Miami into the league’s upper echelon.
The Bullets opened up the bidding with an initial seven-year, $78.4 million offer. Although publicly stating his desire to stay with the Bullets, Howard was not impressed. Howard felt that his market value was far greater than that.
The Heat countered at seven years and $91.0 million, plus $3.5 million in bonuses. The Bullets then pushed their offer to an $84.0 million take-it-or-leave-it ultimatum that left Howard in tears about the prospect of leaving Washington. The Heat upped the ante to seven years and $95.2 million, plus an additional $5.6 million in bonuses and perks that included luxury hotel suites and limousine service during road trips. It was all but inevitable.
At around 1 a.m. on July 13, Riley’s phone rang. Howard was on the other end. “Coach,” he told Riley. “I’m coming to Miami.”
When the moratorium ended on July 17, the Heat officially signed Howard to a seven-year, $100.8 million contract, making him the NBA’s first ever nine-figure player. Howard was slated to earn more than the likes of Hakeem Olajuwon and David Robinson.
Riley made another big splash the next day, signing forward P.J. Brown to an incentive-laden seven-year deal with a $19.0 million base, but worth as much as $35.8 million based upon the achievement of certain individual and team milestones.
He then turned his sights back inward.
On July 23, Hardaway was re-signed to a four-year, $10.4 million deal, but worth as much as $20.8 million.
The final move in the master plan was to sign Mourning to a seven-year, $105.1 million contract, utilizing his Bird rights to legally exceed the salary cap by $1.5 million. This opportunity was made possible because Mourning’s $6.8 million cap hold was $2.5 million less than his $9.4 million first-year salary to be.
The vision was complete. The maneuvering was done. The Heat were set to become a perennial powerhouse.
But then, on July 31, with Howard parading around Miami as a member of the Heat, the NBA shocked the NBA world by voided Howard’s contract — a full two weeks after it was executed.
Two reasons were given by the league for its decision.
According to NBA chief legal officer Jeff Mishkin: “First, the Heat incorrectly calculated their available cap room because they excluded performance bonuses provided for in contracts submitted for Tim Hardaway and P.J. Brown that should have been included. Second, Miami had already reached a deal with Alonzo Mourning prior to the signing of Howard, thereby further reducing the amount of cap room available for the Howard contract.”
A proper analysis of those assertions requires an understanding of how the offseason began.
The offseason had initially started with Riley asking Mourning to sign a one-year contract at less than market value to help the Heat create more room under the salary cap. Mourning dismissed the proposal. Riley then tabled his discussions with Mourning while he focused his attention exclusively on Howard, assuring Mourning that after “taking care of some business” with other players, “I will make you the highest-paid player on the team.”
With that, the seeds of controversy were planted.
Under the terms of the CBA, club officials were forbidden from making undisclosed agreements, promises, “representations, commitments, inducements . . . or understandings of any kind” with players. The CBA also required teams to report immediately all player contracts – oral or written – to the league, and required such contracts to be charged against the team’s cap figure. The league deemed that such an undisclosed agreement existed between Riley and Mourning, shaving $2.5 million from the Heat’s total cap space (the difference between the $9.4 million starting salary in the as-yet unsigned contract and his $6.8 million cap hold).
The issue with Mourning was nothing more than one of timing. The league shaved $2.5 million from the Heat’s maximum available room under the cap because it felt the Mourning contract came before the Howard contract, despite the fact that it was actually executed after the Howard contract. Had the league determined that the Mourning contract came after the Howard contract, as it technically did, there would have been no issue whatsoever and the Heat would have recovered the $2.5 million in full.
Whether or not Mourning had an “agreement” in place with the Heat organization prior to the Howard contract, such “agreements” were (and continue to be) exceedingly commonplace in the NBA — in every summer, for every team — and never in practice are they ever deemed to count against the salary cap. This was therefore a unique, and shocking, determination for Riley.
