Dwyane Wade’s Looming Free Agency Decision

With the 2013-14 NBA season now at its tragic end, it seems as though the biggest topic of conversation is whether LeBron James is going to opt out of his contract with the Miami Heat, two years prior to its expiration, and explore his options as a free agent. As pundits weigh in and teams’ salary cap experts scramble to figure out how they might be able to get their hands on the greatest player of this basketball generation, Dwyane Wade’s potential free agency looms quietly in the background.

Wade just completed the fourth of a six-year $108 million contract he signed in the summer of 2010. He, like James, structured his contract to give himself the ability to opt out after both the fourth and fifth seasons. The first of those opt out decisions needs to be made by June 30.

We as fans can’t possibly overstate the importance of Wade to the Heat franchise, both on and off the court, but we also can’t ignore his advancing age or the health restrictions that cause him to miss so many games and render him ineffective in so many others. And so, we tell ourselves that the Heat brass needs to try to persuade him — for all of his undeniable status as a Heat legend, as well as the chief co-linchpin alongside Pat Riley who brought the Big Three together — to opt out and instead take a Tim Duncan-style pay cut for the good of Miami’s flexibility.

We tell ourselves that Wade should take a discount because he simply isn’t worth the $42 million he has coming to him over the next two years. We tell ourselves that Wade should take a discount because he is making tens of millions of dollars in endorsement money. We rationalize our convictions any which way we can. We ignore the reality: Wade is owed this money. 

Lest we forget, Wade has already taken a discount for the benefit of the organization. His current contract was eligible to be for as much as $126 million, and we were all more than happy to offer it to him. Instead, he took less. He has already sacrificed $11 million as a result. He’ll sacrifice another $7 million over the next two seasons if he completes his current contract. Rather than reward him for that generosity, we would instead be asking him to compound that sacrifice — this, in a day and age when most athletes will chase the money, even if it obliterates their franchises’ flexibility.

The reality is that Wade probably won’t want to compound his sacrifice. For the Heat to lower his salary for the next two seasons, Wade will surely demand a longer-term contract – one that compensates him for most or all of the $42 million he is owed for those two seasons but also acknowledges the fact that his value would decline substantially in the years thereafter. In other words, he may be willing to take less per year if it means more in the long run.

So, if he is to opt out of his current deal, what kind of contract can you build out that both compensates Wade in full for the next two seasons but also acknowledges his basketball mortality in the years thereafter?

When it comes to Wade, on the surface, the biggest question is how many playing years he has left. In a perfect negotiation setting, Wade’s agent would have him opt out this summer and secure him a five-year contract taking him into the twilight of his career. Below the surface and crouched in the CBA minutia, however, lies another issue: the Over-36 Rule.

The NBA’s Over-36 Rule exists to recognize the reality that even though NBA players may sign contracts that will not expire until after they are 36-years-old, the likelihood of them playing until that age is slim. It is designed to close a potential loophole whereby an elder player signs a contract with a lower average annual payout in exchange for a longer term that has him being paid into his retirement — a creative way of making his post-retirement salary a form of deferred compensation for services rendered during his playing days. The Over-36 Rule discourages this type of manipulation of the salary cap rules.

The Over-36 Rule applies when a player signs, extends or renegotiates a contract that is four years or more in length, and the player will be older than 36-years-old when at least one of those seasons begins. The presumption is that those seasons are likely to come after the player has already retired. Therefore, if the Over-36 Rule applies to a player’s contract, upon execution of the contract, his salary for the seasons in which he is over 36-years-old at the start of the season (defined as October 1 for these purposes) are automatically reallocated for salary cap purposes towards the earlier seasons of his contract, in proportion to the salary in each of those seasons. As he proves the presumption wrong and continues playing, his cumulative remaining salary cap charge is then averaged over the remaining term of the contract at the start of each subsequent season.

For Wade, who turned 32-years-old last January, the Over-36 Rule and its operation is something of which his representatives and the Heat organization must be aware. If Wade’s representation seeks a five-year contract, because of Wade’s age, the salary called for in the fifth year of said contract would immediately get reallocated over the first four years. This archaic yet punitive rule will make it (realistically) impossible for Wade to receive a five-year contract this summer. Instead, if he were to opt out of his current deal, he’d be looking at no more than four years.

