A Preliminary Look at the Miami Heat 2016 Offseason

I have a request. I try to write posts which I believe are unique, in depth and insightful. I hope you agree. I therefore ask that you please not simply copy my work without providing proper credit. It feels rather awful to see my work being exploited. If just you ask, I am more than willing to help out anyone and everyone in any way I can (and do so on a regular basis behind the scenes).

This is the first in a series of eight posts that I believe will cover all aspects of the Miami Heat summer. This one is meant as the general overview. Each subsequent post will cover specific concepts related to this overview in greater detail, as well as provide specific possible scenarios. Though all eight posts are already written, I will publish one per day. 

The NBA salary cap is set to explode higher this summer, from $70 million this past season to an estimated $92 million.

The massive increase will give the Miami Heat a ton of cap room with which to maneuver. Choosing how to allocate it, however, will force the Heat to make some tough decisions.

Miami will start the summer with just six players under contract for the 2016-17 season – Chris Bosh, Goran Dragic, Josh McRoberts, Justise Winslow, Briante Weber ($219K guaranteed) and Josh Richardson (non-guaranteed). Those six players will cost a combined $49.8 million.

Miami will also retain the rights to potential restricted free agent Tyler Johnson.

Due to the nature of Johnson’s contract situation(1), at a cost of just a $1.2 million qualifying offer, Miami will be able to sit back this summer and wait for another team to sign him to an offer sheet which, by rule, can have a starting salary no higher than $5.6 million. Then, assuming it times everything correctly, after all of its cap space is used up elsewhere, the Heat can exceed the cap to match that offer sheet and retain him. If no other team engages with Johnson, the Heat can exceed the cap in signing him to a new contract with a starting salary as high as $6.2 million.

Taking into account the $49.8 million in 2016-17 salaries already on the books, the $1.2 million qualifying offer for Tyler Johnson, and applicable charges for open roster spots, Miami would be left with approximately $40 million in cap space with which to spend on its internal free agents – including Hassan Whiteside, Dwyane Wade, Luol Deng and Joe Johnson, among others – as well as any external free agents it may seek to target.

The Heat could increase its cap space even further if it were to waive and stretch the contract of McRoberts, which has two years and $11.8 million remaining on it. By doing so, the Heat would replace his $5.8 million and $6.0 million salaries for the 2016-17 and 2017-18 seasons, respectively, with a $2.4 million dead-money cap charge that would be placed onto the Heat’s books for each of the next five seasons (through 2020-21). That, in turn, would increase the Heat’s cap space to as much as $43 million.

If Miami could instead somehow find a taker for McRoberts without taking any salary back in return, cap space could grow to $45 million. Beyond player assets and a first-round pick all the way out in the year 2023, however, the Heat doesn’t have much with which to entice a potential trade partner to do so.

Choosing how to allocate that $40 million to $45 million of cap space will be of critical concern. 

It all starts with Whiteside.

Coming off a minimum salary, Whiteside’s “cap hold” will be a minuscule $980,431.

If his two years with the Heat had been his only in the NBA, Miami could have simply sat on that cap hold while signing other free agents with its remaining $39 million-plus in cap space, then have been guaranteed the right to exceed the salary cap in doling out a contract that would have forced Whiteside to choose between: (i) accepting his $2.8 million qualifying offer for one year, after which he could pursue a full maximum contract the following summer as a Heat restricted free agent, or (ii) accepting a contract that starts no higher than $6.2 million and spans two, three or four years in length.

If he had been with the Heat for three years, Miami could have simply sat on that cap hold while signing other free agents with its $39 million-plus in cap space, then exceeded the salary cap to sign him for anything up to a max salary.

In either case, Whiteside would have become one of the more valuable free agents in NBA history. But because he has only played for the Heat during the last two seasons, and because he played two prior seasons with the Sacramento Kings, neither scenario is possible.

As it stands, the Heat can only sit on his minuscule cap hold while signing other free agents with its $39 million-plus in remaining cap space then circle back to Whiteside in doling out a contract that exceeds the cap by utilizing his “Early Bird” rights, which are applicable to free agents who have only been with their existing teams for two years.

Unlike with full Bird rights, however, contracts that leverage a player’s Early Bird rights are greatly restricted.

They only allow for a starting salary equal to the greater of 175 percent of the player’s salary for the prior season and the estimated average player salary for the coming season. For Whiteside, that will be just $6.2 million.

