Miami Heat Drop Below the Luxury Tax With Two Trades

Tweet about this on TwitterShare on FacebookEmail this to someone

The Miami Heat completed a pair of trades prior to the 3 p.m. NBA trade deadline, achieving their season-long goal of dropping below the NBA’s $84.74 million luxury tax threshold.

As a result, Heat fans will almost surely not hear the words “repeater tax” again until at least the 2020-21 season.

The Heat were $11.3 million over the luxury tax threshold only July 10th. The path to tax avoidance was long and twisted, and included five trades.

On July 27th, the Heat executed two trades, sending Shabazz Napier and $1.1 million in cash to the Orlando Magic in exchange for a 2016 top-55 protected second-round draft pick, and Zoran Dragic, $1.6 million in cash and its 2020 second-round draft pick to the Boston Celtics in exchange for a 2019 top-55 protected second-round draft pick.

On November 10th, the Heat traded Mario Chalmers and James Ennis to the Memphis Grizzlies in exchange for Beno Udrih and Jarnell Stokes.

On February 16th, the Heat traded Chris Andersen and two second-round picks (the first is Miami’s 2017 pick if it lands in the top 40 or its 2018 pick if not, and the second is Boston’s 2019 top-55 protected pick acquired in the Dragic trade) in exchange for Brian Roberts.

The Andersen trade was critical, as it set the stage for today’s accomplishment. Pat Riley and the Heat organization knew that trading the injured Andersen’s $5.0 million salary in exchange for nothing in return would be rather difficult. So, at the cost of essentially one second-round draft pick, Miami mitigated the burden for a potential trade partner by swapping his salary for the more palatable $2.9 million salary of the capable veteran backup point guard Roberts, in the process saving $6.2 million even if things didn’t play out as planned. That left the Heat just $3.5 million over the tax threshold.

The rest was rather easily predictable, if not necessary inevitable.

Earlier today, the Heat traded Jarnell Stokes along with $721,300 in cash to the New Orleans Pelicans in exchange for a 2018 top-55 protected second-round draft pick. The cash payout is enough to cover the $273,401 remaining balance on Stokes’ $845,059 salary for the season, and net the Pelicans a $447,899 profit.

Later in the day, the Heat traded the newly acquired Roberts and their 2021 second-round draft pick to the Portland Trail Blazers in exchange for $75,000 in cash. Because the Blazers had a team salary below the salary floor(1), in addition to receiving a second-round pick from Miami, Portland also saved $1.9 million by taking on the $924,657 remaining to be paid on Roberts’ $2.9 million salary.

In accomplishing their goal, the Heat utilized their full $3.4 million allotment of cash for the 2015-16 season, but traded away just one rotation player (Chalmers, and they received back a rotation player in Udrih in return) and three of their second-round draft picks. Miami has now dealt away every first and second round pick available for trade through the 2021 draft.

The result? The Heat are now $218,000 below the luxury tax threshold. 

That, in turn, allows the Heat to avoid the punitive repeater tax, and affords the team a much more manageable salary structure for the season. Adding Miami’s $88.8 million in total salary obligations to the $3.4 million in cash surrendered in trade, less the $75,000 in cash received, yields total projected pre-escrow payroll and related obligations of just $92.1 million.

In addition, if they remain below the tax, which is not computed until the end of the regular season, the Heat would qualify to receive a tax distribution, which is currently estimated at $2.3 million. Pending new roster additions, that suggests total projected pre-escrow payroll costs of $89.7 million.

Earlier in the summer, the Heat’s total payroll costs had been projected as high as $126.9 million.

That’s a total savings of $37.2 million!

With Thursday’s moves, the Heat have opened up two roster spots below the 15-player limit. However, because the Heat are so close to again tripping the luxury tax, they will not be able to immediately fill both of their available roster spots for the rest of the season and remain below it.

The Heat’s tenuous position against the tax means they are all but certain not to utilize the $2.2 million (and declining daily) balance on their taxpayer mid-level exception. Instead, if anything, they will dole out only prorated minimum salary contracts. Such contracts would count $5,572 per day against the tax threshold (no matter which player is targeted), and can be offered in the form of 10-day or rest-of-season deals.

With just $218,000 of room below the tax threshold, and each new contract costing $5,572 per day, the Heat can offer such contracts for a total of no more than 39 days. The Heat roster will therefore need to remain at 13 players for at least 17 of the remaining 56 days in the regular season.

If the Heat choose to wait out the 17 days up front, they will not be able to add a player until at least March 6th, and longer if they intend to add two players (to reach the 15-player limit) at any given time. With two players, the Heat can employ any combination of 39 days of salary – whether that be the first signing with 38 days left in the regular season and the second signing on the very last day, one signing with 20 days left in the regular season and the other 19 days, or any other combination that totals to no more than 39 days.

