A Preliminary Look at the Miami Heat’s Salary Cap Situation

The Miami Heat has consciously maneuvered around various – sometimes intricate, sometimes transparent and highly-publicized – salary cap issues over the past couple of seasons with one specific goal in mind: to maximize its flexibility in free agency. The summer of 2017 will be a particular emphasis, with the team now able to begin the process of removing the salary of Chris Bosh from its cap sheet.

The expectation is that the NBA will grant the Heat such cap relief, erasing the two years and $52.2 million remaining on Bosh’s contract from its team salary despite the balance still to be paid by the team, of which up to 55% would be reimbursed by insurance. (I have speculated that the reason for the delay is so that the Heat can apply the rules of the new CBA in its application process. See here for more details as to the benefits and risks of such an approach.)

So where would that leave the Heat?

Excluding Bosh, the Heat has four players under guaranteed contract for next season: Hassan Whiteside at $23.8 million, Goran Dragic at $17.0 million, Tyler Johnson at $5.9 million, and Justise Winslow at $2.7 million.

Winslow’s actual salary will increase 15%, to $3.1 million, due to salary increases in the new CBA that relate to all previously-selected first-round draft picks who began their NBA careers in either the 2014-15, 2015-16 or 2016-17 season, but only the original $2.7 million will count against the salary cap.

So that’s four players, at $49.4 million.

Three more players have player options: Josh McRoberts at $6.0 million, Dion Waiters at $3.0 million, and Willie Reed at $1.6 million.

McRoberts will likely exercise his option, while Waiters and Reed will likely seek larger payouts in free agency. 

If McRoberts were to decline his option, he’d have full Bird rights but at a useless $11.0 million cap hold this summer — which would allow the Heat to walk away from his $6.0 million commitment entirely or, if they were to choose to re-sign him, either with cap space or an available exception after it’s all used up, surely force him to accept a sharply-lower first-year payout. He’s not likely to do that.

If Waiters or Reed were to exercise his option, he’d accrue only Early Bird rights after it was over, which, at a cap hold of $3.9 million (Waiters) or the minimum salary of about $1.6 million (Reed), he could leverage to sign a new contract with a starting salary of up to around $9 million next summer. Neither is likely to do that.

So that’s five players (including McRoberts), at $55.4 million.

Four more players have non-guaranteed contracts: Wayne Ellington at $6.3 million, Josh Richardson at $1.5 million, Rodney McGruder at $1.3 million and Okaro White at $1.3 million.

Richardson’s contract becomes fully guaranteed if he’s not waived by June 30. He’s a lock to make the team.

McGruder’s contract becomes $453K guaranteed on August 1 and fully so at the start of the regular season. He’s almost certain to make it at least to training camp (unless, for whatever reason, the Heat needs to generate an extra half million of cap room and has no other means to do so).

White’s contract becomes $226K guaranteed on July 1 and fully so at the start of the regular season. If he’s on the roster on the first day in July, he’ll likely make it to at least the start of training camp (unless, for whatever reason, the Heat needs to generate an extra quarter million of cap room, has no other means to do so, and is willing to be denied the opportunity to sign him to a two-way contract or to its G-League affiliate to collect upon it).

Ellington’s contract was designed to provide the Heat with optimum flexibility. His $6.3 million salary(1) guarantees on July 7th. That will give Miami a full week to pursue its free agency plans. If they need to allocate his payout elsewhere, they can waive him at no cost. If they want to keep him, they can do just that.

So that’s at least six players, at $56.9 million (including Richardson)… and as many as nine players, at $65.8 million (including McGruder, White and Ellington).

Three more players are free agents with various cap holds: Udonis Haslem at $7.6 million, James Johnson at $4.8 million, and Luke Babbitt at $1.5 million.

Haslem’s cap hold will ultimately become irrelevant because he’ll surely command less than $7.6 million. Perhaps the Heat will circle back to him when the summer rush is over and offer up a minimum salary contract which, for him, would still pay out a generous $2.3 million.

Johnson’s cap hold will ultimately become irrelevant because he’ll surely command more than the $4.8 million starting salary for which his Non-Bird rights would allow.

Babbitt’s cap hold, unlike those of Haslem and Johnson, will be very relevant, because the Heat holds his full Bird rights. At a net cost against the cap of just $656K, the Heat can utilize the rest of its cap space elsewhere and then, when it’s all used up, circle back to Babbitt to exceed the cap in paying him anything up to his max. Miami will therefore keep the cap hold in place unless and until it absolutely needs the extra room.

So that’s at least six players, at $56.9 million (including Richardson)… and as many as 10 players, at $67.2 million (including Babbitt).

The Heat also has its 2017 first-round draft pick to consider.

It can be first overall (0.5% chance), second overall (0.6% chance), third overall (0.7% chance), or 14th (98.2% chance). The draft lottery, which determines which selection the Heat will get, will be held on May 16. The 14th pick in the draft would eat up $2.5 million of cap space.

