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Miami Heat Trades Zoran Dragic to Boston Celtics

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The Miami Heat has traded shooting guard Zoran Dragic to the Boston Celtics, along with $1.6 million in cash to cover his salary with a $100K profit(1) and the Heat’s second-round draft pick in 2020. In return, the Heat will receive a top-55 protected second-round pick from the Celtics in the 2019 NBA draft.

The agreement comes a day after the Heat reached an agreement to trade point guard Shabazz Napier to the Orlando Magic. The Heat traded Napier to the Magic along with $1.1 million in cash in exchange for a top-55 protected second-round pick in 2016.

The second-round picks being returned to the Heat essentially have no value. The Magic and Celtics would need to have one of the five best records in the entire NBA in 2015-16 and 2018-19, respectively, for the Heat to get them. Otherwise, the obligations are extinguished.

The Heat also receives trade exceptions equal to the salary of each player: $1.7 million for Dragic(2), and $1.3 million for Napier. Miami has up to one year to utilize each exception, which can be used to acquire player(s) making up to value of the exception plus $100K in trade or on waivers without sending back salaries in return. The exceptions cannot be combined. 

Heading into Monday, the Heat had 17 players under contract, of whom 13 have guaranteed deals. The four who didn’t: Hassan Whiteside (who will certainly make the team), Henry Walker, Tyler Johnson and James Ennis.

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

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.

Barring trade scenarios (or the unlikelihood that a player with a guaranteed contract was to be waived), that left four players competing for just one regular season roster spot: Walker, Johnson, Ennis and Richardson.

The trades, therefore, effectively cleared the way for the Heat to retain Johnson and Ennis, and sign Richardson.

Johnson earns $845,059 but, when including the tax, he costs the Heat a total of $3.5 million. His salary 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). Johnson will almost certainly make the Heat’s regular season roster.

Ennis earns $845,059 but, when including the tax, he costs the Heat a total of $3.2 million. His salary was to become 50 percent partially guaranteed on August 1st. However, he agreed to amend his contract. It will now remain fully non-guaranteed until opening night, at which point it will become fully guaranteed if he is still on the roster. This makes it likely that Ennis will be retained at least through training camp.

Richardson can now be signed for up to two years at the minimum salary by utilizing the minimum salary exception, or for up to three years (at the minimum salary or above) by utilizing a portion of the non-taxpayer mid-level exception. If the first year salary in the contract he signs calls for the $525,093 minimum salary, it would cost the Heat $2.0 million including the tax.

Walker, as expected, was waived by the Heat later in the day. His $1.1 million salary was to become $100K partially guaranteed if he was not waived by August 1st.

Taken together, the Heat effectively traded $2.7 million in cash considerations and its second-round draft pick in 2020 to dump the contracts of Dragic and Napier. In exchange, it received trade exceptions worth $1.7 million and $1.3 million, freed up two roster spots, and saved $11.3 million in salaries and luxury taxes. That’s a net savings of $8.6 million ($11.3 million savings in salaries and luxury taxes, less $2.7 million in cash dealt).

But the trades weren’t done in a vacuum. Two will take their place: Perhaps Ennis ($3.2 million) and Richardson ($2.0 million if his first year salary is the minimum). Which means that swapping Dragic and Napier for Ennis and Richardson would save the Heat $3.4 million.

The Heat currently projects to have a $92 million team salary for the 2015-16 NBA season. A team salary at that level would trigger a tax payment of $20 million. When including the cash considerations dealt, the Heat is currently projected to spend a bit over $115 million on a 15-player roster.

That 15-player roster currently figures to be as follows: Chris Bosh, Dwyane Wade, Goran Dragic, Luol Deng, Josh McRoberts, Chris Andersen, Mario Chalmers, Udonis Haslem, Hassan Whiteside, Amare Stoudemire, Gerald Green, Tyler Johnson, James Ennis, first-round pick Justise Winslow and second-round pick Josh Richardson.

The roster, however, remains fluid should other opportunities arise.

First, Ennis agreeing to modify his contract so that it will be fully non-guaranteed before opening night (and fully guaranteed thereupon) means that he is no lock to grab the Heat’s last roster spot. The Heat can sign up to five additional players for training camp, against whom Ennis would be competing for it. Potential camp invitees now have a reason to sign with the Heat, and fight: there is, as of now, regular season roster spot available.

Second, the Heat may still pursue trade scenarios to improve the roster (amidst a need for, among other things, more  three-point shooting). But it will be limited in what it can offer in any potential future trade scenarios.

The Heat is almost completely out of draft picks available for trade.

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 picks in its possession that can be offered in trade. The Heat already owe a future first-round pick to the Philadelphia 76ers (likely in 2016) from the 2010 LeBron James sign-and-trade with the Cleveland Cavaliers and 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.

The Heat also owe its 2016 second-round pick to the Celtics from the 2014 Joel Anthony salary dump; a top-40 protected second-round pick to the Atlanta Hawks (likely in 2017) from the Ennis draft-night acquisition; a 2019 second-round pick to the Minnesota Timberwolves from the 2014 draft-night draft with the Charlotte Hornets to acquire Napier; and now this 2020 second-round pick. That leaves only a conditional second-round pick in 2018 and unprotected picks in 2021 and 2022 available for trade.

The Heat is also now limited in the potential cash it can send in trade.

Teams are allowed to include a total of $3.4 million in trades over the course of a salary-cap year, from July to June. The Heat included $1.6 million in the trade with the Celtics, after previously including $1.1 million in the Napier trade. That leaves $720K remaining for the rest of the season.

The Heat still remains $8 million above the NBA’s $84.74 million luxury-tax threshold. Andersen and Chalmers are reportedly on the market, and can surely be had for nothing. Trading either one would save the Heat $18 million and $16 million, respectively, as well as also open upon the roster for the potential addition of new players.

There are currently only seven NBA teams that can take on Chalmers or Andersen without sending anything back in return: the Cleveland Cavaliers, Milwaukee Bucks, Minnesota Timberwolves, Denver Nuggets, Philadelphia 76ers, Portland Trail Blazers, and Utah Jazz.

If the Heat exceeds the tax threshold, 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.

The repeater tax, however, will not be an ongoing problem for the Heat after this season. By virtue of having not crossed the tax threshold in 2014-15, coupled with the fact that it will almost definitely not cross the tax threshold in 2016-17, the Heat will be assured not to pay repeater taxes again until, at the very least, the 2019-20 NBA season.

Today’s transactions do not change the Heat’s salary cap picture for the 2016-17 season. Miami still projects to have $37.7 million of cap space for the summer of 2016 ($43.0 million if McRoberts is traded).

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Notes:

(1) What the Boston Celtics get from this deal is essentially $100,000 in cash (over and above the cash required to pay Zoran Dragic’s salary) and the Heat’s 2020 second round draft pick. They will reportedly waive Dragic.

(2) When the Phoenix Suns signed Zoran Dragic in 2014-15, they paid a $1,012,500 buyout to BC Unicaja. NBA teams signing international players are allowed to pay a buyout to the player’s team or organization in order to release the player to sign in the NBA. NBA teams are allowed to pay up to the Excluded International Player Payment Amount, and this amount is not charged to the team salary. Any amount above the Excluded International Player Payment Amount are treated as a signing bonus for the player. The Excluded International Player Payment Amount for 2014-15 was $600,000. The other $412,500 was treated as signing bonus, which was paid up front but allocated evenly over the two years on his contract for salary cap purposes. Therefore, Dragic’s $1,706,250 cap hit breaks down as follows: $1.5 million base salary + $206,250 signing bonus allocation. 

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