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Decision Time Looming for Four Miami Heat Players

The clock is ticking. Within a week, the first decisions for next season need to be made.

By June 29, there will have to be resolution with the four players on the roster with options for the 2013-14 season.

Of those decisions, only one is at the Heat’s discretion, the third and final year on Mario Chalmers’ contract. It is a $4 million team option. It almost assuredly will be picked up, a bargain price for an NBA starting point guard.

Three other options are out of the Heat’s control – player options held by guard Ray Allen and forwards James Jones and Rashard Lewis.

Allen has been silent on the issue of his $3.2 million option. But having hit the most iconic shot of the 2013 playoffs – and perhaps the single biggest field goal in Miami Heat history – resulting in his second NBA title, he is surely rejuvenated and excited to return. Lewis and Jones have each already expressed their excitement in returning with varying levels of certainty.

This is a happy team. It is a back-to-back NBA champion. It is the prohibitive favorite to get a third consecutive. Why would anyone choose to leave?

All four are likely to return.

But, for Lewis and Jones – who are playing at or near the minimum salary – there is a deeper story here. With the Heat in a financial crunch and attempting to keep its core together, the Heat and salary cap guru Andy Elisburg need to get creative. They have a golden opportunity to save as much as $3.1 million next season, and they should pounce.

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Rashard Lewis is set to make $1,399,507 in the second year of the minimum salary contract he signed in July 2012 if he exercises his option. When considering the tax, which will be at least $1.75-per $1, his contract will cost the Heat at least $3.8 million.

But here’s the thing. The Heat can greatly reduce its exposure without affecting Lewis at all. The reason requires an understanding of how minimum salary contracts work.

When a player has been in the NBA for three or more seasons, and is playing under a one-year minimum salary contract, the league reimburses the team for part of his salary — any amount above the minimum salary level for a two-year veteran. For example, in 2013-14 the minimum salary for a two-year veteran is $884,293, so for an eleven-year veteran like Lewis, with a minimum salary of $1,399,507, the league would reimburse the team $515,214. Only the two-year minimum salary is included in the computation of team salary and luxury tax, not the player’s full salary. They do this so teams won’t shy away from signing older veterans simply because they are more expensive than younger veterans.

There is no equivalent reimbursement when a player signs a two-year minimum salary contract. The team is responsible for the full amount of the player’s salary and tax consequences.

While that $515,214 probably doesn’t sound like much, it is significantly more than you might realize. The incremental difference, when incorporating the tax, would be at least $1.4 million next season.

Therefore, if Lewis were to opt out of the second year of his two-year minimum salary contract, and subsequently sign a replacement one-year minimum salary contract that pays him an identical amount, it would save the Heat $1.4 million. Even though Lewis himself makes equivalent money. He wouldn’t lose a cent. It’s essentially free money for the Heat!

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The situation with James Jones is a bit more tricky.

Jones is making near minimum salary money but not exactly minimum salary money. Therefore, for a similar structure to work, he’d have to sacrifice some cash.

It’s not a whole lot. Jones would make $1,500,000 if he accepted his option. But as a 10-year veteran, much like Lewis, he’d be entitled to a $1,399,507 salary in a hypothetical minimum contract. Therefore, to make the structure work, Jones would need to sacrifice a grand total of $100,493.

That doesn’t sound like a whole lot of money for Jones to sacrifice in order to produce millions of dollars of savings for his team’s owner – in his case, $1.7 million between salary and tax obligations. But his is a story of sacrifice from the day he arrived in South Florida. The Heat has taken a lot from Jones over the years, and asked for very little in return.

Throughout his NBA career, James Jones has always thought of the Heat as his team.

The South Florida native – who had been with Indiana, Phoenix and Portland during his NBA career – signed a five-year contract with the Heat in July 2008, one that could have been worth $23.25 million over the life of the deal. However, only the first two years of the deal were fully guaranteed, with him making $8.3 million in those two seasons. The final three seasons were only 40% guaranteed, with him entitled to $5.952 million if he were to be waived after his second season. The structure was designed to ensure that the Heat had some flexibility with Jones during the free agent summer of 2010.

