Analyzing the Miami Heat Approach to Dwyane Wade

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“The whole free agency thing… I don’t want to be in it this summer. I don’t want to be on the market at all…. I’m not curious at all… I want to be able to sign my deal [with the Heat] and move on, and not have to deal with any rumors, any free agency, any this, any that. This is where I want to end my career. So we’ll figure it out.”

That was Dwyane Wade, speaking in February to Barry Jackson of the Miami Herald about his desire to avoid testing the free agent market and instead wanting to wrap up a new deal without any of the drama of last offseason, when he and the Miami Heat were initially so far apart on contract negotiations as to threaten the continued tenure of the future Hall of Famer with the only professional organization he has ever known.

Wade’s preference was for a three-year deal that paid out somewhere in the range of $50 million. The Heat’s preference was for Wade to exercise his $16.1 million player option but, short of that, for him to accept a three-year deal that paid out somewhere in the range of $30 million. The two sides ultimately settled on a one-year, $20 million contract.

The Heat’s primary concern in drawing such a hard line with Wade wasn’t the damage such a large salary would cause for the 2015-16 season, with the Heat projected at the time to become the NBA’s first-ever repeater taxpayer, but rather the destruction it would cause to the team’s flexibility for the 2016-17 and 2017-18 seasons.

What was true then remains true today, which could portend an even more contentious negotiation. And perhaps even that which Wade threatened last year at this time: the end to his tenure as a member of the Miami Heat. 

Wade’s likely demands are both clear and reasonable: He’s going to want a three-year deal, with a hefty associated payout.

The Heat’s summer, however, will be dictated not by Wade but by Hassan Whiteside, and by what Pat Riley chooses to do in the wake of a potential Whiteside re-signing. What the Heat can offer Wade will be a byproduct of those decisions. Which may not sit too well with Wade.

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.

At a $92 million projected salary cap, the Heat would have — after subtracting that $49.8 million, the cost to retain the right to re-sign Tyler Johnson to a contract that exceeds the cap, and necessary roster charges — up to $40 million of potential cap space with which to spend on its internal free agents (including Whiteside, Wade, Luol Deng and Joe Johnson) as well as any external free agents it may seek to target.

The Heat could increase that potential 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 potential cap space to up to $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, though, the Heat doesn’t have much with which to entice a potential trade partner to do so.

That’s a potential $40 – $45 million of cap space to allocate, depending upon your assumptions for McRoberts. That’s the framework from which to start. Now let’s break down the scenarios to see why Wade could ultimately be left unhappy.

If the Heat Re-Signs Whiteside

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

With a $92 million salary cap, Whiteside’s max salary would be $21.6 million. So take the $40 – $45 million range of cap space. Subtract as much as $22 million for Whiteside. You get $18 – $23 million left over, depending upon what happens with McRoberts. To that amount, add dollar-for-dollar any discount Whiteside takes from the max.

That (along with a $2.898 million mid-level exception for room teams and a few other lesser tricks)(1) is what will be left over for Wade, Joe Johnson, Luol Deng and any other Heat or outside free agents.

The question then becomes: What will Riley do with its left over cap space?

Scenario 1: Whiteside + Durant

Plug away at the math and you may quickly begin to realize something: With just a small concession from Whiteside, the Heat would not be all that far away from being able to make a run at Kevin Durant.(1) Durant is the prize of the 2016 free agent crop, and Riley will surely take a shot.

Durant will surely command every last penny of his $25.9 million max salary. So take even the full $45 million of potential cap space. Subtract $22 million for Whiteside. Subtract $26 million for Durant. You’re $3 million short. Therefore, even if the Heat free up the necessarily cap space for Durant, it would leave virtually nothing left over for Wade.

Is it even remotely realistic to believe that Wade would accept a potential 10-figure discount at age 34, if it meant the ability to pair himself with both Durant and Whiteside for one final legitimate shot at a title before he retires from the game?

The answer would almost certainly be no. Over the course of his career, Wade has already sacrificed $25 million in salary for the benefit of the Heat organization. He’s now at a stage of his career where any further sacrifices can’t justifiably be made up. It’s time for him to put himself first.

But the idea that Wade would take a massive discount, though exceedingly unlikely, can’t be totally dismissed. And there are intricate salary cap rules that could potentially make it worth his while.

The salary cap is expected to explode this season, to $92 million. But it’s expected to explode again in 2017-18, to $107 million. That means the Heat could have significant cap space not only for this season but also for next season, a potential double-dip which, with equal parts skill and luck, has the potential to completely transform the franchise.

Wade’s asking price last season: $50 million over three years. He already made $20 million over the first of those three. That leaves $30 million to go. If the Heat were to hypothetically renounce him this summer, use up all of its cap space to sign both Durant and Whiteside, and then, when all of its cap space is used up, circle back to Wade and re-sign him to a single-season contract at the minimum salary (midlevel exception for room teams), it would give Wade another $1.6 million ($2.9 million), or $21.6 million ($22.9 million) total.

The Heat could then repay the favor by doling out to Wade another single-season deal in 2017, this time for the remaining $28.4 million ($27.1 million), getting him to his desired $50 million total. Or, Miami could even exceed that $50 million total by offering up to his $35.4 million projected max salary or, alternatively, by offering a two-(or even three-) year deal, at, say, $15 million per year – a structure that could pay him way beyond his initial $50 million asking price from last season and would allow him to collect his payout(s) into essential retirement if he so chose.