So let’s refine our baseline question: What kind of four-year contract can you build for Wade that would both compensate him for the $42 million he has remaining over the next two years and compensate him fairly for the following two?

What would Wade be worth as a free agent in 2016? As painful as it may be for his teammates to endure large stretches of the season with him on the sidelines as he manages knee issues, he continues to be a quality and at times elite NBA player when healthy. What is a player like that worth? $15 million per year? $10 million? How about just $5 million? Can Wade live with that? Does that sound fair?

Pick whatever number you are comfortable with. Let’s say it’s $5 million. So add two years at $5 million each to the $42 million Wade is already owed and you get four years at $52 million, or $13 million per year.

Reduce his salary for next season from $20 million to $13 million? Sold!

Or maybe not.

The question first needs to be asked: What would you be trying to accomplish in reducing Wade’s salary so sharply anyway? It’s not like the extra $7 million of savings can be redeployed elsewhere. That’s not how the salary cap rules work.

We may have seduced ourselves into thinking that concessions from Wade, along with rising salary cap projections, will enable our team the necessary maneuverability with which to materially improve this summer. But does that line of thinking have any basis in reality?

The most thrilling scenario for Heat fans is one in which the Heat utilizes cap space to add a major free agent this summer. This is the scenario under which the possibilities become endless. It’s also the least realistic.

In this scenario, the Heat wouldn’t be limited by punitive luxury tax concerns. Instead, the team would be handcuffed by its need to operate within the confines of a projected $63 million salary cap.

Here’s the best way to think about this scenario: The salary cap is projected to be $63 million. The Heat would have $11 million tied up in Haslem, Cole, Hamilton, its first round pick and mandatory roster charges. That leaves about $52 million remaining.

Therefore, the reality is that even if Wade were to take a discount, the Heat couldn’t use cap space anyway — unless you can figure out a way to divide $52 million among both the Big Three and any other player you’d be targeting with the cap space. With $13 million allocated to Wade, that leaves $39 million left for James, Bosh and whomever you might be targeting.

Wade is not about to reduce his salary without a reason. For him to do it, there surely needs to be a motivation. It can’t just be to save Micky Arison some luxury tax dollars. There needs to be a tangible benefit to the on-court product. So, again, why would you be asking him to take less? What, exactly, would you be trying to accomplish? How exactly would envision any savings to be redeployed? Who exactly would you be targeting  — with $39 million to split between said player, James and Bosh — and would he (and James and Bosh) accept?

If you can’t identify such a player, then it makes no logical sense to ask Wade to take less, at least not this summer. The Heat would gain nothing (but tax relief). Better to clear one more year of his elevated salary off the books than to spread that payout out over future seasons.

And even if you can identify such a player, there’s another question to ask yourself: Is that player truly worth committing to two additional seasons with Wade, at $13 million per year, during which seasons he will be 36 and 37 years old?

Be careful how you answer this question.

Consider the ramifications.

The current contracts of Wade, James and Bosh are all set to expire prior to the 2016-17 season. As of now, there isn’t a single Heat contract on the books for that season. The Heat could start over. Start fresh. Be better positioned than they were in the summer of 2010.

2016-17 is also the first season in which the new national TV rights deal will kick in – a deal that is projected to increase the league’s take by around a billion dollars per year on average. That could cause the cap to rocket toward $80 million. It sits at $58.679 million today.

The Heat has masterfully positioned itself to have a clean slate in the very summer during which the cap could rocket toward $80 million! That also just so happens to be the very summer that stars such as Kevin Durant, Kevin Love and Dwight Howard can all become free agents! Is it all that unreasonable to think a new, better Big Three era could emerge?

It’d be one thing for the Heat to eat into that theoretical cap space by locking LeBron James into a long-term contract. He’d be a major selling point for any one of these guys. But would you really want to be paying Wade $13 million at that point? Years during which he’d only be worth, in your estimation, $5 million?

This could be what lies ahead for the Heat. And it’s not like the Heat would necessarily be risking the present to get there. Even if Wade and James and Bosh were each to opt into the fifth seasons on their contracts, the Heat could still utilize the MLE with which to improve the roster this summer. That’s $3.3 million. In fact, with some creative financial maneuvering, the Heat could gain access to the bigger MLE, the one that pays out $5.3 million. One final question, then, needs to be asked: If the Heat could clear another year of Wade’s salary off the books and sign a player to a contract with a starting salary of up to $5.3 million, would you still want Wade to instead take a discount which could cripple the Heat’s future?