“For me, it’s like coming full circle,” Jones said at the time. “I’m from the city. I spend all my time here and when the Heat hurt, even when I’m on another team, I still feel that pain… So for me, the interest from my hometown team superseded and outweighed all the other positives and pluses of the different cities… that were looking for my services.”

Jones was subsequently waived in June 2010. However, rather than paying him his guaranteed $5.952 million, the Heat instead bought him out for only $4.952 million. 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 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. The $1 million sacrifice was a magnanimous gesture, particularly for a player who had earned just $17.3 million to that point in his career.

When the Heat’s free agent shopping spree was over, they re-signed Jones to a $1.1 million minimum salary contract which Jones reportedly turned away superior offers to accept. The following season, the Heat went on to sign Jones to the three-year, $4.5 million contract he is playing under today, using pretty much every penny available with his Non-Bird rights. Despite the fact that there were better offers elsewhere and the fact that the Heat had brought in Shane Battier, Jones once again elected to stay. He has now made $26.4 million in his career.

Despite the sacrifices he’s already made, the sacrifice he’d be asked to make now is only another $100K. One would certainly understand if he weren’t willing to do so, but maybe he is? It does, after all, produce $1.7 million of savings for Micky Arison.

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There are, of course, some minor legal hurdles to maneuver through. The collective bargaining agreement specifically prohibits downward re-negotiations of salary. It also prohibits under-the-table agreements for future contracts. Technically, what these players would be doing is opting out of an existing contract in favor of a future contract that would start the following season.

With Lewis, it’s not an issue. He’s never committed to returning. There would be no downward adjustment of salary if he opted out and ultimately re-signed anyway. His current contract calls for the minimum salary. A hypothetical new contract would call for the same amount. So, in essence, he’d simply be exercising his right to test the free agent market. The Heat would be well within their rights to inform the then-free agent that if he can’t garner any offers that he’d be interested in accepting, they’d still retain an interest. This would constitute a zero-risk opportunity to save millions of dollars. It should unquestionably be utilized.

With Jones, it’s a little more tricky. He is making a bit more than the minimum salary. He’s already emphatically stated that he wants to return to the Heat. If he were to all of a sudden choose to opt out of his contract, it might raise some questions as to why from the league office. But he’s also a two-time champion, he’s 31 years of age, he’s made years of sacrifice, and he’d be seeking what would very likely be the last contract of his career that has a chance to exceed the minimum salary. Is he not within his rights to test the free agent market in order to see what types of offers are out there, and then, if he can’t garner any that he’d be interested in, return to the Heat on a minimum salary contract? This is more of a grey area.

NBA history is filled with examples of players opting out of bigger contracts only to accept smaller deals that help their teams navigate salary cap issues.

When Richard Jefferson announced his intention to opt-out of his contract with the Spurs prior to the 2010-11 season, he became the butt of too many easy jokes. Sports journalist and hoops bloggers were quick to accuse Jefferson of losing his mind for walking away from $15 million in guaranteed money. Why would he do that?

Turns out that Jefferson knew more than his critics: he parlayed 15 million over one year into 38 over four.  After he opted out, the Spurs massively overpaid the declining forward who had been downward trending for multiple years. Why would they do that?

Two reasons. First, they effectively paid Jefferson back for the 15 million he walked away from; thus, it could be viewed as a much more palatable three year extension to his previous contract. And second, while Jefferson made far more money over the life of his deal, his salary for the 2010-11 was instantly chopped in half. That, in turn, allowed the Spurs to avoid the luxury tax.

 

Can it reasonably be argued that Jefferson opted out of 15 million without knowing 38 was coming?

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Chalmers, Allen, Jones and Lewis are all likely to be back with the Heat next season.

But if the Heat were to get creative, it could potentially save some significant money in making it happen — $1.4 million from the Lewis contract without asking him to sacrifice even a penny, and potentially another $1.7 million in savings if Jones were to sacrifice $100K.

That’s a total savings of $3.1 million — a hefty sum to be saved if the Elisburg were to see the opportunity and take advantage of it. Let’s hope he does.

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