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Analyzing a Potential Miami Heat Offer to Greg Oden

To some extent, the Miami Heat’s back-to-back NBA championships validate the organization’s “position-less basketball” approach. Success is sports’ ultimate argument-ender. It sets everything right.

But Pat Riley knows what everybody else does. If the Heat want to win a third straight NBA title, it might be important to get some size.

His primary target is Greg Oden, because he knows a true center – particularly a dominant inside presence – still has a place, even here. He witnessed what Indiana and then San Antonio did to the Heat in the playoffs, to push Miami to seven games last season largely because of low-post presence and bigger frontcourts. He knows what Chicago could do.

Despite the clear need for depth at the center position, it has been a quiet offseason for Miami. It has felt at times that the Heat have thus far moved at a glacial pace to start the summer. Fans have been waiting for some action, something to celebrate.

In recent summers, Miami has been able to attract notable free agents such as Shane Battier and Ray Allen despite their limited cap space, but they have yet to ink even a single outside free agent yet this summer. Thus far, the team’s biggest addition has been second-round pick James Ennis, who was acquired in a trade on draft night.

The tension in South Florida surrounding Oden’s fate is palpable. The idea of Oden signing with the Heat has been a dream for some for many months, if not years.

Acquiring Oden would be a major development. But it won’t be easy.

Other teams in the mix include Atlanta, Dallas, New Orleans, Sacramento and San Antonio. Boston, Charlotte, Cleveland, Indiana and Memphis have since fallen away as contenders. That more than one-third of the league has shown interest in Oden speaks volumes not only as to the level of talent he once had, but also to the contributions those in a position to know still believe he may be able to provide. 

Skepticism naturally dogs a player who last appeared in an NBA game in December 2009, and whose most recent of three microfracture knee surgeries was in February 2012. The interest of Miami and other teams, though, is valid. Youth, size and talent remain a rare gem of a combination. And nearly impossible to attain at a financially-prudent valuation.

Each team is courting heavily, pitching arguments that revolve around some derivation of a low pressure environment – whether that be with a sub-par team that would theoretically not face the spotlight of a contender, or with a contender that would theoretically view any contributions he provides as an added bonus – and money.

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From a perspective of pressure, Miami’s pitch would presumably sound something like this:

“Ours is a truly unique situation. We are a two-time defending NBA champion, and we’ve brought back our entire core. Others can talk, but we’ve definitively proven that we don’t need you to succeed. We can win without you. But, we also have a definitive weakness at your position. You would therefore have a clear path toward material playing time if you want it, but not be pressured in any way if you don’t.

“No other team in the NBA can offer the combination that can the Heat – the chance to be a part of a winning team, the chance to return at your own pace without a team or fan base demanding your contributions as a means to deflect an otherwise painful season, the chance to continue learning your position from some of the game’s most elite coaches and former players, a clear path toward as much playing time as you want, an opportunity to make a meaningful difference, the chance to play with a grouping of teammates that will perfectly accentuate your skill-set, and the resources of a multi-billionaire owner willing to spend whatever it takes on first-class medical care to see it all through.”

***

From a perspective of resources, the Heat is in a position of strength.

Short of the Atlanta Hawks – who have the ability to free up as much as $7.1 million of cap space, far more than Oden will ultimately receive – Miami can offer Oden more money than any contender for his services. Dallas and Sacramento can only offer as much as the $2.642 million Mid-Level exception for Room Teams. New Orleans can only offer as much as the $2.474 million remaining of its Non-Taxpayer Mid-Level exception. San Antonio can only offer the minimum salary. The Heat can offer as much as the $3.183 million Taxpayer Mid-Level exception.

Should the Heat offer that much?

Despite only playing in two NBA seasons, Oden is considered to have five years of service, having been a permanent member of the Portland Trail Blazer inactive list for an additional three seasons. As a five-year veteran, Oden’s minimum salary for the upcoming season is $1,027,424.

The Heat can therefore offer a contract starting at as little as $1,027,474, and as much as $3,183,000.

Miami would love to get him for the minimum, but it might take closer to the Mid-Level exception instead. In Miami’s case, the actual cost would be much more because of the league’s onerous luxury tax.

