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Everything is Done: How Did It All Happen?

The Miami Heat finished last season with 16 players under contract and a team salary far in excess of the salary cap. They then created enough salary cap room to sign everyone who is on the roster today. Now they are far in excess of the salary cap once again.

So how did it all happen? How did they manage to get so far below the salary cap and then above it again all in the same season? With creative financing!

Everything has now been finalized. It’s done. Here’s a step-by-step breakdown.

(Note: The actions below, in some cases, may be out of order. They have been structured so as to make evident the Heat’s thought process along the way, as well as to promote ease of reader comprehension. Full comprehension also requires an understanding of cap holds and roster charges, which are described in detail here.)

This is a snapshot of the Heat’s salary cap situation at the end of last season:

HeatTeamSalary_Starting

Of the 16 players under contract, 13 were able to become free agents.

There were 9 players with expired contracts: Jermaine O’Neal, Quentin Richardson, Udonis Haslem, Dorrell Wright, Yakhouba Diawara, Jamaal Magloire, Carlos Arroyo, Rafer Alston and Shavlik Randolph. They were all renounced and their cap holds removed. Each became an unrestricted free agent.

There were 2 players with team options: Kenny Hasbrouck and Mario Chalmers. Hasbrouck’s option was declined and his Bird rights were renouncedChalmers’ option was exercised.

There were 2 players with player options: Dwyane Wade and Joel Anthony. Both opted out. The Heat did not renounce them, though, because they wanted to keep their Bird rights. Thus, their cap holds remained.

The final 3 players were already under contract for the 2010-11 season: Michael Beasley, James Jones and Daequan Cook.

These actions left the Heat’s team salary reflecting the contracts of Beasley, Jones and Cook, the cap holds of Wade and Anthony, what was to be a cap hold for their upcoming first round draft pick, and 5 roster charges:

Heat_Team_Salary_Options

The Heat then traded Daequan Cook and its No. 18 draft pick to the Oklahoma City Thunder in exchange for the No. 32 pick. First round draft picks carry a cap hold while second round picks do not, so with Miami receiving no incoming salary in return, they were able to shed $2,460,149 from their available 2010-11 cap space.

Heat_Team_Salary_Cook

The Heat then agreed to trade Michael Beasley to the Minnesota Timberwolves in exchange for two second round draft picks, in a deal that couldn’t be officially completed until July. The move cleared an additional $4,488,636 in cap space.

Heat_Team_Salary_Beasley

The Heat then extended Joel Anthony a $1,060,120 qualifying offer so that it could match any outside offers made for Anthony on the open market. A qualifying offer is actually a guaranteed one-year contract offer, but it can be rescinded by the team without consent of the player at any time prior to July 23, at which time the player’s original cap hold would return and his Bird rights would be maintained. Thus, while Anthony’s qualifying offer decreased the team’s cap space by $205,731, the cap space could have always been reclaimed if so desired.

Heat_Team_Salary_JoelQO

The Heat next turned its attention to James Jones.

Jones held a contract whose final three seasons, which each contained $10,000 in likely bonuses, were 40% guaranteed for only $1,856,000, $1,984,000 and $2,112,000 respectively, for a total of $5,952,000. If Miami cut him, that’s all they would have owed him, a significantly lesser amount than the $14,910,000 they would have owed him had they not waived him before July 1st. Miami had been trying for weeks to trade him so that they could owe him nothing at all, yet there were no takers, and so they ended up waiving him.

However, rather than paying Jones his guaranteed $5,952,000, they instead bought him out for only $4,952,000. In a bid to open up more cap room, Jones agreed to give up a million dollars of what he was owed.  He did this for reasons unknown, but perhaps including a genuine love for the Heat and the city of Miami, a promise of a minimum salary contract to partially offset the losses after all of the team’s cap space was used up, and an agreement for the Heat to pay his buyout in one lump sum. Rather than receive bi-monthly checks for the next three years, Jones got all of his buyout money up front. Getting paid up front is still not worth sacrificing a million dollars, but it is something.

While Jones got paid his money up front, in accordance with cap rules, the Heat got to spread the salary cap hit associated with Jones’ buyout over the remaining life of his now terminated contract, in proportion to the salaries he was guaranteed in each of those seasons. Jones’ cap hits became $1,544,172, $1,650,667 and $1,757,161 respectively, thereby opening up $311,828 in cap room for this season for Miami. This amount may seem rather small, but it was very important at the time. When this happened, on June 29, it was thought to have opened up enough salary cap flexibility for the Heat to be able to offer three full maximum contracts in the free agency period ahead. Of course, the salary cap that was officially announced one week later far exceeded expectations anyway.

On July 7, the salary cap was announced at $58,044,000. 

The Heat entered the offseason with a team salary that looked like this:

Heat_Team_Salary_JJBuyout

The first and top offseason priority was to execute a contract with Dwyane Wade, as well as sign-and-trade agreements with LeBron James and Chris Bosh. Shockingly, however, they didn’t take their full maximum contracts. Sacrifices where made by each player in order to leave just enough cap room for Mike Miller and Udonis Haslem. Still, in one fell swoop, the Heat’s team salary flew to over $50 million.