They can also only be signed for between two and four seasons in length, so there’s no possibility that the Heat could use all of its cap space elsewhere, then circle back to Whiteside and convince him to accept the $6.2 million in exchange for a full max deal the following summer.

Whiteside isn’t about to accept a multi-year deal that starts at just $6.2 million. And that, in turn, likely means his new contract, whatever it may be, will require the Heat to utilize cap space.(2)

During the 2014-15 NBA season, Whiteside became the focal point of a Heat fan base desperately seeking out hope for the future during a painful post-LeBron transition. He rewarded us all with boundless energy, youthful exuberance, and quick ascent. In his limited experience, Whiteside rampaged 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. For many of us, he represented a potential franchise cornerstone.

Pat Riley and the Heat organization, however, were apparently less convinced.

Riley subsequently persuaded star free agent LaMarcus Aldridge to take a dinner with him in early July. The Heat didn’t have the salary cap space to sign him at the time. Riley’s wish was for Aldridge to sign a one-year deal at the $3.4 million taxpayer mid-level exception, and for the Heat to return the favor by utilizing its copious projected 2016 cap space to sign him to a full max contract. Had Aldridge acquiesced, any talk of the Heat retaining Whiteside this summer would likely be over before it ever started. Whiteside, for all intents and purposes, would be gone.

The uncertainty continued throughout the early parts of the 2015-16 season. The Heat was rumored to be seeking potential trade scenarios as recently as at the February trade deadline. It apparently had serious doubts about making a significant financial commitment to Whiteside.

Those doubts are surely now over. Whiteside is a transformative talent, and the heart and soul of the Heat’s youth movement. There will be at least one NBA team throwing maximum money at him. Miami will certainly try to negotiate for a lower rate than that, but will almost certainly ultimately spend whatever it takes to retain him.

The good news for Miami: If Whiteside’s decision comes down to pure economics, the Heat can simply outbid any other pursuer.

At a projected $92 million salary cap, Whiteside’s maximum salary would be $21.6 million.

He’ll be eligible to sign a contract of up to four years in length, no matter where he signs. But the Heat will have a financial advantage over all other teams. It can offer Whiteside higher annual raises than can any other NBA team – 7.5 percent of his first-year salary, vs. 4.5 percent for all others.

With a starting salary of $21.6 million, that translates to an estimated total contract value of $96.1 million over four years from the Heat, versus $92.2 million over four years from every other NBA team.

The $3.9 million difference, nearly $1 million per season, represents a substantial financial benefit for the Heat organization. That the Heat plays in Florida, a state with no income taxes, increases its financial advantage over most suitors by millions more. And that makes it highly probable that Whiteside will be a big part of the Miami Heat’s future.

So take a range of $40 – $45 million. Subtract as much as $21.6 million for Whiteside. You get $18 – $23 million left over, depending upon what happens with McRoberts. That’s the amount of cap space left over for the Heat to allocate to all others.

After it’s all used up, there are very few ways the Heat will be able to exceed the salary cap. Among the few ways: (i) to re-sign Tyler Johnson, (ii) to utilize the $2.898 million mid-level exception for room teams (which cannot be combined with cap space), and (iii) to sign players to minimum salary contracts (or, in some cases, contracts at just above the minimum salary).

That’s not a whole lot of post-Whiteside money, particularly when considering the number of players who will look to get a piece of it.

Of course, Whiteside could make the summer a heck of a lot easier for the Heat if he were to accept less than the max.

Would he be willing to do so?(1)

What if the Heat were to provide him an inducement to do so? Whiteside could potentially be incentivized to sign a two-year contract at a below-market salary, with an opt out after one year which would establish his full Bird rights as a free agent in the summer of 2017. The Heat could then sign him to a long-term contract in 2017, when the cap is expected to explode higher from $92 million to a record $107 million. At that point, he’d be eligible for a five-year contract, with an estimated starting salary of $25.3 million and a total value of $145 million.

Rather than shoot for his $96.1 million right now, would Whiteside accept, say, $XX million [replace the “XX” with whatever number you want] this summer in exchange for a (technically illegal) promise of a full five-year, $145 million deal next summer?(2)

There are inherent risks to Whiteside in accepting such an arrangement.

If he gets seriously injured next season, he could wind up getting none of that $145 million (beyond the limits of the second-year salary to which he would then opt in). And spanning the time from now until that $145 million could be secured is a potential lockout, during which the projected $107 million 2017-18 salary cap (and, with it, maximum salary figures) could increase or decrease, and rather substantially at that.