The Heat produced $16.7 million in savings ($16.4 million of tax savings and $0.3 million in salary savings via set-off) for next season in choosing to amnesty Mike Miller.

If you weigh signing Oden at the Mid-Level against the money the club just saved, the Heat would only come out about $5.5 million ahead. Is that a wise investment?

By way of comparison, it would have been less expensive, as far as the coming season is concerned, for the Heat to have kept Miller (at the expense of Joel Anthony) and foregone Oden at the mid-level – a substantial $5 million cheaper, in fact.

Here’s a look at a few potential offers to Oden, and their potential costs to the Heat:

One-Year Minimum Salary Contract:
Oden Receives: $1,027,424
Miami Pays: $884,293
Total Cost to Heat (Including Tax): $3,095,026

Two-Year Minimum Salary Contract (San Antonio Best):
Oden Receives: $1,027,424
Miami Pays: $1,027,424
Total Cost to Heat (Including Tax): $3,595,984

Contract at $2.474 Million (New Orleans Best):
Oden Receives: $2,474,000
Miami Pays: $2,474,000
Total Cost to Heat (Including Tax): $8,659,000

Contract at the Value of the Room Mid-Level Exception (Dallas, Sacramento Best):
Oden Receives: $2,642,000
Miami Pays: $2,642,000
Total Cost to Heat (Including Tax): $9,247,000

Full Mid-Level Exception (Miami Best):
Oden Receives: $3,183,000
Miami Pays: $3,183,000
Total Cost to Heat (Including Tax): $11,140,500

Whatever your preferred offer, you can add the total cost of it to the Heat’s current team salary of $103,837,711.

Last season, the Heat shelled out $96 million in total payroll obligations (before escrow adjustments). That was already $12 million more than the Heat had ever spent in its entire 25-year existence.

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The Heat has more than just money to think about.

They can make their offer fully guaranteed, fully unguaranteed, or anywhere in between. They can even get creative in order to add additional protection. They can make it guaranteed but, by adding an Exhibit 3 to his contract, contingent on him not re-injuring or aggravating a previous injury, at which point he could be waived with no further obligations.

They can add incentives to his contract. The incentives can be based on his games played, his statistical output, or the positive achievement of some other individual or team benchmark.

They can add an option, either in favor of the player or in favor of the team, for a second season. They can add a second season that is both fully unguaranteed and subject to a player option, thus effectively making it a two-way option which would otherwise be illegal, but only if the first season was also fully unguaranteed.

They can even add a fully guaranteed second season that is subject to a player option, but add an Exhibit 3 that makes it fully unguaranteed, even if the option is exercised, if he re-injures or aggravates a previous injury.  That way, Oden could opt out of his contract after one season if he has a breakout season and thinks he could do better and opt in if he thinks he can’t, but the Heat would still be protected if he re-injures his balky knees.

***

The Heat are said to be interested in offering only a one-year contract, preferring to allow Oden to show he is over his knee injuries.

Oden is seeking a two-year commitment. Despite the severe cost – the more onerous “repeater tax” kicks in for 2014-15, which would potentially make a second year even more expensive than is depicted above, and thus even more of a risk – there is some rationale for a multi-year deal (so long as the second year were not subjected to a player option, which he could choose to opt out of, thus making it effectively a one-year deal).

The Heat could use the 2013-14 season as a no-pressure developmental year for Oden, with an eye on having him fully back for the playoffs and then into next year and beyond.

Every current Heat player will be eligible for free agency next summer. An Oden who is completely healthy could theoretically be a huge asset in convincing LeBron to re-sign long term, the club’s absolute imperative. A healthy Oden could also theoretically be a hedge against possibly losing Chris Bosh or others in free agency.

But all that relies not just on Oden being healthy, but also on him being back next year.

In that respect, the Heat is in a difficult situation.