So that’s at least seven players, at $59.3 million… and as many as 11 players, at $69.7 million.

The Heat can also choose to waive and stretch Josh McRoberts, assuming he exercises his player option, to maximize its cap space.

Doing so would replace his $6.0 million salary with a $2.0 million dead-money cap charge for each of the next three seasons. The Heat will take this action with McRoberts, who still possesses an enviable skill-set, if, and only if, it has an imminent need for the extra cap space.

So that’s at least six players, at $55.3 million… and as many as 11 players, at $69.7 million.

Finally, the Heat will need to add the appropriate number of cap holds for league-mandated roster charges associated with unfilled roster spots fewer than 12.

So what does it all mean?

At a $101 million salary cap, the Heat will realistically be able to generate anywhere from $31 million to $42 million of cap space without any outside assistance — with the $10 million-plus difference dictated by the treatment of Ellington, McRoberts, Babbitt, McGruder and White.

The Heat could potentially increase that total in trade.

As far as player assets, Heat players available for trade include Chris Bosh, Hassan Whiteside, Goran Dragic, Wayne Ellington, Tyler Johnson, Justise Winslow, Josh Richardson, Rodney McGruder and Okaro White. Josh McRoberts, Dion Waiters and Willie Reed would also become trade eligible if, and only if, they first exercise their options.

Among the players eligible for trade, three have atypical issues which need to be considered.

Chris Bosh can be traded. But, if he is traded, the acquiring team would not be eligible to apply to clear his salary from its cap sheet. Which makes any such trade scenarios improbably unrealistic.

Tyler Johnson is a polarizing figure. Pat Riley apparently didn’t want to match the Brooklyn Nets’ offer sheet to keep him last summer, feeling that his $19.2 million cap hits for each of the 2018-19 and 2019-20 (player option) seasons were too damaging to the team’s flexibility. Owner Micky Arison, however, felt he didn’t want to lose Johnson for nothing. Riley has since attempted to unload him, including him in the trade proposal for Serge Ibaka. Riley may well try again this summer. But while he’s a solid player, with the potential to be an exceptional one, it won’t be easy. Johnson can’t be traded without his consent, or to the Nets at all, until July 10. He also has a 15% trade bonus, which would pay out up to $3.8 million. The bonus would be paid by the Heat but increase his cap for the team acquires him. If he’s traded prior to July 1, his cap hits would be allocated equally to the current and following two seasons, increasing his future cap hits to $7.1 million (vs. the current $5.9 million) for 2017-18 and $20.5 million (vs. the current $19.2 million) for 2018-19, along with his $19.2 million player option for 2019-20. If he is traded after July 1, his cap hits would be allocated equally to the following two seasons only, increasing his future cap hits to $7.8 million (vs. the current $5.9 million) for 2017-18 and $21.1 million (vs. the current $19.2 million) for 2018-19, along with his $19.2 million player option for 2019-20. His ability to waive his trade bonus under the terms of the current CBA would be very limited, only to the extent necessary to make a trade permissible within the confines of the traded player exception. However, starting July 1, Johnson and the Heat could agree to waive any or all of his bonus at will in connection with a trade. Which means that while Johnson’s no-trade clause will expire on July 10, he will still have the power to make a potential trade significantly easier or harder, depending upon whether the destination is a desired location for him. If so, he could waive his trade bonus in full to make such trade scenarios easier. If not, he could force the Heat to pay the trade bonus in full, the acquiring team to bear the impact of the trade bonus on its cap sheet in full, and both teams to have to structure the trade around it.

Ellington has intact one of the few remaining vestiges of the current CBA – a $6.3 million non-guaranteed salary, which would count in full for trade purposes and carries a relatively distant guarantee date (that could allow a potential trade partner team to dump salary on the Heat in exchange for him, and then waive him at no cost). This – along with his strong play last season, reasonable payout on his expiring contract, and Early Bird rights when it’s over (which, at the cost of an $8.2 million cap hold, would allow his then-prior team to exceed the cap to re-sign him to a contract with a starting salary as high as $11.0 million) – could create a limited-in-time but potentially valuable trade asset for the Heat if it so desires. (For any player signed under the new CBA, the non-guaranteed portion of his salary is not counted as part of his salary for salary-matching purposes in trade.)

Among its potential draft assets, the Heat currently has one first-round pick (2023 or, after the upcoming draft, 2024) and three second-round picks (2022, 2023 and, after the upcoming draft, 2024) available for outright trade. Its 2017 first-round pick can also be traded, but only after the selection is made (which effectively means the Heat would select for the trade partner, and officially execute the trade thereafter). The Heat should consider this option if its preferred selection is unlikely to be available at pick #14, as it not only saves cap room but also provides a future first-round pick (whether to use or trade). My personal favorite (and the only player for whom I’d personal consider using the pick): Lauri Markkanen.

