Miami Heat Trade Shabazz Napier to Orlando Magic

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The Miami Heat has agreed to trade point guard Shabazz Napier and $1.08 million in cash to cover his base salary(1) to the Orlando Magic in exchange for a top-55 protected second-round pick in the 2016 NBA draft. The deal will be formally announced on Monday.

The second-round pick being returned to the Heat in exchange for Napier essentially has no value. The Magic would need to have one of the five best records in the entire NBA in 2015-16 for the Heat to get it. Otherwise, the obligation is extinguished.

The Heat will also receive a $1.29 million trade exception as part of the trade, equal to the amount of Napier’s total salary. The Heat will have up to one year to utilize the exception, which would allow the team to acquire one or more players with total salaries of $1.39 million in trade (or on the waiver wire) without sending back any salaries in return.

That, by all accounts, is a terrible return on investment for the No. 24 pick from the 2014 NBA draft. It means the Heat essentially traded its 2014 first round pick (No. 26), its 2014 second-round pick (No. 55), its 2019 second-round pick and $1 million in cash in exchange for one season of Napier.

Worse still: Napier showed flashes of promise during his rookie season; he was a low-cost player set to make just $1.3 million this season; and the Heat had him under team control for at least the next three years, after which he was to become a restricted free agent.

Why, then, have the Heat agreed to pull the trigger on the trade? 

The team currently has 17 players under contract, of whom 13 have guaranteed deals. The four who don’t: Hassan Whiteside (who will certainly make the team), Henry Walker, Tyler Johnson and James Ennis.

Teams can keep up to 20 players through training camp, but must reduce to between 13 and 15 players by the start of the regular season.

Therefore, barring trade scenarios (or the unlikelihood that a player with a guaranteed contract is waived), that left at least three players competing for just one regular season roster spot: Walker, Johnson and Ennis.

In addition, the Heat selected Josh Richardson with the 40th overall pick in 2015 NBA draft. Richardson performed well during summer league, leveraging his versatility and defensive prowess to in many ways validates that general manager Pat Riley gave him a first-round grade. Richardson was 24th overall on the team’s draft board.

When a player is selected in the second round of the draft, he remains the exclusive property of the team that selected him until at least the September 5th immediately following the draft.

At that point, the team needs to make a decision.

In order for the team to retain draft rights to the player, it must submit to him a “Required Tender” by September 5th. The tender is an offer of a contract that affords the player until at least the immediately following October 15 to accept, has a term of one season, calls for at least the minimum salary applicable to the player, and can be fully non-guaranteed.

If the team does not issue a tender by September 5, the drafting team loses its exclusive rights to the player, and the player becomes an unrestricted free agent the following day.

The Heat really likes Richardson, and will not let that happen.

Once (or before) the tender is issued, the player has three primary options: (i) forgo the tender and instead negotiate with the team for a different contract, (ii) forgo the tender and instead seek employment outside the NBA, or (iii) accept the tender and play under its terms for the season to come.

Given the Heat’s roster restrictions, it may have preferred to issue Richardson its required tender by September 5, while encouraging him to seek employment overseas. Doing so would enable the Heat to keep his draft rights for one more year.

But here’s the thing: Richardson doesn’t need to oblige.

If Richardson refuses to play overseas, the Heat will be forced to issue him a contract – whether it be a tender (almost surely a one-year, non-guaranteed minimum salary contract) or a longer-term contract to be negotiated between the parties.

If Richardson forces the issue, the Heat could have been left with four players competing for just one regular season roster spot: Walker, Johnson, Ennis and Richardson.

Which three would you cut?

Walker earns $1.1 million but, when including the tax, he costs the Heat a total of $4.1 million. At this point, his release is all but certain. Expect him to be waived on or before August 1, after which his contract would become $100K partially guaranteed.

Ennis earns $845,059 but, when including the tax, he costs the Heat a total of $3.2 million. His contract becomes 50 percent partially guaranteed after August 1. Releasing him after his partial guarantee kicks in would cost the Heat $1.6 million when including the tax (unless his contract is claimed while he is on waivers). At this point, his future with the Heat organization would appear tenuous.

Johnson earns $845,059 but, when including the tax, he costs the Heat a total of $3.5 million. His contract becomes 50 percent partially guaranteed after August 1. Releasing him after his partial guarantee kicks in would cost the Heat $1.6 million when including the tax (unless his contract is claimed while he is on waivers).

Any contract Richardson signs could have a first year salary as low as his $525,093 rookie minimum. When including the tax, he would cost as little as $2.0 million.

Can you cut three? If not, you would need to pursue a trade to free up a roster spot.

That’s exactly what the Heat did.

Miami reportedly placed Chris Andersen and Mario Chalmers on the trade market, and either could surely have been had for nothing. Trading either one would have saved the Heat $19 million and $16 million, respectively. But trading either one, even for nothing in return, proved to be too difficult.

The Heat instead elected to trade the low-cost Napier. Trading Napier saves the Heat $4.9 million(2). Replacing him with Richardson (Johnson) would cost $2.0 million ($3.5 million). Net savings: $2.9 million ($1.4 million). But this isn’t about the money.

The Heat was caught in something of a difficult situation with Napier. It had until November 2 to decide whether to exercise its $1.4 million team option on Napier for the 2016-17 season.