The team is currently over the luxury tax threshold. Not just for this season, but for next season as well. If the Heat signs Oden to a one-year deal, as they hope, and if he proves completely rehabilitated and the dominant center he was always thought to be, as they hope, they will only hold his Non-Bird rights next summer, which means the maximum starting salary they could offer in a second deal would be the greater of 120% of the minimum salary, 120% of his previous salary, or the single-use $3.278 million Taxpayer Mid-Level exception. That is, at very most, $3,819,600.

Is that enough to retain a fully healthy Oden, someone worthy of enticing LeBron to stay? Probably not.

Oden probably could not be counted on as a hedge against losing Bosh either. If Bosh were to be let go next summer, even in exchange for nothing in return, the Heat would produce massive tax savings but would still be left very near the salary cap after the required roster charges are incorporated. Thus, the most they’d realistically be able to offer Oden, unless further dealings were to be done, would be about the value of the $5,305,000 Non-Taxpayer Mid-Level exception – perhaps still not enough to entice a potentially fully-healthy Oden. For perspective, the Cavaliers just signed a similar health risk, Andrew Bynum, to a two-year contract starting at $12.25 million, which has $6 million guaranteed for next season.

Therefore, if he were to sign a one-year contract with the Heat, counting on Oden to be back with the Heat for the 2014-15 season, if he were to prove healthy, would be a long-shot.

The Heat could have avoided this issue, simply by offering Oden a one-day contract on the final day of the regular season, at a cost to the Heat of just $5,026 (plus another $5,026 in taxes). Oden would not even have needed to report to the Heat. He would not even have needed to fly to Miami. He could have executed the contract while lying on his bed in Ohio. Or, if he preferred, as an official member of the Miami Heat, he could have had front row seats alongside his teammates to every Heat playoff game. He would have made $5,387 (slightly higher than the Heat’s obligation) for doing absolutely nothing but signing a piece of paper. We’re talking about being under contract for all of one day, and without affecting his future free agent status in any way. Doing so would have enabled the Heat to retain an extra year of his Bird rights, and increased a potential maximum offer for the 2014-15 season to as much as $6 million or more. They chose to retain Jarvis Varnado and Juwan Howard instead. Opportunity lost.

***

So, what would you offer Oden?

What would be the value of your offer? How cognizant would you be that a contract would cost roughly 4x what Oden would make? How cognizant would you be of what the Heat has already committed to spend on payroll?

What incentives would be built into the contract? What benchmarks would need to be attained to achieve them?

Would the contract be for one year or two? How would you weigh the massive cost of a second season, with repeater tax obligations, against the possibility of losing him after just one season?

Would it have the protections of a less than fully guaranteed contract? Would it have the protections of an Exhibit 3?

Would your offer be compelling enough for Oden to turn down any competing bids?

These are issues currently facing Pat Riley and crew.

Oden’s choice, assuming he picks from among multiple offers, should come in the week ahead. However it works out, the hope is that he chooses the Miami Heat.

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  1. John markson
    July 29th, 2013 at 11:59 | #1

    I had been advocating the heat sign oden ever since his release and let him work out on his own while getting paid a league minimum contract. That way we would have his full bird rights after this season.

    Now that we haven’t done that, depending on his medical (if he has the chance to return and be a top nba center), i think we should offer him the full 3 year mini-mid level with a team option on the final season. He nets another almost $7 million guaranteed in case of injury, and in case he ends up playing at a high level we get the chance to keep him for cheap the next few years and resign him with his full bird rights.

    To make it work financially we should trade joel anthony along with $3 million for a 2nd round pick.

  2. July 29th, 2013 at 12:07 | #2

    @John markson
    I tend to doubt Oden would accept such a deal. I would guess Oden wants a one-year deal, with a player option on a second year. I don’t think he would be willing to be locked in for three years at such a low rate. That, however, is only my opinion.

    It’s funny that you should mention the Heat trading Joel Anthony as a way to make it work financially. I am currently drafting such a post.

    In short, it won’t be easy. There are several complications. The Heat would need to find a trade partner that could absorb his salary. And they’d need to offer a package to entice the trade partner to take him, and his multi-year contract, on. Bear in mind that for every team that has the necessary room this late into the summer, there are also other teams looking to dump salary on them as well. I would guess it would take far more than $3 million (let alone receive back a second round draft pick in return).

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