The safe bet for Whiteside would be to eliminate all risk by locking in his long-term deal this summer. After all, he turns 27 years old next month, and he’s made just $3.3 million thus far during his NBA career. It’s one thing for a person who has already made a ton of money to take a risk. It’s takes a whole bunch of extra intestinal fortitude for someone who hasn’t to take such a risk.

Whatever approach he chooses, every dollar of savings below the max to be allocated to Whiteside for next season would equal another dollar of cap space for the Heat this summer, over and above the $18 – $23 million in post-Whiteside cap space the Heat already figures to have.

The question then becomes: How should Riley allocate that remaining cap space among Wade, Deng, Joe Johnson and any potential outside free agents?

Plug away at the math and you may quickly begin to realize something: With even a small concession from Whiteside, Miami would not be all that far away from producing the cap space required for a potential run at Kevin Durant(1). Durant is the prize of the 2016 free agent crop, and Riley will surely take a shot(1).

Durant, however, will surely accept nothing less than his projected $25.9 million maximum salary. Even if the Heat could free up the necessary cap space, it would leave virtually nothing left over for Wade, Deng and Joe Johnson.

Would Riley have the audacity to leave almost nothing left over for Wade, if it meant pairing Durant with Whiteside? Should he? Would you?

Or would he do it only in coordination with Wade? Would Wade agree to accept, say, a minimum salary this summer in exchange for a maximum salary (or possibly a large, multi-year deal) next summer, if by doing so the Heat could sign Durant and Whiteside(1)?

However you answer those questions, the prospect of Durant in Miami is a long shot.

If it happens, you’ve got a potential starting rotation of Dragic, Richardson, Durant, Bosh and Whiteside. You’ve also got, at a minimum, some or all of Weber, Tyler Johnson, Wade, Winslow and anyone who might accept the $2.898 million mid-level exception for room teams.

If it doesn’t happen, there aren’t a whole lot of players talented enough to warrant Riley allocating any of the Heat’s limited post-Whiteside cap space away from Wade, Deng and Joe Johnson. At that point, the Heat would likely shift its attention to retaining as many of the three as possible, and call it a successful summer.

But how do you allocate just $18 – $23 million to Wade, Deng and Joe Johnson? Is it even possible to split it three ways when Wade could reasonably command the full amount himself?

Perhaps Johnson, who apparently loves the city of Miami and the Heat organization — having already earned $196 million during his NBA career, a full $40 million more than Wade – would be willing to accept the $2.898 million mid-level exception for room teams. Perhaps not.

Perhaps Wade would be willing to sacrifice some money in order for the Heat to make a competitive bid for Deng. Perhaps not.

Wade will surely spend the rest of his career in Miami. Which means that perhaps one, or even both, of Deng and Joe Johnson will not be re-signed by the Heat this summer. Or perhaps all three will make sacrifices to stay together, perhaps by exchanging lower salaries for longer-term deals.

But here’s the thing.

Deng played very well for the Heat since shifting to the power forward position in February, but he’s also 31 years old. Johnson played very well for the Heat since joining the team in February, but he’s also about to turn 35 years old. And Wade, though he is the face of the franchise, is himself 34 years old.

There is an inherent risk in doling out multi-year contracts to such players, and all of them will definitely be seeking them out.

There’s also an inherent opportunity cost in doing so. The more multi-year money Riley doles out to any of those three, the less potential cap space he will have available for when the cap explodes to $107 million next summer.

The 2017 free agent class is loaded.

The list of players who can be unrestricted free agents in 2017 includes: point guards Stephen Curry, Russell Westbrook, Chris Paul, Kyle Lowry, Derrick Rose and Jrue Holiday; shooting guard J.J. Redick; small forwards Kevin Durant (if he signs a one-year deal this summer, as I believe is likely), LeBron James (if he signs another one-year deal this summer, which I believe is unlikely), Gordon Hayward, Rudy Gay, Danilo Gallinari and Andre Iguodala; power forwards Blake Griffin, Serge Ibaka, Paul Millsap, Greg Monroe and Taj Gibson; and center Andrew Bogut; among many others.

The list of restricted free agents isn’t too bad either. Barring potential extensions, that group could include: point guards Dennis Schroder and Michael Carter-Williams; shooting guards C.J. McCollum, Victor Oladipo and Kentavious Caldwell-Pope; small forward Giannis Antetokounmpo; power forwards Nikola Mirotic and Nerlens Noel; and centers Rudy Gobert, Steven Adams, Alex Len and Kelly Olynyk; among others.

You can definitely build a powerhouse from that grouping of free agents.