It could be argued that it’d be in the Heat’s best interest salary cap wise if Wade does not take less in 2014 in exchange for a longer-term deal. It could be argued that the best option for both the Heat and Wade is for Wade to play out his existing contract, so that the team would be wiped clean of obligations to their star for the all-important summer of 2016.

Much like with James, if he trusts in Pat Riley, Wade loses nothing by opting out. It gives him, and his team, flexibility. It provides potential options. Perhaps you can identify a player for which Wade taking a discount becomes a necessity, and perhaps it does become a legitimate possibility in the weeks ahead. Perhaps, then, the best option for Wade would be to opt out of his current contract, and if nothing were to materialize, to trust in Riley to restore the salaries called for in his then-terminated contract.

15 Responses

  1. Benjamin says:

    When you said identify a player that would be worth Wade taking a significant pay cut earlier in the article I kept screaming Kyle Lowry. But, after reading the rest, I see that long term it’s probably better to just maintain the course and not spend big money on Lowry. In which case, landing Shabazz Napier in the draft would be huge for us. Lebron loves him and tweeted he thought he was a lottery PG (even though he won’t go that high because of how deep the draft is this year). Napier would finally give us a legit starting point guard for the future and negate having to sign Lowry anyway. I wanted to sign Lowry though because it give us more flexibility with the pick to possibly draft a SG to give us depth there. Landing Jodie Meeks in FA would be good for us if we go PG in the draft.

  2. Albert says:

    I just want to be clear about one thing. I am not suggesting that Dwyane Wade will not take less. I am merely trying my best to make us all aware of the implications of him doing so. I think we sometimes focus so sharply on the present that, in doing so, we neglect to consider the future. I also think we tend to get so excited about the possibilities, we sometimes lose perspective on the mechanics.

    Wade could certainly choose to take less. It could certainly be to allow for more room for the Heat to acquire Kyle Lowry. My only hope is that when you consider such alternatives, you consider not just the theory but also the mechanics.

    I believe that Lowry, as well as Marcin Gortat and Pau Gasol and others, would be an excellent addition. I can even see in my head how it might work financially. But it is only my opinion. My opinion is no more relevant than that of anyone else. I therefore try to explain the possibilities, and ramifications, so that we all can form our own opinions.

  3. herpderp says:

    I respect your well-thought out analysis, but it sounds ridiculous to me for LeBron to wait around for the 2016-17 season. A lot of teams will have cap space soon, and if LeBron is staying just to play with a past-his-prime Chris Bosh and an unathletic Wade then it is time to go. The Heat need good players now and a sense of urgency (and not just one more guy), and I doubt they can accomplish this just through free agency. Honestly, Chris even got hurt in 2012 and the Heat barely won that year. I don’t think the Heat have enough to keep Lebron in the long-run. Chris looks more and more like a third option as well, he’s not as efficient as Pau Gasol was during Gasol’s title runs for example.

    It may make some sense for the Heat to “wait” for 2016, but it certainly does not make sense for James. I understand why Wade would not want to sacrifice money, but LeBron James should not have to wait a couple of years for anyone either. To me it looks like both players have different interests, and maybe that is for the best. The Heat don’t even know how to draft properly and they don’t like International Players. Looking at a recent analysis, only the Sixers play fewer international players than the Heat over the past several years.

    LeBron at the very least, probably wants to win 4 if not 5 more titles (6 more, according to his comments in 2010). Probably the last thing on earth he wants to do is sacrifice his age 30 and 31 season just so he can win a couple of titles as a role player later on in Miami. And he certainly doesn’t want to win a title as the second best player after bringing in some high-usage overrated young player like ________ in 2015/16/17/18/19/etc. He doesn’t want Kobe’s career (only 2 Finals MVPs), or with all due respect, Duncan’s career (Only 3 Finals MVPs, and winning as a role player in 2014 and losing in 2013). I saw your article about Miami being the best fit for LeBron but I disagree. Cleveland is terrible but they have advantages you are forgetting about.

