With 13,000 Heat fans anxiously waiting in AmericanAirlines Arena to welcome its newest trio of superstars, Dwyane Wade, LeBron James and Chris Bosh were upstairs finalizing their contracts. Minutes later, they emerged through a cloud of Canes-like smoke… along with some unexpected news. Udonis Haslem is returning to join the party.
Haslem’s commitment was, needless to say, a shocking revelation. Even I had previously reported that Udonis would not be back. The Heat was out of cap space, the team was unable to utilize his Bird rights, and he was not about to sign for the league minimum.
So, how was it possible?
In short, the triumvirate agreed to reduce the value of their contracts. And Riley turned around and utilized the recovered cap space to secure the beloved power forward, as well as newcomer Mike Miller.
But why would they so drastically reduce their salaries? Well, pure generosity. Udonis and Mike are friends of the Big Three, and the Big Three did right by their friends in their desire to put together a championship-caliber roster and close-knit team.
How much did they sacrifice? Let’s take a look.
We all know by now that if a player is signed utilizing his Bird rights, he is eligible for a 6 year contract (vs. 5 years otherwise) contract with 10.5% annual, non-compounding raises (vs. 8.0% otherwise). Sign-and-trade transactions capitalize on this concept, in that they allow the to-be-traded player to be technically signed by his existing team, the team which owns his Bird rights, and then immediately traded to his new team, which does not. In this case, Pat Riley structured sign-and-trade transactions with both Toronto (for Chris Bosh) and Cleveland (for Lebron James).
The Heat’s trade partners were doing the team a favor, by allowing the Heat to retain its star players at their higher dollar values. But no NBA franchise is purely magnanimous, particularly not one owned by Dan Gilbert. The costs were steep, or reasonable, depending upon how you value first round draft picks. To the Raptors, the Heat sent its 2011 first round pick and returned the first round pick previously acquired from the Jermaine O’Neal trade; the Raps also received a $14.5 million trade exception. To the Cavaliers, the Heat sent its 2013 and 2015 first round picks, and gave Cleveland the option to swap first round picks in 2012; the Cavs also received the same $14.5 million trade exception.
The sign-and-trade approach, therefore, increased the total value of the contracts of each of Chris Bosh and Lebron James. Pat Riley, then, convinced them (as well as Dwyane Wade) to take a portion of the increased total contract value and give it to Udonis and Mike.
If you didn’t follow all of that, here’s a graphical depiction of how the math worked.
The first row represents the contracts that Lebron James and Chris Bosh were prepared to sign yesterday.
The second row represents their finalized contracts.
The third row shows the difference. As you can see, by allocating some of their funds to Udonis and Mike, they sacrificed $8.2 million over the first five years of their contracts, and will make it all up with $14.0 million to spare in the following season. The sixth year of their contracts now become locked in at $22.2 million each. Without a sign-and-trade, in that sixth year, they would have been subjected to whatever restrictions are to be imposed by the new Collective Bargaining Agreement. However, it very likely would have been more than the $14 million difference for both Lebron and Chris.
The fourth row shows what each was eligible to receive — a 6-year contracts worth $125.5 million.
The fifth and final row shows their true sacrifice. Lebron and Chris ended up taking 6-year contracts worth $110.1 million, a total give-back of $15.4 million while Dwyane took a slightly reduced $107.5 million. This was brilliant strategy coupled with amazing unselfishness. None of the new Big Three were required to make such a sacrifice for the benefit of their friends.
In an era where we complain that athletes never want to win and only care about money, three of the top players in the game have agreed to take less money to play together and to dominate the league for the foreseeable future, even at the risk of diminishing their own individual greatness. Ultimately, they cared more about winning and friendship than money and legacy. Remarkable.
All three players have an early termination option in their contracts after the fourth season that would allow them return to free agency in the summer of 2014. In all three cases, each player also possesses a player option entering the final season of the contract (2015-16).
The implications for the Heat are considerable.
Miller is a multi-faceted offense threat: he can shoot, he can drive, he can pass and he can rebound. With the drive-and-dish games of Dwyane and LeBron, and with the post play of Bosh, Riley recognized he had to add a 3-point shooter. He got that in Miller. Mike has agreed in principle to a 5-year contract valued at $29 million.
Udonis Haslem is a veteran presence, a co-captain, a leader by example, and a tremendous role player. He figures to vastly improve the team’s frontcourt depth, with versatility to play both the power forward and center positions. The math suggests that Udonis has agreed in principal to a $20 million contract that starts at around $3.5 million.
It need be said that Mike and Udonis are each doing the exact same thing that is the Big Three – taking far less money to play with their friends and win championships. Neither contract has yet been finalized, but the two two will have 9.5 million 2010-11 dollars to split. Each would be eligible for 8.0% raises. Riley called the situations “fluid,” but hopes to have both worked out in the coming days. It is truly a wonderful story all the way around.
What Mr. Pat Riley, the Miami Heat and its players have been able to accomplish with $58.044 million should serve as a case study for the whole of the NBA – on generosity, on strategic maneuvering, on smooth negotiating and – most importantly – on the value of friendship.