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A Preliminary Look at the Miami Heat Offseason

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“I know one thing about the Miami Heat organization. We don’t just sit around and hope. We get to work.”

That was Dwyane Wade speaking to the media, describing what his team’s front office will do this summer to improve upon a team which, despite the loss of its best player and the significant injuries it thereafter endured, still managed to grossly underachieve along the way to its first pre-playoff exit since 2008.

But it won’t be easy. Pat Riley will face severe salary cap limitations and luxury tax restrictions as he sets out to improve the Heat’s roster.

All 15 players on the Heat roster are under contract through next season, but the status of seven of them has yet to be determined. Wade, Luol Deng and Goran Dragic have player options which need to be exercised by June 29, Michael Beasley has a team option on his minimum salary contract which needs to be exercised by June 29, and James Ennis, Tyler Johnson and Henry Walker have non-guaranteed minimum salary contracts that can be terminated cost-free at any point prior to August 1. Hassan Whiteside also has a non-guaranteed contract at the minimum salary, but his status as a continuing member of the Heat organization is certain.

Assuming Wade exercises the option on a contract that will pay him $16.1 million next season (as he has said he will do), the Heat will start the offseason well above the projected $67.1 million salary cap unless two things both happen: Luol Deng declines his $10.2 million option and Goran Dragic leaves.

Dragic will opt out of the final year of his four-year contract that would have paid him $7.5 million. He has indicated that he enjoys Miami, and will remain with the Heat if his financial goals are met. The Heat paid a steep price to get him, headlined by two future first round draft picks, which tells you everything you need to know about how willing they will be to pay him his money. 

Dragic will be eligible to receive a five-year deal with a starting salary of as much as $18.8 million and a total payout of as much as $108 million, though for a player entering his age 29 season, it could prove to be a significant overpay, even with the cap due to rise dramatically. A smaller deal which pays out a bit less than the max in the first year and declines in the second year before again rising 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 $95 million. The most any other team can give him: four years, $80 million.

Assuming they re-sign Dragic, the Heat would still be capped out even if Deng declines his option. Utilizing cap space, therefore, is not a realistic option for the Heat this summer.

And that would limit the Heat’s spending to a possible first round draft pick, second round draft pick, minimum salary contracts, $2.1 million bi-annual exception, and a mid-level exception which would be worth either $3.4 million or $5.5 million depending upon how things play out.
If Dragic re-signs and Deng stays, both the bi-annual and the larger mid-level would almost certainly not be an option. The Heat would have access only to the $3.4 million exception.

If Dragic re-signs and Deng leaves, the Heat might still not be able to use the $5.5 million exception, at least not all of it, though it would be close. Depending upon how they maneuver, they might be able to squeeze it in.

The problem is that utilizing either the bi-annual or larger mid-level exception automatically triggers a hard cap at the “apron,” the point $4 million above the projected $81.6 million luxury tax level. The apron is a brick wall on spending, one that cannot be crossed for any reason. A team cannot exceed it even for a moment, and even if it were to subsequently drop back down below it. Merely approach it, and it becomes harder to make trades that bring in more salary than they send out, or even sign minimum-salary players when injuries strike. It is a menace constantly floating in the distance.

For the Heat to utilize either the bi-annual or the larger mid-level, it would need to commit to a team salary of no greater than $85.6 million for the entire season. It seems unlikely that the Heat could drop that far down. Therefore, barring any trades that reduce team salary, the safe bet would be to assume that the Heat will have access only to the smaller $3.4 million mid-level exception, which has no spending restrictions or caps, no matter what Deng decides. And the Heat are unlikely to spend even that.

The only motivation for Deng to opt out of his contract would be if the 30-year-old believes he can get the security of a long-term deal, something the Heat are unlikely to offer him. It seems unlikely any other team would be willing to do so either, as the all-important summer of 2016 fast approaches. The extension of such logic would suggest that Deng will likely exercise his option, but he has yet to decide.
If Deng stays, the Heat could be facing a team salary well in excess of $90 million, well in excess of the $81.6 million projected tax threshold, which could make things very expensive.

If the Heat exceeds the tax threshold next season, it would become the NBA’s first team to ever 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. The Heat has paid the tax in three of the last four years.

For every dollar by which the Heat exceeds the tax level next season, it will need to pay at least $2.50 in taxes. That rate increases to $2.75 per dollar for any incremental amount by which the Heat exceeds the tax by $5 million, increasing further to $3.50 per dollar for any incremental amount by which the Heat exceeds the tax by $10 million, increasing further to $4.25 per dollar for any incremental by which the Heat exceeds the tax by $15 million, and increasing an additional $0.50 for each $5 million increment thereafter.

