Wayne Ellington’s Future With Heat Uncertain, As Trade Deadline Approaches

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Wayne Ellington is a class individual. But he’s not happy.

Ellington set a Miami Heat record with 227 three-pointers (on impressive 39.2% shooting) last season, establishing career highs of 11.2 points and 26.5 minutes per game and leading the team in fourth-quarter scoring (287 points) in the process. He was, at times, the Heat’s most valuable player. Instant offense. His herculean, on-the-dead-run clutch three-point shooting outbursts, displaying deft body control, converted losses into wins. His mere presence on the court commanded constant attention, and drew defenders away from his teammates.

The Heat, recognizing his value, somewhat surprisingly re-signed Ellington to a one-year, $6.3 million contract this summer. Luxury tax consequences be dammed.

Now, he doesn’t play at all.

The 31-year-old, who must approve of any trade as a result of that contract, desperately wants to play. And, according to Barry Jackson of the Miami Herald, his agent Mark Bartelstein has approached the Heat about it. “I feel like I need to be on the court right now playing instead of just watching as the season goes by, quickly,” Ellington recently said.

This couldn’t have been the plan.

But if the Heat have proven one thing in the post Big Three era, it’s that rotations change. Frequently. Players who don’t play at all one month can easily become the Heat’s most critical the next. It’s a byproduct of a roster full of role players.

So Ellington remains valuable. Even from the bench. Which complicates matters.

A buyout? That’s not coming. Why would the Heat give away a player who could easily become its most valuable contributor for any given playoff game? And why would they make it easy for any of their staunchest competitors to sign him, and use him to help knock the Heat right out of the playoffs? Teams like the Philadelphia 76ers, who feast off buyout deadline machinations (e.g., Erson Illyasova and Marco Bellineli last season), would gladly pay the $350K or so it would take to sign him at the March 1 buyout deadline.

A trade? Perhaps. But it depends. What would be the return?

A future first-round draft pick? Sure. But that may not be on the table.

A future second-round draft pick? That may not be enough (at least not a single one, on its own), even for a team that only has one remaining (in 2022) over the next six years.

Would luxury tax savings be enticing? Perhaps. How much?

The Heat never overtly have a mandate to reduce their tax bill, but it’s always on their minds. Dealing Ellington could help a Miami team that projects to be a luxury taxpayer both this season and next. A couple million dollars of savings may not be enough on its own. But bigger savings, or potentially even dropping below the tax line altogether, would be an entirely different proposition.

The Heat are currently $6.3 million over the tax line, which would yield a projected luxury tax bill of $9.7 million if they can’t reduce their team salary prior to the start of their last regular season game on Apr. 10. The Feb. 7 trade deadline is their last big chance.

Dropping below the luxury tax would save them from their $9.7 million tax bill, position them to collect a share of the tax proceeds of other luxury tax-paying teams (currently projected at around $4.3 million if the Heat fall under), and push out any repeater tax concerns another season (to 2022-23 at the earliest). That may not be enough to sacrifice their competitiveness, but it’s too much to ignore in trade scenarios that don’t.

So… The Feb. 7 trade deadline is less than three weeks away. The Heat are currently $6.3 million over the luxury tax line (to be more precise, $6.2698 million over). And Ellington makes $6.3 million (to be more precise, $6.2700 million). If Miami can somehow trade him without taking any net salary back in return, they’d fall $159 below.

But trading Ellington without taking any net salary back won’t be easy, and, no matter how the Heat would go about doing it, there would be serious challenges to overcome: 

There are only three ways the Heat can trade Ellington without taking any net salary back in return: (i) trade him to a team with either a trade exception, disabled player exception or cap room large enough to swallow his entire $6.3 million salary, (ii) trade him in exchange for players either sent to a third-party or the Heat then re-trades, or (iii) combine him into a larger trade in which the net return is $6.3 million less than what they’ve sent out. 

Let’s break down each of these two scenarios further: 

Scenario 1: Trading Ellington to a team with either a trade exception, disabled player exception or cap room large enough to swallow his entire $6.3 million salary

Only six NBA teams can currently absorb Ellington’s $6.3 million salary without sending any salary back in return: the Charlotte Hornets, Denver Nuggets, Detroit Pistons, Oklahoma City Thunder, Sacramento Kings and Washington Wizards.

The Hornets and Pistons (whose trade exception expires January 29, well before the trade deadline) would cross the luxury tax threshold by doing so, so they’re out. The Thunder and Wizards are already over the tax line, so they’re out too. And the Kings, though they have $11.0 million of cap room and are reportedly looking to upgrade their roster for their unlikely playoff run, already have their buzzer-beating, game-winning, 3-point shooting guard in Buddy Hield (and aren’t likely to eat into their cap room without the enticement of draft considerations, which the Heat aren’t likely to offer).

So if it’s going to be anyone on that list of six, it could be the Nuggets. But even that has its challenges. 