The Heat currently has just $48 million in guaranteed contracts for that summer.

It can therefore, as of now, produce as much as $59 million in cap space for the 2017-18 season. And if it were to trade McRoberts that summer, its potential cap space could increase to as much as $65 million.

That also happens to be the summer in which the Heat would get cap relief from Bosh’s contract if he proves unable to return to play following a series of potentially career-threatening blood clots(1). Bosh desperately wants to return. The Heat would love to have him back on the court. There is concern, however, that his medical condition will prevent him from ever being cleared for play. While it hopes for the best, the Heat must plan for the worst.

Bosh last played for the Heat on February 9, 2016. According to league rules, if he does not play again by February 9, 2017, the Heat can waive him and apply to the league office for an exclusion to get his salary removed from its books for salary cap purposes, though he would continue to get paid the $75.9 million he currently has remaining on his contract in full. If an independent doctor approved by the league and players association determines his situation is severe enough that continuing to play constitutes a medically unacceptable risk, his salary would be removed from the Heat’s team salary immediately. Adding those cap savings into the equation would get you to as much as $90 million in cap space.

From that $65 to $90 million, you’d need to subtract the second-year salary in whatever contracts the Heat ultimately doles out to Whiteside and Tyler Johnson this summer. The rest (less applicable roster charges, as necessary, and as much as an additional $4.7 million if the Heat chooses to retain Winslow, Richardson and Weber) could potentially be allocated to 2017 free agents.

What might the Heat be able to do with Dragic, Tyler Johnson, Richardson, Winslow, Bosh (hopefully) and Whiteside under contract, and all that cap space with which to spend on one of the most star-studded free agent classes in NBA history?

In a scenario that doesn’t include Durant, should the Heat essentially throw it all away to try to re-sign Wade, Deng and Johnson to multi-year contracts this summer?

Should the Heat instead try to sign the trio to single-season deals that preserve its flexibility to pursue the best 2017 free agents?

What if a single-year deal is not acceptable to any or all of them? At that point, if you’re Riley, what do you do? Surrender, and give them longer-term deals? Remain firm, even if it means losing them outright? Even if one of them is Wade?

Riley has another month or so decide what the answers will be.

Notes:

(1) More on this to come in a future post to be published within the next seven days.

(2) The Heat would have a good shot to retain Dwyane Wade, Luol Deng and possibly even Joe Johnson if Whiteside could be convinced to accept a 2016-17 salary of just $5.628 million (possibly as a single-season contract with a promise of the full $145 million max deal the following summer). If so, the Heat could essentially abandon all of its cap space plans and instead act as team which starts, ends and at all times in between remains above the salary cap.

The Heat can do this because in addition to the $49.8 million to the six players it already has under contract, Miami will also have $54.7 million in free-agent cap holds to the other nine players from this past season. Technically speaking, the Heat will therefore start the summer with a team salary of $104.5 million, well in excess of the $92 million cap.

In cap space scenarios, those cap holds would be released in order to free up the associated cap space. 

In an over-the-cap scenario, those cap holds would allow the Heat to re-sign its free agents with full Bird rights (i.e., three consecutive seasons with the Heat) for any amount up to the maximum salary (a group that includes Wade and Udonis Haslem), its free agents with Early Bird rights (i.e., two consecutive seasons with the Heat) for any amount up to the greater of $6.2 million and 175 percent of their previous salaries (a group that includes Deng, Whiteside and Tyler Johnson), and its free agents with “Non-Bird” rights (i.e., all or part of this past season with the Heat) for up to 120 percent of their previous salaries (a group that includes Gerald Green, Amare Stoudemire, Joe Johnson and Dorell Wright), even though such contracts would cause the team to further exceed the cap. In addition, Miami would have access to a full $5.628 million mid-level exception and a $2.203 million bi-annual exception. In this scenario, Whiteside would get the $5.628 mid-level, Wade and Deng would be able to get as much as they could reasonably want, but Joe Johnson could make no more than the $2.203 million bi-annual exception.

Of course, it’s nearly impossible to believe that Whiteside would accept a $5.628 million salary, even on a single-season deal and even with the (technically illegal) promise of another $145 million the following summer. Which, in turn, would make any above-the-cap scenarios moot. And that would again leave the Heat in the difficult predicament of having to allocate as much of the at least $18 – $23 million in cap space that remains after re-signing Whiteside, as well as the $2.898 million mid-level exception for room teams, to Wade, Deng and Joe Johnson, among any others.