Depending upon how the roster rounds into shape, the Heat could be looking at total payroll obligations of $125 million or more if Deng stays, which would shatter the team’s previous all-time record of $103 million from 2013-14, and that’s before accounting for the possible utilization of the mid-level exception. Under this construct, the Heat may choose to bypass utilizing the $3.4 million mid-level exception, which would add an incremental $10 million (over and above the cost of the minimum-salaried player for whom he would likely be replaced).

If Deng leaves, the Heat could be in position to avoid the luxury tax if it bypasses utilizing the $3.4 million mid-level exception.

The Heat organization has expressed its collective desire for Deng to remain with the Heat, and it’s not all that difficult to understand why. While Deng is not a perfect fit in Miami, the Heat would surely not be able to replace his talent level with access only to the $3.4 million mid-level exception. He would therefore represent a nice one-year bridge to the summer of 2016.

Therefore, no matter what Deng decides, the Heat will be financially motivated not to utilize their mid-level exception.

The Heat also need to be mindful of their summer of 2016 cap situation, when the salary cap is projected to rise higher than helium-sucking angels on the strength of the league’s massive new national TV rights deals. The Heat has big plans for that summer, and simply can’t, and likely won’t, risk spending big long-term dollars on anything but a perfect long-term solution. That is not something likely to be found at a $3.4 million level. Which, barring trades scenarios, leaves the Heat with minimum salary signings and the upcoming NBA draft.

The Heat will learn the fate of its first round draft pick on May 19, when the draft lottery is held. Miami owes the pick to the Philadelphia 76ers (via the Cleveland Cavaliers), to satisfy its final obligation of the LeBron James sign-and-trade from July 2010, but the obligation is top-10 protected, meaning the Heat would keep the pick if it falls within the top 10, and the obligation would roll to next season. If the obligation rolls, it would again be top-10 protected in 2016, and then becomes unprotected in 2017 if not previously conveyed.

Miami has the tenth seeding for the draft lottery, which provides a 1.1 percent chance to draw the first overall pick, a 1.3 percent chance at the second overall pick, a 1.6 percent chance at the third pick, an 87.0 percent chance at the tenth pick, and a 9.1 percent chance to receive a pick which would need to be sent to the Sixers.

First round draft picks are paid in accordance with a salary scale. The scale amount for the tenth pick in the draft is $2.1 million, though such players can be (and almost always are) paid 120 percent of their scale amount, which would increase the financial obligation to $2.5 million.

Other than via the mid-level exception, the team’s first and second round draft picks, and minimum salary players, the only other way for the Heat to improve would be through trade.

But the Heat are more likely to utilize trade scenarios to dump salary than to add talent. Among the players assets with varying degrees of trade value who could be targets: Chris Andersen ($5.0 million salary), Mario Chalmers ($4.3 million salary) or Shabazz Napier ($1.3 million salary).

The primary motivation of a Napier trade would be to free up a roster spot for a player who does not figure to have a long-term future with the Heat, while the primary motivation of an Andersen or Chalmers trade would be the huge tax savings it would produce. All three could likely be had in exchange for nothing in return but, for the latter two, would likely require the Heat to surrender assets to serve as an enticement.

Trade scenarios will be difficult for the Heat, given their lack of tradable assets.

Miami’s stockpile of future first-round picks is severely depleted. The Heat owe a future first-round pick to the Philadelphia 76ers (likely in 2016) from the LeBron James sign-and-trade with the Cleveland Cavaliers in July 2010, as well as a pair of future first-round picks to the Phoenix Suns (likely in 2018 and 2021) from last season’s acquisition of the Dragic brothers. That leaves the Heat with no first-round draft picks in 2016, 2018 and 2021. And, by virtue of the Ted Stepien rule (which states that a team cannot trade all of its first-round picks in consecutive future seasons) and the Seven Year Rule (which states that draft picks can be traded no more than seven years into the future), Miami does not currently have a single future first-round draft pick in its possession that can be offered in trade.

Miami’s stockpile of future second-round picks is also severely depleted. The Heat owe their 2016 second-round pick to the Bsoton Celtics from the Joel Anthony trade in January 2014, a top-40 protected second-round pick to the Atlanta Hawks (likely in 2017) from the James Ennis draft-night acquisition in June 2013, and a 2019 second-round pick to the Minnesota Timberwolves from the draft-night acquisition of Shabazz Napier from the Charlotte Hornets in June 2014. That leaves the Heat with no second-round draft picks in 2016, 2017 and 2019. And, by virtue of the Seven Year Rule, Miami’s only second-round picks available for trade would be a conditional pick in 2018 and unconditional picks all the way out in 2020, 2021, and 2022.

While the Heat finds itself in a precarious position for next season, it is nonetheless well positioned for the explosion in the salary cap to come for the following season.

The league issued initial salary cap guidance for the 2016-17 salary cap last week of $89.0 million.