To fill their available roster spots, Miami will turn its attention to the current available free agents as well as to players who shake free via the waiver wire. Players must be waived by March 1st to be eligible for the playoffs with another team.

If the Heat avoid the tax this season, they will be assured not to pay the repeater tax – which triggers if a team pays the tax for a fourth time in five years – until at least the 2019-20 NBA season. Assuming the team will avoid the tax next season as well, which is all but certain, the repeater tax will not be an issue in Miami until at least the 2020-21 season.

The Heat have previously paid the tax in each of the 2011-12, 2012-13 and 2013-14 seasons, but avoided it last season.

Today’s two trades also created trade exceptions of $2.9 million and $845,059, respectively.

The Heat now have trades exceptions of $2.9 million, $2.15 million, $2.13 million, $1.7 million, $1.3 million and $845,059. Trade exceptions can be used for up to a year, to acquire player(s) in trade with salaries equal to the amount of the exception, plus $100,000, without sending back salary in return. They can’t, however, be combined, and will be lost if the Heat elect to utilize cap space as they pursue their free agency plans next summer.

Notes:

(1) Teams which finish the season with a team salary below the minimum are surcharged for their shortfall, with the money distributed among the players on that team. “Team salary” for the purposes of the minimum is calculated based upon the sum of all salaries that underlie each team’s current and previously terminated contracts as of the last day of the regular season, independent of how much the team may have actually paid out on those contracts. Teams below the minimum can therefore save a great deal of money by trading for a player at the trade deadline. By doing so, the full value of the contract for which they will have traded would count toward the minimum team salary calculation, thus reducing the shortfall, even though more than two-thirds of it will have been paid by the team which traded the player.

4 Responses

  1. Greetings! I love your site. You always have good takes on Heat related stories.

    This time I have a question.

    Your $216,000 result below tax line is different than Spotrac’s $275,756.

    http://www.spotrac.com/nba/miami-heat/cap/

    It appears you include the “tax apron” variables like player suspensions and 2 year contract rate vs 1 year contract rate in your “tax line” calculation?

    http://www.cbafaq.com/salarycap.htm#Q14

    “They use a slightly different calculation for determining the team salary in relation to THE APRON — the point $4 million over the tax line. This applies to the Bi-Annual, Non-Taxpayer Mid-Level, and Taxpayer Mid-Level exceptions (see question number 25), and for Sign-and-Trade transactions (see question number 91). For these purposes they use the team salary as defined above, with the following modifications:

    For rookies and players with one year of experience who were signed as free agents (not as draft picks) and whose salary is less than the two-year minimum salary, the two-year minimum salary is used in place of their actual salary.

    etc.

    Are you certain this is correct? It looks like it only matters for the tax apron calculation unless there is some esoteric exception. If so, can you post a source. Thanks!

  2. Ok, maybe I answer it myself, but this seems to be the amount of tax paid rather than the tax limit itself:

    http://www.cbafaq.com/salarycap.htm#Q21

    “When determining the amount of tax a team owes, the league uses its team salary (see question number 14) on the date of its last regular season game (i.e., if a player is traded away before the end of the season, then none of his salary is taxed), with the following adjustments:

    Cap holds and exceptions are ignored.
    Any “unlikely bonuses” (see question number 74) that were actually earned are added to the team salary.
    Any “likely bonuses” (see question number 74) that were not earned are subtracted from the team salary.
    Any trade bonuses (see question number 98) for players received in trade after the last regular season game are added to the team salary. This amount may be pro-rated — see question number 99 for details.
    Any amounts from settlements of grievances are added to the team salary.
    ****
    For players who signed as free agents (i.e., not draft picks) under the current CBA, and make less than the two-year minimum salary, the minimum salary for a two-year veteran is used in place of their actual salary.2
    ****
    For minimum salary players whose salary is partially paid by the league (see question number 16) only the amount paid by the team (the two-year minimum salary) is taxed.
    The salaries of players waived via the Amnesty provision (see question number 69) are exempt from the luxury tax.

    It looks like this determines the tax paid if the tax limit is exceeded, but I’m probably parsing this too severely.

  3. Albert says:

    @Michael realGom
    If you look at the credits, you’ll see I helped draft the answer to this question :).

  1. February 23, 2016

    […] to NBA cap expert Albert Nahmad, the Heat cannot sign a player until March 6 without going back over the luxury tax. Even then, the Heat are probably signing players to 10-day […]

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.