Riley contended, bitterly, that his pledge to Mourning was proper because it was neither finalized nor contained any specific dollar figures – an interpretation of the CBA supported by the players’ union. Riley asserted that he came to agreement with Howard on July 13, and that David Falk, agent for both Howard and Mourning, had informed him as late as July 15 that he was going to shop Mourning to other teams if negotiations with Mourning did not speed up. How, then, could the league possibly allege that the Mourning deal came first?
Riley was equally infuriated by the allegations of misappropriation of performance bonuses for P.J. Brown and Tim Hardaway.
Under the terms of the CBA, clubs were permitted to offer players performance bonuses that were either “likely to be achieved” or “unlikely to be achieved.” While likely bonuses were to be charged against the cap, unlikely bonuses were not. The CBA defined “likely” bonuses as those based on achievements which were attained the previous season by a player or his team, and “unlikely” bonuses as those based on achievements which were not attained the previous season by a player or his team. The CBA also gave the commissioner authority to contest any “unlikely” bonus he considered to be, in fact, probable.
The incentive in question was one that would have paid Brown $1.5 million and Hardaway $1.0 million for the coming season if the Heat won either 27 home games or 43 total games. Since the Heat had never once won more than 26 home games or 42 total games in its eight-year history, Riley considered the bonuses “unlikely to be achieved.” But the league, noting that the Heat had significantly improved its prospects by signing Howard, disagreed, shaving a further $2.5 million from the Heat’s payroll ceiling.
The ruling was a tenuous one by the league. Riley had reportedly been in constant contact with the league on this issue and, according to Rob Klempner, assistant general counsel with the National Basketball Players Association, the league actually agreed with Riley’s perspective at first. Klempner said the bonuses initially were deemed “unlikely to be achieved” by the NBA. He said the NBA then later backtracked on its position, saying with Mourning, Howard, Brown and Hardaway on the roster, those bonuses were well within reach and should thus be considered “likely to be achieved.” Thus, they reclassified the bonuses and counted them against the Heat’s cap position. Had the league not retroactively reversed its prior approval, there would have been no issue whatsoever and the Heat would have recovered the $2.5 million in full.
According to the NBA’s calculations, the Heat’s salary cap figure therefore appeared as follows:
The $4.0 million excess was at issue for the league. Given the agreement said to be in place with Mourning (despite a yet-to-be-signed contract) and the treatment of bonus money for Brown and Hardaway, the league argued that the Heat did not have adequate cap space for Howard’s contract.
Riley denounced the ruling as “unconscionable.”
According to his calculations, the Heat was comfortably within the confines of the salary cap:
Riley was infuriated because he felt that Stern was allowing his dislike of the Heat organization to cloud his objectivity and fairness. He claimed the Heat had all of its contractual figures and movement approved over the phone by league officials and was blindsided by the announcement that Howard’s contract would be voided.
“It is something that is totally surprising to me,” Riley said of the NBA charges. “We haven’t done anything different than any other team has in the league. We have not gone above or beyond creatively.”
Klempner agreed: “These claims are absolutely frivolous.”
Nonetheless, it wasn’t initially expected to be anything more than a minor issue. The upshot from Klempner and three NBA general managers: The Heat wouldn’t have to sweat this one out; an accommodation would be worked out to keep Howard in a Heat uniform, along with Mourning, Hardaway and Brown.
But that’s not how the league elected to proceed. The league was preparing for a protracted fight. Was it waging a personal vendetta against the Heat and Falk?
Neither Riley nor Heat owner Micky Arison nor Falk was well liked by Commissioner David Stern.
Arison had tangled with Stern before. In 1995, Stern accused him of tampering with Riley while Riley was still head coach of the New York Knicks. The Heat settled, and avoided league-imposed penalties, by compensating the Knicks with $1 million and their first round draft pick in 1996.
