Heat Acquire Goran Dragic From the Suns in Three-Team Trade

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The Miami Heat’s long, arduous search for an elite point guard is now over. The Heat has acquired what it hopes is its point guard of the future in Goran Dragic.

The Heat received Dragic and his brother Zoran Dragic from the Phoenix Suns as part of a three-team trade that involved the New Orleans Pelicans. In return, the Heat sent Norris Cole, Shawne Williams, Justin Hamilton and $369K in cash to the Pelicans and Danny Granger, $2.2 million in cash (equivalent to Granger’s salary for next season) and two future first round draft picks to the Suns. The Pelicans sent John Salmons to the Suns to complete the deal. Williams and Salmons will be waived by their new teams. By rule, Williams is not allowed to re-sign with the Heat.

The Heat have struggled thus far this season, their first since LeBron James left after a four-year stay in Miami to return home to Cleveland. But through the struggles has emerged a potential future star in Hassan Whiteside. Whiteside has been rampaging through the NBA with reckless abandon, utilizing his massive 7-foot-7-inch wingspan to throw down monstrous alley-oop dunks, snatch rebounds out of the sky from high above the rim, swat basketballs as Godzilla would planes, and generally wreak havoc on both ends of the floor. He will now have a first rate point guard off of whom to feed; the Dragic-Whiteside pick-and-roll pairing would seem as deadly as any in the league.

The addition of Dragic presents the prospect of a formidable starting lineup for the Heat, when healthy, in Dragic, Dwyane Wade, Luol Deng, Chris Bosh and Whiteside. It figures to be as talented as any in the Eastern Conference outside of  the Cleveland Cavaliers. If things go well, the Heat could potentially challenge for an NBA title as early as this season, a concept which seemed all but impossible after James’ departure.

But while the upside is both massive and readily apparent, this was also a risky and costly trade for the Heat.

Miami will send Phoenix the first of its two first round picks two years after its obligation to the Philadelphia 76ers is satisfied (most likely this season). That pick is top-10 protected in 2015 and 2016, and becomes unprotected in 2017 if not previously conveyed, meaning it will be sent to the Sixers in 2015 assuming the Heat make the playoffs. The pick to be sent to the Suns is top-seven protected in 2017 and 2018, and becomes unprotected in 2019 if not previously conveyed. In essence, the first of the Heat’s two picks to Phoenix will be conveyed in 2017 if Miami makes the playoffs this season and doesn’t even up with one of the seven best picks in the draft in two seasons. But if that doesn’t happen, the Heat could potentially wind up sending away a lottery pick.

The second first-round pick goes to the Suns in 2021 with no protection whatsoever. The 2021 draft is a long ways away; there isn’t a single player on the roster whose contract extends out that far. There’s a long history of NBA teams making costly mistakes by not worrying about a seemingly distant future. One needs only to imagine a scenario whereby an aging Heat team limps to the finish line with one of the worst records in the NBA in 2020-21 only to have its premium draft pick stripped away to see the risk.

The Heat, in accordance with NBA rules, had no choice but to structure it this way.

There were multiple rules that came into play for the Heat:

According to the “Ted Stepien Rule,” teams cannot trade away all of their future first-round picks in consecutive seasons.

Furthermore, teams can only trade away one first-round pick with “next allowable draft” protections (i.e., two years after a previous pick is conveyed).

According to the “Seven Year Rule,” first-round picks can only be traded up to seven years into the future.

Furthermore, a first-round pick traded seven years into the future (the last available year, in accordance with the “Seven Year Rule”) can’t contain any protections.

These four rules coalesced to greatly restrict the Heat. Because its pick obligation to the Sixers has yet to be determined, its first pick obligation to Phoenix became the team’s only allowable “next allowable draft” pick conveyed. The second pick sent therefore had to be in a defined year, and that defined year could only be in 2021. And that pick, being seven years out, couldn’t have any protections on it. Thus, the basic structure of the two first-round picks sent was the only allowable structure.

The Heat, as a result, is now even more restricted in its ability to trade away any first-round draft picks in subsequent trades. But these rather technical rules do create a unique opportunity for the Heat.

If the Heat makes the playoffs this season, its 2015 first-round pick will be sent to the Sixers. If the Heat doesn’t end up with a top-7 pick in two years, its 2017 first-round pick will be sent to the Suns. Both of those assumptions seem likely at this point. The Heat will then send its 2021 first-round pick to the Suns. That, in turn, creates a likely four-year gap between pick conveyances — 2017 to 2021. Which, in turn, would give the Heat the flexibility to trade away its 2019 first-round pick if the situation were to call for it.

In accordance with the Ted Stepien Rule, other than the 2019 selection, the Heat’s next first-round pick available for trade comes two years after the 2021 pick is conveyed to the Suns, in the year 2023. The Heat will be unable to trade either pick until after the 2017 draft. Since the Ted Stepien Rule only concerns itself with future drafts, after the 2021 draft has been completed, the Heat will become eligible to trade its 2022 selection.

The inability to trade future first-round draft picks has proven extremely costly for the Heat in past seasons, and may have indirectly led to the premature breakup of the Big Three era. To be giving up this many assets, and to be restricting his team this severely, Riley must have received (technically illegal) assurances from Dragic that he will re-sign with the Heat to a long-term contract this summer.