Miami owes its 2018 first-round pick (top-seven protected in 2018, unprotected in 2019) and its 2021 first-round pick (unprotected) to the Phoenix Suns, which also makes it technically impossible to trade any of its first-rounders in 2019, 2020 and 2022 (teams can’t trade all of their first-round picks in consecutive future seasons). And since teams can only trade draft picks up to seven years into the future, the 2023 pick or, after the upcoming draft, the 2024 pick, would be the only one outside of an already-selected 2017 first-rounder available for trade.

Miami owes its 2017 second-round pick to the Atlanta Hawks (who then traded it to the Philadelphia 76ers), its 2018 pick to the Memphis Grizzlies, its 2019 pick to the Charlotte Hornets, its 2020 pick to the Boston Celtics, and its 2021 pick to the Portland Trail Blazers. And since teams can only trade draft picks up to seven years into the future, the 2022, 2023 and, after the upcoming draft, 2024 picks would be the only ones available for trade.

As far as cash is concerned, the Heat has $3.1 million available to trade away if the trade is to be completed before July 1, and $5.1 million if it is to be completed after. The two figures cannot be combined.

So that’s between $31 million to $42 million of cap space entirely within the Heat’s control to create, and possibly more when contemplating potential trade scenarios. Trade away its first-round pick for a future one? $44 million. Package the first with McRoberts (who could be significantly easier to trade this summer than last)? $46 million. Excise a valuable but costly Tyler Johnson? $47 million. All three together? $50 million-plus. Even more if Winslow is included.

Pat Riley and the Heat organization have a collective vision for the Heat’s future. What actions they take to create cap space will be dictated by their ability to execute upon it.

What could the Heat do with between $31 million and $50 million-plus of potential cap space?

Among those in whom the Heat may have an interest: shooting guard Dion Waiters; small forwards Gordon Hayward, Danilo Gallinari, Joe Ingles (who will be a Utah Jazz restricted free agent, but could price out of the small-market team’s range(2)) and Rudy Gay; and power forwards James Johnson, Serge Ibaka and Blake Griffin, among others.

Hayward and Griffin will surely command a max salary, projected at $30 million. Where everyone else falls out is yet to be determined. The good news in that regard is that the wild spending of last summer – when former Heat small forward Luol Deng collected a shocking 4-year, $72 million contract – is likely over, and the precedents established likely less relevant, as future cap levels begin to reach an equilibrium.

Miami, in addition to its cap space, would also have access to a $4.3 million mid-level exception for room teams.

Whatever the plan with all of it, the Heat will have significant spending power this summer. But it also could be a short-term opportunity.

For the 2018-19 season, the salary cap is projected to rise only modestly, to $102 million. That’s also the summer when Tyler Johnson’s salary explodes higher, to $19.2 million. If he’s not traded, the most the Heat could reasonably project to produce is around $25 million in cap space, and even that would require the team to maintain maximum flexibility this summer (i.e., no multi-year contracts, which could mean the loss of Waiters and James Johnson). It would also mean that Josh Richardson’s contract is not extended this summer; he’d be eligible for one after August 3, which could pay out up to $42 million over four new years without taking up any cap space this summer.

For the 2019-20 season, things get even more challenging. The league hasn’t yet provided projections that far out, but one could reasonably expect a cap of somewhere approaching $107 million. By that time, Richardson may have already been re-signed or extended, the $19.2 million player options of Dragic and Johnson may have already been exercised, the $10.3 million (or higher) cap hold of Justise Winslow may be further strangling the team’s flexibility, and the Heat could be looking at less than $15 million of cap space with which to maneuver.

For the Heat, then, the time is now!

Notes:

(1) Why the Heat, which squandered $1.9 million of cap space last summer, didn’t use a small piece of it to structure Wayne Ellington’s contract to decline from $6.3 million to $6.0 million rather than increase from $6.0 million to $6.3 million is unknown. Doing so would have cost another $270K in actual dollars last season, but would have lowered his cap hit for what the team knew at the time was a deferral of cap space to the summer of 2017, and lowered his cap hold for the summer of 2018.

(2) If I were a part of the Utah Jazz organization, I would be inclined to match any reasonable offer sheet presented to Joe Ingles, and attempt to maneuver in various other ways to reduce cost. Which could make it unlikely for him to be available on the open market, or could push a suitor to submit a high offer and/or one that declines in value in order to inflict maximum near term financial damage to the Jazz if they should choose to match.

This post sets the framework for how much cap space the Heat can generate this summer, and what it would take to get there. Tomorrow, I will publish a second post which sets a basic framework for how the Heat achieved its success this past season, then leverages that framework to pose various (but nowhere near all) alternatives for how you might want the Heat to approach the summer to capitalize on that success, then projects how much cap space each alternative might require. My hope is that, utilizing the two posts together, you can pick a plan you like, and then see the moves you need to make to execute upon it.