Falk was widely regarded as Stern’s supreme nemesis. He is often considered to be the most influential player agent the NBA has ever seen. In fact, during the peak of his career in the 1990s, he was considered the second-most powerful figure in the league behind Stern. Falk was best known at the time for representing Michael Jordan. He had also previously negotiated the then-highest contracts in NBA history for Patrick Ewing and Danny Ferry. But most of all, and much to the dismay of Stern, he was at the time of the Howard ruling in the midst of spearheading the league’s most unprecedented free agent period in history, during which his company, FAME, changed the entire salary structure of the NBA, negotiating more than $400 million in contracts for its free agent clients (including the $100+ million contracts of both Howard and Mourning as well as Jordan’s one-year, $30 million deal). These actions would subsequently prompt Stern to negotiate for a maximum salary in the new collective bargaining agreement (“CBA”) three years later.
The Heat’s dealings with Mourning, Brown and Hardaway opened the door for Stern to step in and scream foul, and Stern struck with full force and fury.
In a news release issued on July 31, the NBA stated that the matter would be resolved by arbitrators jointly selected by the league and union.
The Heat faced significant risk in arbitration. If the Heat were to pursue arbitration, and in the process were to be found guilty of reaching an under-the-table agreement with Mourning that was not reported to the league, Mourning’s contract could have been invalidated, draft picks could have been taken away, the team could have been fined up to $5 million, and Pat Riley could have been suspended for up to an entire season. It was an unlikely but nevertheless legitimate possibility.
With the support of Howard, who quoted himself as saying to Riley “Coach, I’m behind you 100%,” and with Arison looking on, the Heat trudged forward.
But the time it was taking the Heat to fight this fight was making it nearly impossible to win.
In the next several days the warm relationship between Howard and the Heat quickly cooled. Howard concluded that if he backed Miami and the team ultimately lost a protracted fight, with cap space quickly dwindling around the league, other NBA clubs might have as little as $40 million to offer him for seven years. In effect, he would need to take a $60 million pay cut from what the Heat had promised him and become, he said, “a laughingstock.”
Riley quickly found he couldn’t get Howard to return his calls.
“I mean, this is a business,” Howard later explained. “Yes, indeed, I believe in loyalty. But I believe in loyalty in the sense that it has to be done right and make sure that I don’t lose in no kind of fashion.”
The league leveraged Howard’s uncertainty to levy threats against the Heat organization even before the arbitration hearing had a chance to begin. They also provided Howard with an alternative he couldn’t refuse.
On August 1, the league declared Howard a free agent.
On August 2, NBA Deputy Commissioner Russ Granik told Arison by phone that based on his understanding of the CBA the Heat would be unlikely to regain Howard’s services through arbitration. “You will not get Juwan Howard,” Granik declared, according to Heat officials.
Riley responded by filing a temporary injunction in the Dade County Circuit Court to prevent Howard from signing with another team until the situation was resolved, unless that contract recognized “the prior validity and superiority” of the Heat’s original deal. The injunction was granted.
But on August 5, the league and players union came to an agreement that proved disastrous for the Heat. The agreement stated that if a player signs a second contract after his first deal has been disapproved, the second contract is the valid one. The league justified the deal by saying it was intended to protect players against financial losses in disputes between the NBA and its teams. The deal made the upcoming arbitration moot. The CBA stipulated that in disagreements such as the one facing the Heat would be settled by arbitration, but the league effectively retroactively stacked the deck against the Heat by creating a new rule that would make the outcome of the arbitration meaningless.
The league then took further action to secure its desired outcome. It issued a ruling that made it easy for Howard to return to the Bullets. The league and union agreed to restore Howard’s full Bird rights for the Bullets, even though the Bullets had already used the cap space freed up by Howard’s departure on free agents Tracy Murray and Lorenzo Williams. The league effectively retroactively allowed the Bullets to exceed the salary cap in a way no other team in NBA history has ever been allowed. In exchange for the right to re-sign Howard though, the Bullets were required to forfeit their 1997 first round pick.
The Bullets seized the opportunity. They agreed to match the terms of Howard’s $100.8 million Miami deal (replacing the hotel and limo perks with an increased salary), and added an additional $4.6 million to cover Maryland state taxes.
Riley suggested to league officials that Miami should be awarded Washington’s forfeited draft pick next year as compensation for losing Howard. “They gleefully said no,” Riley said.
Was this a vendetta against the Heat? You decide.
