The Sign-and-Trade Approach

You may not realize that the Miami Heat will start the offseason with a team salary in excess of the new salary cap threshold. This is caused by intangible charges, called “cap holds,” created by the Heat’s own free agents.

The Heat can very easily get rid of these cap holds in order to create the huge cap space we’ve all been reading about, but does it want to?

While teams with cap space can only spend up to the amount of the salary cap, teams that are over the cap are virtually unlimited in what they can spend through trade.

But the Heat only has two players, Michael Beasley and Daequan Cook, under contract. It doesn’t really have anybody to trade.

Enter the concept of the sign-and-trade.

You may have heard local beat writers discussing the possibility of sign-and-trade agreements as a means for the Heat to increase the total amount of dollars it can spend. They’re right. And they’re wrong. Let me explain.

First, what is a sign-and trade?

Under no circumstances can a team sign and then trade another team’s free agent. But there is a rule that allows teams to re-sign their own free agents for trading purposes, called the sign-and-trade rule. Under the sign-and-trade rule, the player is re-signed and immediately traded to another team. This is done by adding a clause to the contract which stipulates that the contract is invalid if the player’s rights are not traded to the specific team within 48 hours.

Let’s take that in steps: (i) before a team’s free agent is signed, his cap hold counts against his team’s cap space, (ii) once he is signed, his cap hold is replaced with his actual salary, and (iii) once he is traded, his salary is replaced with the salary the team receives back in return (if any). In a sign-and-trade, steps (ii) and (iii) happen simultaneously.

Again, the Heat can make everything a whole lot easier by just deciding to utilize its $56.1 million of cap space the best way it sees fit. Miami would be able to sign free agents, trade for players without being obligated to send back matching salaries in return… whatever it wants. But they would be limited to $56.1 million.

The complexity of cap holds I discuss above allows the Heat to be considered over the salary cap, which in turn allows it to spend significantly more than just $56.1 million. But it all needs to be accomplished through trade (with minor exceptions, such as the MLE and BAE, which can be ignored for the purposes of this discussion). And since Miami doesn’t have many players under contract, it would mostly need to be accomplished through sign-and-trade.

Will the sign-and-trade strategy work for the Heat? Probably not.

To trade for high quality player, you need to trade away a player that another team covets. Let’s take Chris Bosh for example. Bosh will make $16.6 million next season. For the Heat to acquire Bosh via trade, it would need to give Toronto back around $16.6 million in return (actually $13.1 million, by league rule, to be exact). What Heat player(s) and/or free agent(s) would the Raptors actually want that make a combined $13.1 million? Perhaps Michael Beasley’s $5.0 million salary would be attractive but the other $8.1 million?

The Heat just doesn’t have the free agent pieces to make sign-and-trades work. And that’s why the whole concept can be forgotten. So, as it relates to the Heat, forget about sign-and-trades and just think cap space.

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