Here’s how the Heat’s salary cap situation looked at the moment the Big Three were added:

Heat_Team_Salary_BigThree

One roster charge then automatically fell away, bringing the 2010-11 total to $49,973,909.

Next, the Heat officially executed contracts with Udonis Haslem and Mike Miller:

Heat_Team_Salary_MM+UD

One roster charge then automatically fell away, bringing the 2010-11 total to $57,526,701.

The Heat used then utilized the last of its cap space on Dexter Pittman.

Understanding how the Heat did so is somewhat tricky. (If you don’t care to understand it, skip this part and move right to the chart below).

As you know, if a team has fewer than 12 roster spots accounted for by players under contract, unsigned first-round draft picks, or unrenounced free agents, then it incurs a roster charge equivalent to the rookie minimum salary of $473,604 for each spot fewer than 12 (waived players who continue to count against the cap, such as James Jones, do not count toward the total). After each successive player is added, one roster charge falls away. By the time the 13th player is under contract, no roster charges would remain.

As you will note above, the Heat had a team salary of $58,000,305. There wasn’t enough room to sign Pittman with cap space. But, after the latter of Miller and Haslem was officially signed, one additional roster charge fell away, thus creating the necessary additional room. Then, he was added at a starting salary equal in value to the roster charge which fell away. And so, strange as it may seem, the Heat’s team salary remained constant.

What just happened here is very important. It is a clear depiction of why many experts do not understand the finer points of the salary cap, but you now will. Roster charges do not reduce a team’s cap space. If they did, Dexter Pittman could not have signed his three-year contract. The Heat would have been out of cap space and forced to utilize the minimum salary exception to offer him a contract no greater in length than two years.

Rather than reduce cap space, roster charges merely force a team to alter the allocation of its cap space across its various players. Seemingly everywhere you read about roster charges these days (whether it be in an ESPN article or on basketball forums such as RealGM.com where supposed experts spend all day answering people’s technical questions), you constantly hear one universal answer: roster charges reduce a team’s available cap space. This is categorically untrue. It is false. And now you know it!

Adding Pittman took the Heat’s salary cap picture to:

Heat_Team_Salary_Pittman

No additional players were signed using cap space. Since the above figure is below the $58,044,000 salary cap, the rest of the Heat’s potential cap space — $43,695 — was squandered.

But they actually squandered more than that. There were two other actions that the Heat could have taken to create additional cap room, that they never chose to utilize.

Remember from above that the Heat utilized $205,731 in additional cap space to offer Joel Anthony a qualifying offer? Remember that the Heat could have rescinded that qualifying offer, thus recovering the cap space while maintaining his Bird rights? Rescinding the qualifying offer would have enabled Joel to accept an outside offer without allowing the Heat the opportunity to match. But would he have? Not even in his wildest dreams! The Heat had already signed the Big Three, Miller and Haslem. He was to be the Heat’s starting center on this veritable dream team. Even without the qualifying offer, Riley was still in position to match any outside offers if Joel were to allow him to. If someone did make an offer, why on earth would Joel not give Riley the chance to match? But it was all moot anyway. Joel had already been on the market for several weeks, and not a single team was interested. So why didn’t the Heat rescind the qualifying offer to recover the cap space? Good question!

The second action requires a little more understanding of cap rules. If a team uses up its last remaining cap space by signing a player, it can spend only up to the salary cap threshold. If that same team uses up its last remaining cap space by trading for a player, it can actually exceed the cap by $100,000. Bosh and James were both acquired via trade. Therefore, if the contract of either one was technically executed after Pittman was signed, the Heat would have produced another $100,000 in cap space.

The Heat, in effect, squandered $349,426 in available cap space. Over the course of a six-year contract, that’s $2,646,902 wasted. For no good reason. In other words, Wade didn’t need to take less money than his fellow Big Three cohorts.

Oh well. Think of it this way – the more cap space squandered today, the less Arison will be required to pay in the future, the more money he will be willing to spend in the future.

It wasn’t enough to sign another player anyway. What probably would have happened is that Wade would have wound up earning exactly what James and Bosh are earning. Which begs the question of why Wade’s agent, Henry Thomas, allowed this to happen. This is basic math!

But I digress. Let’s move on…

The Heat ultimately utilized Joel’s Bird rights to re-sign him to a contract that exceeded the salary cap.

Having played for the Heat for the last three seasons, Joel was eligible for a full maximum contract — as long as six years in length, and as much as $103,048,406 in value. And the Heat were able to give it to him without violating cap rules. Of course, that’s ridiculous. Joel and the Heat settled on five years and $18,250,00 (which itself is ridiculous, and totally unwarranted).

You may be wondering why the Heat didn’t employ this same maneuver with all of its free agents. Why not utilize all of the team’s cap space, and then utilize Bird rights to sign its current players to contracts exceeding the cap? Well, the maneuver worked for Joel because his cap hold was so low. The cap hold was so low because he earned such a small salary last season. The higher the salary, the higher the subsequent cap hold. Generally speaking, the cap holds for free agents across the NBA are at least as high, and generally much higher, than the contracts they ultimately sign for. This minimizes the potential for a Joel-type loophole. But, clearly, it doesn’t close the loophole completely. No other Heat player that the Heat might have wanted to retain had a cap hold below $7 million. The Heat would not have been able to fit the Big Three, Miller and Haslem under the cap while also retaining even a single other cap hold that high.