But here’s the best part: Because Wade will have been playing the 2016-17 season under a minimum-salary (room midlevel exception) contract, his cap hold for the summer of 2017 would be just $1.0 million ($5.5 million). Therefore, at a charge of just $1.0 million ($5.5 million) against the cap, the Heat could deploy all of its summer of 2017 cap space elsewhere. Then, when it is all used up, it could circle back to Wade, leveraging his full Bird rights to give him his huge back-end deal even though it will cause the Heat to exceed the cap.

It remains to be seen whether Wade would make that type of sacrifice if it meant playing alongside Durant, but what is clear is that any Heat scenario that involves both Whiteside and Durant likely also involves a one-year contract at a very low value for Wade.

HEAT’S PREFERRED OFFER TO WADE: TWO-YEAR MINIMUM-SALARY DEAL, WITH THE SECOND YEAR SUBJECT TO A PLAYER OPTION

Scenario 2: Whiteside, No Durant

A Durant to Miami scenario, even if it were to be mathematically possible, is highly unlikely.

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?

The more of that $18 – $23 million (or more, if Whiteside takes less) for which Wade negotiates, the less the Heat will have to allocate to Deng and Johnson, which in turn increases the likelihood that one, or even both, will not be re-signed by the Heat this summer.

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 in order to leave the full $18 – $23 million (or more, if Whiteside takes less) for Wade and Deng. But probably not.

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

Which likely leaves Wade negotiating for all of the Heat’s remaining cap space after retaining Whiteside.

But here’s the thing: It’s not just the first-year salary at issue. It’s also the term. After all, Wade, though he is the face of the franchise, is 34 years old.

There is an inherent risk in offering Wade a multi-year contract. Despite rejuvenated health, he was coming off perhaps his worst full season as a pro (posting the worst true shooting percentage of his career). For large stretches of the season, his team performed substantially better with him off the court than on it. And he has never been an ideal fit alongside point guard Goran Dragic in the Heat backcourt. He was a massive part of the team’s past, but almost certainly not the leader of a future title team.

There’s also an inherent opportunity cost in doing so. The more multi-year money Riley offers Wade, 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 is also quite impressive. Barring potential extensions, that group could includes: 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 certainly build a powerhouse from that grouping of free agents, but only if you have the necessary funds to secure them.

The Heat currently has just $48 million in guaranteed contracts for the summer of 2017.

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.

If he proves unable to return, the Heat can apply to the league office for an exclusion to get his salary removed from its books for salary cap purposes on Feb. 9, 2017. 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, the Heat could waive him and have his salary removed from the Heat’s team salary (even though he’d be paid his $75.9 million salary in full). 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. For Whiteside at the max, that’s $23.2 million. For Johnson, it’s no higher than $5.9 million. 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, Johnson and Whiteside under contract, and all that cap space to spend on one of the most star-studded free agent classes in NBA history?

Should the Heat throw it all away to re-sign Wade to a large multi-year contract this summer?

If not, how does that effect the Heat’s negotiations with Wade?

The Heat, in a non-Durant scenario, would find itself in a similar situation as it was in last summer: hoping to make a big splash the following summer, and pushing for Wade to accept a single-season contract they know he doesn’t want in order to facilitate such a possibility. Only this time around, the amount of the single-season deal wouldn’t be limited by luxury tax implications. Instead, it’s be limited by the team’s available cap space. They’d have just $18 – $23 million to give, depending upon the assumptions made for McRoberts. Which probably means $18 million.

What would be in the best interests of Wade would not necessarily be in the best interests of the Heat organization, which could potentially head off a similar tension this time around.

It remains to be seen whether negotiations between Wade and the Heat organization will get contentious, but what is clear is that in a non-Durant scenario: (i) the Heat will be pushing for a one-year deal while Wade will be pushing for a multi-year deal, and (ii) the more multi-year money he negotiates for himself, the less cap space the Heat will have with which to attack the star-studded 2017 free agent class.

HEAT’S PREFERRED OFFER TO WADE: ONE-YEAR, $18 MILLION DEAL

If the Heat Does Not Re-Sign Whiteside

If the Heat does not re-sign Whiteside, things change substantially. The Heat would be in a position to offer Wade a substantial salary that reflects his contributions to the team over the course of his career. But, again, Riley will want to limit it to a single-year deal so that he can rebuild in the summer of 2017.

HEAT’S PREFERRED CONTRACT OFFER TO WADE: VERY LARGE, ONE-YEAR DEAL

***

Wade’s desire for one last lucrative long-term contract is easily justifiable: He has led the Heat to five NBA finals and three titles, he played a critical role in luring LeBron James and Chris Bosh to Miami, he has handled himself with dignity and class over the course of a brilliant thirteen-year career, and he has sacrificed substantial salary in order to give the Heat flexibility over the past six years.

In theory, the Heat would be more than happy to pay him back by giving him the money he seeks. But in a world with salary caps and luxury taxes and impossible expectations, paying him what he seeks presents significant challenges in practice.

Things could therefore quite easily get contentious. So contentious, in fact, that it’s not all that difficult to envision that which Wade threatened last season to become reality: that he could choose to test the free agent market. And, given the implications, that could well be what Riley himself wants (though he’d never admit it).

What will the Heat offer Wade this summer? Will he accept? What would it mean for the rest of the roster? What would it mean for the future?

Only time will tell.

Notes:
(1) More on this to come in a subsequent post.

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