    1. Player development: this includes Karasev, Irving, Waiters, Zeller, and the #1 pick. Remember, these guys are probably going to get at least a little bit better over the next 5 years. LeBron is looking to win several years in a row. Forget Thompson, Varejao, and Gee, those are useful expiring contracts.

    2. Cap Space: the Cavs have quite a bit of cap space and many expiring contracts this year. They only currently have 17 million on the books for the summer of 2016. Even assuming Irving re-signs for the max, and their #1 pick gets signed, that still leaves a ton of cap space. Even if they blew it by signing Spencer Hawes or Luol Deng again, they would still have a ton left.

    3. Recruiting: Wade is not going to help the Heat 2 or 3 years from now, sorry. All LeBron has to tell Chris Bosh or someone like that is that they are now building a cap-friendly, young roster in Cleveland and he can lure people there. As presently constructed, he just has to tell Chris Bosh flat-out that he is stuck in a losing team, and that could help sway him, if not someone else. If necessary LeBron could take a huge paycut when he goes to Cleveland, he’ll just make it up by the time he wins 6 or 7 Finals MVPs. Either way you look at it the Cavs have cap space, young talent, and better awareness of international talent. In Contrast, the Heat might still be the oldest roster in the NBA even if they sign Melo, going by the top-heavy minutes their veterans will play.

    • Albert says:

      I would like to reiterate that what I’ve presented is not necessarily my opinion, but rather a summation of the factors at play. I believe it is helpful for us all to be fully knowledgeable when forming our own opinions.

      Please don’t take my response to be defending any position but rather an attempt to answer your concerns.

      I am not sure why anything less than a complete overhaul would be interpreted as the Heat simply waiting around (or, as I’ve read elsewhere, tanking). The Heat could still reload. They could still utilize the Mid-Level exception, possibly even the larger one ($5.3 million). They could still re-sign any of their incumbent players. They still have access to their first round pick, second round pick, James Ennis, Justin Hamilton, and the minimum player salary exception. Add these pieces to a team that, through two games of the NBA Finals, already appeared to be the best in the league and you might have yourself an NBA champion next year. The Heat are still currently considered by many to be title favorites for next season.

      Again, I don’t mean to suggest that the above is my opinion as to what Wade and others will do. I, like the rest of us, would love to see the Heat add more talent. I even have my own private theories as to who I would target and how I would structure it. But that is only my opinion. And, unfortunately, I don’t have the ear of Pat Riley and crew. If I did, I would have changed many things throughout the years (please notice the dates of the posts that are being linked to in this article, so that you don’t consider this to be me critiquing with the benefit of hindsight).

      I will not suggest that Cleveland is not a viable alternative. It most certainly is. I personally believe that LeBron will remain with the Heat for at least one more season. But I could most certainly be wrong.

      I have already posted an article that shows all of the Heat’s basic alternatives. I will re-purpose it so that it shows as the top article on my site for tomorrow, if I can find the time either tonight or tomorrow morning to rewrite it to my satisfaction. Please note that this is just a hobby for me though.

  4. MJS says:

    Great analysis that yields an intriguing perspective. I agree with herpderp that the question ultimately boils down to whether or not LeBron would be willing to “wait out” the next two years. I see his decision coming down to opportunity percentages – is his chance of winning a title in the next two years in Miami with a capped out roster and a supporting cast made from vet mins and let’s say adds a MLE player better or worse than any of the other options available over those next two seasons? Is he willing to gamble that the Heat can (somewhat easily) escape the East and then in a 4/7 championship series pull off an upset of the Western Conference champion?

    The calculus is certainly complex. I would add that Spo is an asset in this regard.

  5. MrButters says:

    Adding just a mid level guy, first round pick and James Ennis and thinking that makes the Heat a championship contender next year is laughable.

    Also, I appreciate your nuanced and detailed analysis of Wade but this theory doesn’t take into account the fact that Lebron, Bosh and Wade could ALL opt out and restructure their deals in a way that frees up space that could stock this team with enough talent for another 4 year run similar to the one that just ended. It also assumes that Wade is definitely going to ask to be paid over 4 years what he would’ve made in two. They were just beat by a team that was totally selfless on the court but more importantly off the court by their stars all giving substantial discounts. There’s no telling what they’ll be willing sacrifice financially if it guarantees they’ll be making finals runs for years to come.