Declining Napier’s option for the 2016-17 season would have maximized the Heat’s summer of 2016 cap space but, essentially, would make Napier a dead man walking. Napier would have become an unrestricted free agent that summer. If the Heat were to have wanted to re-sign him, it would, by rule, have been unable to offer him a starting salary higher than $1.4 million (the value of the option year it will have declined). Other teams would not have faced a similar restriction; they could have offered anything up to a max salary. Therefore, if Napier were to have a solid 2015-16 season for the Heat, he would surely have been lost to free agency the following summer. In this scenario, why not trade a player who will not be part of the Heat’s long-term future, particularly if it frees up a roster spot for someone who could be (Richardson or Johnson) and saves some money ($2.9 million or $1.4 million) in the process?

Exercising Napier’s $1.4 million team option for the 2016-17 season would have subtracted a net $806,649 from the team’s projected $37.7 million of cap space for the summer of 2016 ($43.0 million if McRoberts is traded). That isn’t a whole lot of savings. And if he went on to have a solid season, it would seem like a tremendous bargain. In this scenario, is it likely that the Heat would trade Napier rather than exercise his option just to save: (i) up to $2.9 million in salary this season, and (ii) up to $806,649 in cap space for the summer of 2016? Probably not. Perhaps, then, trading Napier wasn’t about this small amount of savings at all. That the Heat chose to trade Napier, then, could signify that it simply likes the potential of Johnson and Richardson better, and did not want to lose either one(3).

But why trade Napier (a player locked into a low-money contract for the next three years) if the plan is to utilize his spot to retain Johnson (an upcoming free agent who could cost substantially more next summer)?

The Heat signed Johnson to a two-year contract as a rookie free agent last February.

Johnson will be a free agent in the summer of 2016, having accrued two years of service with the Heat. Johnson will face two critical restrictions that will ensure he remains in Miami.

First, he will be a restricted free agent: This will give the Heat the right to keep him by matching a contract he signs with any other team.

Second, he will be subject to the Gilbert Arenas provision: This will limit what any other team can offer him, all the way down to an amount that the Heat, by rule, will be able to match. The Arenas provision does two primary things: It limits the size of a potential first year salary(4) that a player with one or two years of experience can get on the open market to the value of the Non-Taxpayer Mid-Level Exception, and it guarantees that the player’s prior team can utilize the player’s Early Bird rights to match it.

The beauty of Johnson’s contract situation, therefore, lies in the intersection of four distinct truths about the summer of 2016: (i) he will be a restricted free agent, (ii) he will be subject to the Gilbert Arenas provision, (iii) he will be an Early Bird free agent (having accrued two years of service with the Heat), and (iv) he will enter the summer having played at the minimum salary the season prior.

So what will happen with Tyler Johnson in the summer of 2016?

Because he will be a restricted free agent, the Heat will have the right to match any contract he signs with another team.

Because of the restrictions of the Gilbert Arenas provision, the largest starting salary any outside team would be able to offer is $5.628 million (the value of the Non-Taxpayer Mid-Level exception), in a contract that spans between two and four years in length(4).

Because the Heat will have accrued his Early Bird rights, the Heat will have the means to match any contract he signs with another team.

Because he will enter the summer of 2016 having played at the minimum salary in the prior season (2015-16), his cap hold will, by rule, be equal to just $980,431, the minimum salary for the upcoming season.

These four truths, taken together, produce one powerful result: Whatever the Heat have planned for the summer of 2016, at a cost of just $980K, they can use up all their cap space to do it. Then, after all of their cap space is used up, the Heat can circle back to Johnson, utilizing his Early Bird rights to give him a contract that exceeds the salary cap.

Johnson, therefore, will require even less summer of 2016 cap space than would have Napier.

So the decision to trade Napier was not a decision about money. And it was not a decision about cap space.

It was simply this: Between Richardson, Johnson and Napier, which two did the Heat want? They’re all young. They were all going to be relatively cheap for many years to come.

The Heat are seemingly choosing Richardson and Johnson(3).

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Notes:

(1) Shabazz Napier’s contract contained a $215,740 bonus (20 percent of salary scale) for participating in summer league, which was paid by the Miami Heat. His base salary, $1,078,700 (100 percent of his scale amount) will be paid by the Orlando Magic but the Heat sent cash to offset it. 

(2) As of right this moment, the savings are $5.8 million. But they will very likely decline to approximately $4.9 million by the time the Heat reduces to a 15-player roster.

(3) It is just my theory that the Heat intend to keep sign Josh Richardson, keep Tyler Johnson and waive Henry Walker and James Ennis to get to 15 players. I could be completely wrong. Perhaps the Heat instead intends to keep Ennis (or Walker). Perhaps Richardson will agree to play overseas. I have no better insights than any of you. But, even if I am wrong, the rationale provided in this post remains largely the same. The trade likely wasn’t about about cost or cap savings. It was more about freeing up a roster spot for a player the Heat likes better. 

(4) The second-year salary in such an offer sheet is limited to the standard 4.5 percent raise. The third-year salary can jump considerably – it is allowed to be as high as it would have been had the first-year salary not been limited by this rule to the Non-Taxpayer Mid-Level exception. The salary in the fourth season may increase (or decrease) by up to 4.1 percent of the salary in the third season. The offer sheet can only contain the large jump in the third season if it provides the highest salary allowed in the first two seasons, it is fully guaranteed, and it contains no bonuses of any kind.

If the raise in the third season exceeds the standard raise (4.5% of the salary in the first season of the contract), then an additional restriction exists. In order to determine how large the offer can be, the team doesn’t just have to fit the first-year salary under the cap. Instead, they must fit the average salary in the entire contract under the cap. Rather than his actual salary, the player’s average salary counts as team salary over the life of his contract.

If the player’s prior team matches the offer and keeps the player, then the actual salary in each season counts as team salary. The player’s original team is allowed to use any available exception (e.g., his Early Bird rights) to match the offer.