And so, with that, this is where the Heat’s salary cap situation currently stands:

Heat_Team_Salary_Today

The Heat has no more tricks available. There’s no more salary cap maneuvering to be done.

It can’t trade away any of its new signees until December 15 at the earliest. It has no more Bird rights to any players. It can’t utilize the Mid-Level or Bi-Annual exceptions, which were rescinded along with most the team’s free agents from last season.

The only thing the Heat can do now to improve during the offseason is to utilize the minimum player salary exception to fill out its roster. The exception enables the Heat to sign players to minimum salary contracts of up to two years in length.

The Heat is required to add at least five more players, to bring the roster up to the 13-player minimum. Zydrunas Ilgauskas, Jamaal Magloire and Juwan Howard are among the names that are currently being thrown around. Others will undoubtedly follow. The team can have as many as 20 players on the roster during the offseason, but must pare down to between 13 and 15 by the start of the regular season.

And so the Big Three era of the Miami Heat begins!

  1. Eric
    July 17th, 2010 at 15:24 | #1

    Nice Job, Albert!

    So for the rest of the offseason, we will only see signings of one and two year contracts for minimum salary players.

  2. Mark
    July 17th, 2010 at 20:59 | #2

    I stumbled across your blog in my search on how the Miami Heat signed Joel Anthony’s contract. I love you how explained in detail the finer points of the salary cap and how well written your blog is. Keep up the good writing.

  3. lucas fb
    July 18th, 2010 at 00:17 | #3

    it was bit tough,cause u explained everything(again).
    but thats the beauty of it. this is the best bball blog in miami hands down.

    ive been following ira s coments for a long time now,and i didnt learned almost nothing with him. and look that im brazilian,and with our soccer culture much above absolutely everything else, there s a lot of “room” for improvement.

    but with u guys here, in a few time(around 2months)i already learned a couple of things.
    and the fact that u do that,on a regular(more than dailly) basis. its what amazes the most!!!

    i still ll follow ira and wallace,but only cause im a huge fan thanks to pat, the tim’s zo’s heat, and very specially the Dwyane Wade(biw,and im maybe his biggest thing in the whole world,of brazil hands down) era.

    watch wade play amazes me even more than when i started to cheer for mj bulls,when i was 6. i feel like i was the one that has discovered Wade(at leas in a brazillian ambit)!!!
    his poetic aestetic moves,is what most remind me of mj, and i think lebron’s style of play,at least now,dont even can be compared with wade in terms of beauty, and when it matters most(playoffs)from a statistical,eficiency stand point as well. he surely isnt the playoffobic 1 out of the 2.

    the facts of james queen’s ego dont help him with me,really!!!,and having the fisical tools he has, and not having a dunk no where near to air up there(in all senses),or even jr(in term of dunk skills),or shanon or nate(in terms of high flying), and the fact that wade even resonably smaller can do absolutelly everything he can,but in a much more beautifull/amazing way dont help him with me either.

    also:the fact that he got such a ego,basically fundamentally for nothing,gets me mad.
    now he ready to win and learn how to be a playoof killer(among los of other things) at wade s cost. he tryed to steal bosh away from us. but how he simply can not beat a wade strong team,queen came here for all the wrongs blood sucking reasons.

    can u tell me that i dont need to worry,to queen leaving for brooklyn in 4 or 5 years, even if it means geting in the way of the 2nd greatest nba dinasty he was braging about,even much before geting there!!!

    it just gets me pisst, this “new heat fans” that r not real heat fans,that along with the media(sooner or later)stern,his refs and everyone trying to make this lebron’s team,and wade the robin.

    even cause wade was the one who deserved to earn more ,cause his stayed loyal and put,but still he takes a paycut of 2.55M more than the queen,cause he didnt want to help haslem be here,like wade did to his boy miller(i love having miller here)!!!
    and james got 100M from nike cause he signe id miami.(like he needed that incentive to go to the best u.s city!!!)

    so real heat fans should stay loyal to wade,even cause he has the same credits (or more)as a recruiter than pat!!!

    but if james stop with this ego bs, and “keep himself understanding” that he cant get in the way of wade and heat,with that ego bs!!! i open my arms for him!!!the question is can he do that.

    and i know wade could be the one gone to chicago!!!

  4. frank
    July 18th, 2010 at 00:37 | #4

    can you explain when the heat used up its mid level exception? how come it can’t use its bi-annual exception?

    Great great article. very clear and easy to understand.

  5. Jin
    July 18th, 2010 at 11:06 | #5

    Mid Level and Bi Annual exceptions are only applicable to teams that are at or above the salary cap. Since the Heat were below the cap, they cannot use these two exceptions. In other words, teams are not allowed to start the offseason below the salary cap, sign additional players, then use these two exceptions. The good news is that the Heat will have both exceptions available for next offseason.

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