Dragic is currently under contract for $7.5 million, and he has a player option for next season he is all but certain to decline. If he does, he will become an unrestricted free agent next summer, free to sign with any team. He would be eligible for a maximum salary of up to a projected $19 million anywhere he signs (the final figure will be determined when the 2015-16 salary cap is set).

The Heat, however, by virtue of now holding his Bird rights, will have a couple of significant financial advantages over other teams. First, they can exceed the salary cap to give him whatever starting salary is negotiated (other teams will almost surely require cap space). Second, they can sign him to a contract with a longer term (five years vs. four otherwise) and higher annual raises (7.5 percent of the first year salary vs. 4.5 percent otherwise) than any other team. A potential maximum contract would therefore equate to a projected $108 million over five years for the Heat, as opposed to $80 million over four years elsewhere.

A $19 million maximum salary for next season may seem like a hefty sum for Dragic, and it’s difficult to believe that’s what he will command. But what he will command will still be higher than we might want to pay. However, our minds need to stay flexible to the realities of the NBA of today: A dollar today is simply not the same as a dollar in the future. Not with the salary cap projected to jump 40 percent over the next two seasons, and by maybe as much as 60 percent when you factor in a potential lockout during the summer of 2017.

Consider that when the rise in the salary cap associated with the NBA’s massive new $24 billion TV kicks in during the 2016-17 season, a maximum salary for a player with the tenure of Dragic might be in the range of $25 million. In that context, a contract starting at around $19 million is perhaps more palatable.

Dragic isn’t exactly a young player. A less than max salary contract which pays out near the max in the first year but declines in the second year before again maxing out would be a nice concession by Dragic, in that it would give the Heat more flexibility for the summer of 2016 but still pay out a lofty $90 million or more. 

The Heat also received Zoran Dragic in the trade.

Zoran, 25, is an unproven rookie shooting guard who was signed by the Suns this summer to play alongside his older brother Goran, and traded to the Heat as salary ballast to placate both his brother and the Suns.

Zoran had been under contract to Spanish club Unicaja Malaga, but his contract contained an NBA escape clause that allowed him to leave this year. It included a $1,012,500 buyout, of which an NBA team, per salary cap rules, could contribute a maximum of $600,000 to Malaga without it counting toward Zoran’s salary. Zoran’s total salary therefore needed to be more than $2 million to justify sacrificing $412,500 of his own money in the buyout and walking away from a Malaga contract that would pay him about $1.4 million this year, along with most of his living expenses. Because he went undrafted in 2011, there was no limit on what a salary for the younger Dragic could have been.

Against competing interest from Cleveland, Dallas, Indiana, Sacramento and San Antonio, Phoenix ultimately gave Zoran a two-year, fully-guaranteed contract. The Suns paid out the maximum $600,000 directly to Malaga and gave Zoran a $412,500 signing bonus, which he sent along to Malaga to satisfy the terms of his buyout. The Suns then gave Zoran a base salary of $1.5 million for each of the next two years. According to salary cap rules, which allocate signing bonuses over the life of a contract in proportion to the salary guarantees in such seasons, Zoran’s contract will count $1.7 million against the salary cap for the Heat for this year and next (even though the Heat will only be required to pay $1.5 million in actual money next year).

With Zoran unlikely to meaningfully contribute to the Heat (he only played 13 minutes for the Suns this season), his essentially dead-money $1.7 million salary cap charge could prove costly for both this year and next.

With the trade, the Heat roster now drops down to 13 players, two players short of the 15-player maximum. The Heat will look to sign a couple of players in the days and weeks ahead.

The Heat still has access to its $2.65 million disabled payer exception. However, as a result of the trade, the team is now just $1.1 million below the luxury tax threshold. The Heat will almost certainly not cross the tax threshold, which would trigger the “repeater tax” for the first time in NBA history.

The Heat can, however, utilize a portion of its disabled player exception (up to $1.1 million) as a means to beat out other potential teams that only have the minimum salary while still remaining below the tax in its bid for desirable free agents. The exception expires on March 10.

The Heat is placing a huge bet on the potential of its current roster.

Assuming Dragic re-signs at the maximum salary, the Heat figures to only have access to the mid-level exception with which to add additional talent next summer. It will almost certainly be the smaller $3.4 million taxpayer mid-level exception, unless a significant roster reshuffling occurs. But the Heat, as presently constructed, already figure to be a significant taxpayer next summer, and using it would only increase the financial burden. If the Heat exceeds the tax threshold (either this or) next season, it would become the NBA’s first ever team to pay the “repeater tax,” which adds an extra $1 for every dollar a team is over the luxury tax threshold, over and above the incremental tax rates that would apply. The repeater tax is triggered when a team has paid the tax in four of the previous five seasons. Coming into this season, the Heat has paid the tax for each of the last three years.

As for the following season, the year in which the TV vaults the salary cap higher, the Heat currently figures to have three players under guaranteed contract heading into the summer of 2016: Chris Bosh ($23.7 million), Josh McRoberts ($5.8 million) and Dragic. That could change depending upon what happens next summer, including the decisions of Wade and Deng, who each have player options. In any event, with 2016-17 salary cap levels projected at around $90 million (absent the implementation of any smoothing techniques), the Heat figures to have enough room to re-sign Whiteside (even at the max), with plenty to spare.

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