  6. Albert says:

    We all have different perspectives. You are certainly as entitled to yours as I am to mine. I would suggest that laughable is a strong word. I would hate for people to lose perspective. The Heat have their issues. I’ve written about them many times over the years. Nobody gets more frustrated about them than I do. But the Heat were nonetheless a very good team this year. The Eastern Conference was, and may continue to be, comparatively weak. If the Heat could add a quality MLE player, I am not sure I’d agree the prospect of winning a title would be laughable. But that certainly doesn’t mean that Wade won’t take less if he has a compelling reason to do so.

    I most certainly realize that Wade opting out could be part of a broader coordinated plan of attack. Please trust me when I suggest that I have a full and complete grasp of the situation at hand (though with absolutely no inside information). In fact, I actually tried to describe the situation above (see the paragraph that starts “Here’s the best way to think about this scenario:..”). I suppose that I didn’t do a great job of it. I will try to write a more concise post with all of the Heat’s primary options, but please remember that this is a hobby for me, so I can’t promise anything.

    Lastly, please remember that this is just one man’s perspective (mine). I don’t claim to know what Wade will do. I am only using my intuition.

  7. Tim Adems says:


    @Albert I really enjoyed reading this article. It was well thought out and definitely made the cap situation more clear. I think it probably will still be best for the Heat if Wade opts out this season. The bitter truth of the Heat’s current situation is that Lebron is in his prime and this window will only last for a few more years. They have to surround him with optimal talent now to maximize his prime. In addition, Lebron holds so much leverage with his impending free agency that he will likely put a lot of pressure on the Heat to field a winner that will require his teammates to take less. I agree with you that Lowry, Gortat, and Gasol are the three best and most logical choices for the Heat to target. The cap mechanics that you pointed out definitely make it quite difficult for the Heat to pull off the best option of Gortat who will likely command 11M+, but a fan can dream. Another reason I don’t like the idea of getting Wade to opt back in is that the scenario in which the Heat dosome cap gymnastics to get the full MLE doesn’t really help them as no players available in FA are worth the full MLE. The players available are either worth significantly more or less. As such, rejiggering Wade, Bosh, Lebron, and Haslem’s contracts to enable the Heat to get one quality player would be ideal. The Heat would then still be allowed to use the taxpayer’s MLE of 3.3M iirc. That money can be used toward a Thabo Sefolosha type wing defender or a D.J Augustin type at PG.

  8. Albert says:

    @Tim Adems
    I think a scenario whereby the Heat acquires one of those players (Lowry, Gortat, Gasol, etc.) is more realistic than people may realize (though I would never suggest it would be easy, because it isn’t).

    Such a scenario is actually one of my own personal favorites. Perhaps I will write up the mechanics, as I see them, one day.

    The issues are complex and the machinations are infinite. But if the Heat thinks creatively, it can accomplish a bunch.

  9. MrButters says:

    I say laughable because I believe it paints too rosy of a picture regarding the rest of the roster. What you’re basically saying is replacing Battier with someone like Trevor Ariza and adding essentially 3 rookies (first rounder, Ennis, Hamilton) would be good enough to make the finals again when a roster superior to that just got smoked. If you have Lebron you have to focus on now, not 2016. There’s no telling how the league will be then and mortgaging the next two years in the hopes of future success is a short sighted plan with a group that’s in title or bust mode.

    I agree we’re all entitled to our own perspective and I reiterate that I appreciate your thorough analysis. Nobody’s going to agree with your writing 100% and I just wanted to share my feelings. Keep up the great work. @Albert

  10. James says:

    Wade might be due the remaining money on his contract. But neither the HEAT nor Wade envisioned him taking off 1/3 of the 2013-2014 back in 2010 when his contract was originally struck. As well, none of the HEAT players of executive staff could have envisioned how punitive the new CBA would become after 2010. So these factors are now relevant in the offseason of 2014 and do change the equation going forward.

    Take into account the further discount the Big 3 will have to take just to stay together and position themselves to add pieces via the MLE and mini-MLE over the next 2-3 seasons, we are looking at Wade taking the biggest salary cut of all three. If he will continue taking off games to elongate his career, you have to discount that off his salary going forward. As a result, expect him to take less regardless of what he is due on the final two years of that 2010 contract.