Howard’s seven-year, $105.4 million contract, signed August 5, did contain the “prior validity and superiority” clause requested by Riley.
But with Howard no longer in his corner, Riley dropped his fight.
In a settlement announced on August 10, Howard’s contract with the Bullets was approved by the league, and the league agreed to forgo proceedings against Miami in regards to its alleged under-the-table agreement with Mourning. The Heat’s signings of Brown and Hardaway were approved with the disputed bonus money charged against the cap, and Mourning was signed to a seven-year, $105.1 million deal. The settlement amounted to a league victory on all contested issues.
No date had ever been set for the arbitration proceeding. At the time of the settlement, the league and union still needed to agree on two more arbitrators to rule on all the issues involved.
As a result of the settlement, the Heat were left with $5.0 million of cap space. But the uncertainty and limbo of the 10-day fight hindered the Heat’s ability to bolster its roster. In the days between the league’s decision to void Howard’s contract and the settlement, most of the top free agents had already found a home. The damage had been done, and was irreversible.
Riley was irate. And he had no problem telling his side of the story.
In response to the league’s treatment of the issue, Riley commented to reporters:
There was not one mistake made by us when it came to the salary cap. We did not forget how to add. We never broke the rules. We played within the rules of the collective bargaining agreement. The only people who broke the rules were the NBA, because they changed the rules as they went along. That’s a fact.
If there was a mistake, the mistake probably was our not planning because we didn’t feel like there was the kind of animus that was directed at us. … We were treated totally unfairly in this whole process. … This is about one thing. Whatever they used as a smokescreen to disallow Juwan Howard’s contract, they would have done it.
Micky Arison is one of the people who pays the commissioner’s salary. I have no idea why we didn’t get cooperation, despite the fact we were within the guidelines. They took Juwan Howard and put him with the team he wanted to be with. They didn’t want him down here.
I’m very upset about it. We’re very, very, very upset about it. And I spent the weekend at my proctologist’s trying to remove the NBA’s 17-foot pole out of my rear end.
In response to Howard’s change of heart, Riley commented:
The day that Juwan Howard signed a contract with the Washington Bullets is the day I hit a new low in my 30 years in the NBA. I knew that once he signed that contract, we would probably never get him back, even if we took it to the Supreme Court and won it, because he wanted to stay in Washington. It’s very disconcerting to invest $100 million in a player, to go that far, know that you’re going to fight to keep him, and they just run to another deal.
Buoyed with a nine-figure contract he always wanted from the team he always wanted, Howard celebrated by buying a $230,000 Ferrari sports car and by contemplating his dream house: a Washington-area mansion with eight bedrooms, indoor and outdoor swimming pools, a bowling alley, theater, and basketball court. “I want elevators inside my house,” Howard would explain. “That’s always has been a dream of mine.”
The ultimate irony is that the league actually did Riley a huge favor in perpetrating its vendetta against the Heat.
It was widely held at the time that the league’s decision would set the Heat’s rebuilding plan back several seasons, and at the same time propel the Bullets forward as one of the league’s most improved teams. Ultimately, the reverse happened.
The Heat went on to complete its most successful regular season ever, finishing in first place in the Eastern Conference with a 61-21 record. The regular season win tally remains a team record to this day. In the playoffs, Miami beat the Orlando Magic and New York Knicks before losing to Michael Jordan’s Chicago Bulls in the Eastern Conference Finals. The Bulls went on to win their second title during what would ultimately become their second three-peat.
The Bullets went on to barely make the playoffs as the eight seed after an unspectacular 44-38 regular season record, and were swept by the Bulls in the first round. They never made another trip to the playoffs with Howard on the roster. Howard’s contract remains notorious to this day as one of the worst in NBA history. He was unceremoniously traded to Dallas in 2001. He went on to have a career has a journeyman, bouncing from Dallas to Denver to Orlando to Houston, then Minnesota, back to Dallas, back to Denver, on to Charlotte and finally, to Portland this past season. His teams have never made it to the Conference Finals. He never made another All-Star team again.