The Heat, as of now, only have two players under guaranteed contract for the 2016-17 season: Bosh at $23.7 million and McRoberts at $5.8 million. To that, add as much as $20.2 million if Dragic receives a max contract (but the hope is that he’ll take at least $3 million less that season) and as much as $2.6 million if the Heat secures and keeps the tenth overall pick in the coming draft. The Heat also has a team option on Shabazz Napier (for which they have until Nov. 2 to decide whether to exercise). And if any player is to be signed to a multi-year contract this summer, he would need to be added in too.

That still leaves plenty of room for the Heat to re-sign Hassan Whiteside — even at up to the projected $21 million max — with at least $16 million left to spare, of which at least $12 million could be spent on any one player. How much of that Wade would demand, if anything, has yet to be determined.
Miami would also have access to the $2.9 million mid-level exception for room teams after all of its cap space is used up.

Note:
It is my preliminary guess that, given its cost structure, the Heat will not make many changes this summer. I would guess they will bring back Dragic, Wade and Deng; draft a first and second round draft pick; and add a couple of players on minimum salary contracts. The mid-level exception will likely go unused.

  1. Eric
    April 27th, 2015 at 13:01 | #1

    I’m curious what the heat will do in regards to the repeater tax. Do they eat it while wade is functional or do they trade deng and others next year to get under the luxury tax to reset the clock. Don’t see them making a real run next year or any way to improve sufficiently. Maybe they punt for 2016 and go all in for that season?

    Also wondering if in 2016: whiteside+dragic at 32+wade at 35+bosh at 33+Mcroberts+12 mil worth of supporting cast be enough to contend. Unless whiteside goes Anthony David I’m thinking no. What are your thoughts?

  2. April 27th, 2015 at 13:40 | #2

    @Eric
    If the Heat were to avoid the tax both this and next season, the clock on the repeater tax would reset completely. But with the rise in the salary cap to come in 2016-17, I would guess that won’t be a primary concern. I would guess that the Heat will be a repeater taxpayer next season. The larger question will likely be how deep into the repeater tax Micky Arison would be willing to spend, knowing that the economics of the NBA will shift dramatically the following year.

    I love Dragic the player; my primary ongoing issues are in regard to his age and the salary he will command. I don’t think Bosh’s age is a major concern, given that his skill-set tends to age well. I do feel a Dragic-Bosh-Whiteside core can be highly effective and, in the right offense scheme, could possibly even develop into a contending core.

    I am, however, concerned about the Heat’s ability to address its needs at the wing positions, given its obligations of loyalty and within the confines of cap rules. Wade will certainly remain in the Heat’s starting rotation, a right which he has absolutely earned, but I don’t necessarily believe he is a good fit opposite Dragic, which will be an ongoing issue. I don’t necessarily think Deng is a good fit in the starting rotation either, nor do I think the Heat will be able to identify a deserving starter at the position utilizing only the mid-level exception. The Heat, therefore, will continue to be challenged by issues on the wing. The team does, however, have a valuable draft pick and the possibility of trade scenarios, as well as unlimited potential for the summer of 2016. So there is much for which to be excited.

  3. Florent Marion
    May 6th, 2015 at 15:47 | #3

    Thank you for sharing your knowledge to us mortals… Im still confuse in some stuff, cuz let’s admit it, it’s not that easy to understand.

    I know we need spacing and to be honest, I dont think Chalmers would help us anymore after this disappointing season, as much as I like Tyler Johnson, I would say he can partially fill Rio’s shoes. I would try to trade Chalmers for maybe a cheaper backup center (or bring Birch from D-League, I dont know) to get that payment lower. Also I have my eyes on this draft, and I dont think we should trade our pick, when are we ever gonna have again a top 10 pick (let’s just assume we wont go 11th at the lottery), Devin Booker or Sam Dekker would be a good fit (Stanley Johnson… no chance he gets to 10th pick). Two questions now: If Deng exercices his option, can we trade him right after? And how much can we get back (The whole $10.2M ?) and wouldnt it be wise to use the amnesty on Andersen even if I love that guy (dont we all?).

    The way I’d like to see our team for next season:

    Dragic-Wade at guards (Subs: Napier, Johnson, Z.Dragic, Draft pick)
    Deng-Bosh at forwards (Subs: Ennis, Beasley, McRoberts, Haslem)
    Whiteside (Subs: Andersen, Birch?)

  4. May 7th, 2015 at 09:18 | #4

    @Florent Marion
    “If Deng exercises his option, can we trade him right after?” Yes.

    “How much can we get back?” The Heat could take back up to $12.2M in salaries if he is traded by June 30, and up to $12.8M thereafter (assuming he picks up his option, and that Miami would be a taxpaying team).

    “Wouldn’t it be wise to use the amnesty on Andersen?” The amnesty is not an option. Teams can only use the amnesty once over the course of the current collective bargaining agreement, and the Heat already used it on Mike Miller.

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