  11. C Timothy Murphy says:

    I visited your site for the first time yesterday and am impressed with your knowledge of the cap and your sometimes counter intuitive insights. I did see your suggestion of a path for Miami to sign a max level player (Carmelo) while retaining LBJ, Wade and Bosh who would opt out, each sign one year deals in the 9/10M range, and subsequently sign long term deals using their “Bird rights”. One quick thought I had about this plan is that I does place LBJ, Wade and Bosh at risk if any of them were to suffer a career threatening injury during the one year deal. My guess is that it would be prohibitively expensive to be insured against such a risk if such insurance were available at all. Their advisers should never sign off on such a plan.

    I was curious if you ever do any hypothetical cap analysis planning for other NBA teams. I’ve been a Cavaliers fan and season ticket holder going all the way back to the “Miracle of Richfield” days. Their current situation is quite intriguing and was wondering what advice,cap planning or otherwise, you might have for them.

    One final note. Embiid’s foot injury report seems a bit suspicious to me considering it will prevent any Embiid Bucks work out. The 76rs and Cavs have reportedly been in discussions regarding a trade of 1 for 3 and 10, but need to be sure Milwaukee takes Parker at 2. Teams and agents are notorious for spreading misinformation, especially a week before the draft, and it would not surprise me that this is part of a plot to scare off Milwaukee. Thanks.

    • Albert says:

      @C Timothy Murphy
      I keep track of every player on every team in the NBA. It helps me to do analyses which I find interesting, like keeping track of salary cap projections and luxury tax consequences. I also use it to privately assist wherever I can across the universe of pro basketball.

      But I love the Miami Heat. I only very rarely analyze the salary cap positions of other teams. I sometimes do so in cases where it could impact the Heat. I other times do so when I find the situation truly fascinating. Here is an example of the latter.

      The NBA has a league-wide insurance policy to protect its players in the case of serious injury. There are a certain number of players who can be excluded by the carrier from the policy, but the list has not been made public. Further, it only covers a player’s existing contract and it only inures to the benefit of the team (the player continues to receive his salary while injured). Players may or may not be able to get added insurance policies on their own that protect future earnings power, but the team cannot pay for it. That would constitute circumvention of the salary cap rules.

  12. C Timothy Murphy says:

    Thank you for responding. I recognize that NBA players on standard guaranteed contracts get paid even if they are unable to play due to injury. My experience is that a team’s responsibility to pay is covered by insurance only in the limited cases where the period of inability to play is extended, even at or approaching a full season. Such players who are on expiring contracts become attractive trade targets because they not only supply cap relief, but also because the acquiring team has it’s responsibility to pay salary covered by a third party, the insurer. I’ve seen them referred to as “super expiring” contracts. Again my point is the substantial amount of future earnings which are placed at risk by a one year deal, signed by an all star caliber player, at or near the prime of his career, which cannot be insured due the statistically high rate of potential loss, and the large amounts involved, in the name of achieving a cap result.

  13. Albert says:

    @C Timothy Murphy
    In the NBA, if an insured player is disabled, there is a 41 game waiting period, after which the insurance company pays 80% of the guaranteed portion of the player’s remaining base salary, up to $175,000 per regular season game.

    I believe one example of the situation you are describing is Emeka Okafor. He had an expiring $14 million contract this past season but suffered a season-ending injury. After the 41 game waiting period, 80% of his remaining salary for the year was covered by insurance. That made him a theoretically valuable trade candidate for the Suns. Ultimately, however, he was never traded. But bear in mind that even when a player’s salary is partially covered by insurance, his team does not get salary cap relief.

    I don’t know what kind of insurance policies current NBA players can get to cover their future earnings power. The NCAA offers total disability insurance to college athletes through its Exceptional Student-Athlete Disability Insurance Program, known as ESDI, which provides coverage of up to $5 million in the case of a career-ending injury. College athletes can also purchase as much as $5 million in loss-of-value coverage, in the case that a projected first-round pick endures a serious injury that plummets his draft position. I am not sure what type of similar programs there may be for incumbent NBA players looking to protect future earnings power beyond their current NBA contracts, if any insurance companies would even write policies to protect against earnings potential into the tens or hundreds of millions of dollars, or how large the premiums for such coverage might be.

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