Denver is currently $6.9 million below the tax line, has two trade exceptions large enough to acquire Ellington outright ($12.8 million and $13.8 million, respectively), and, despite standing second overall in the challenging Western Conference at present, could use aggressive perimeter shot-making. And they’d only owe him a prorated portion of his salary if they were to acquire him – $2.2 million at the Feb. 7 trade deadline – which Miami could potentially fund with their $5.3 million of tradeable cash. And Ellington would presumably approve, happily.

Denver would, however, have some challenges of its own to overcome. First, while a tax-dumping Ellington trade might sound great for the Heat, it’s not clear how much of a priority it would be for the Nuggets; they could easily have bigger needs (e.g., perimeter defense) or bigger swings (e.g., Kevin Love, etc.) in mind. Second, they’d need to free up a roster spot to take Ellington in. Third, and most importantly, that $6.9 million below the tax line is misleading. They also have up to $2.5 million in “unlikely” but potentially realistic bonus money(1), and since they aren’t likely to want to cross the tax line under any circumstances (the Nuggets have an expensive future ahead; pushing potential repeater tax consequences out an extra season will be a priority), those bonuses need to be factored in. So, for planning purposes, they’re really more like $4.4 million under, which isn’t enough room to take Ellington and avoid the luxury tax.(2)

So, while trading Ellington to a team with the ability to swallow his salary is the most obvious way to get it done, it may not be all that realistic. 

But, even if the Heat did manage to trade Ellington without taking any salary back in return, dropping $159 below the tax line in the process, there would be even more problems for the Heat to overcome — they’d be forced to re-cross the tax line shortly thereafter. 

Trading Ellington without taking salary back would cause the Heat to drop to 13 players (on standard NBA contracts). By league rule, a team can only spend up to two weeks at a time with a roster size that small, before being required to re-add a 14th player. The moment the Heat would re-add that 14th player, no matter who or for how short a time it is, they’d re-cross the tax line.

The Heat would be $159 under the tax line without the 14th player. Adding him would cost, at the very least (using strategically-timed 10-day contracts), $170,915. Which would leave them at least $170,756 over the tax line. 

So trading Ellington alone, even if the Heat took nothing back in return, wouldn’t quite be enough to keep them under the tax line.

To address this problem, they might need to trade away a second player. But who? 

Rodney McGruder — who earns just a $1.5 million salary, has an expiring contract, would need to be extended a rather expensive $3.0 million qualifying offer for the Heat to make him a restricted free agent next summer (otherwise, he’s be an unrestricted free agent with full Bird rights) — would seem like the logical choice in such a scenario.

But trading both him and Ellington could compromise the Heat’s competitiveness, which, again, is something the Heat might not be willing to do.

Update (01/31/19): The Dallas Mavericks traded DeAndre Jordan, Wesley Matthews and Dennis Smith Jr. and two future first-round picks (likely in 2021 and 2023) to the New York Knicks in exchange for Trey Burke, Tim Hardaway Jr., Courtney Lee and Kristaps Porzingis today. In that trade, the Mavericks created a $12.9 million trade exception. Since they are $24.5 million under the luxury tax threshold, they become perhaps the most attractive Scenario 1 trade destination for Wayne Ellington, if he were to approve. They would have the ability to swallow his entire contract, without sending anything back, and without anywhere close to any luxury tax concerns. 

Update (02/06/19): The Los Angeles Clippers traded Tobias Harris, Boban Marjanovic and Mike Scott to the Philadelphia 76ers in exchange for Wilson Chandler, Mike Muscala, Landry Shamet, Philadelphia’s own 2020 protected first-round pick, an unprotected 2021 first-round pick via the Heat, and 2021 and 2023 second-round picks via the Detroit Pistons. In that trade, I project that the Clippers created a $9.8 million trade exception. Since that trade exception will go to waste if they utilize cap space next summer (which they almost surely will) and they’re $10.6 million below the luxury tax right now, they become another attractive Scenario 1 trade destination (as described below) for Wayne Ellington, if he were to approve.

With the trade deadline looming at 3:00 pm (EST) tomorrow, the following 7 teams have the ability to trade for Ellington without sending matching salary back in return: the Charlotte Hornets, Dallas Mavericks, Denver Nuggets, Los Angeles Clippers, Oklahoma City Thunder, Sacramento Kings and Washington Wizards. 

Scenario 2: Trading Ellington’s $6.3 million in exchange for players either sent to a third-party or the Heat then re-trades

Any team other than the above six would need to send back at least $3.5 million of salary in exchange for Ellington; that’s a net salary difference of just $2.7 million. 

If the Heat’s primarily goal is to slide below the tax line, the net savings needs to be much bigger. Which means they can’t take back that $3.5 million-plus. 

Such a trade would therefore need to involve either: (i) three teams, with the team interested in Ellington sending salary back to a third team capable of absorbing it, or (ii) the Heat taking back players who could then be subsequently traded, and perhaps the assets with which to do so.

But, across the entire league, there’s only one more team that can swallow a $3.5 million-plus salary (the Utah Jazz, up to $4.1 million) than the two that can swallow Ellington’s full $6.3 million salary (the Nuggets and Kings) while remaining below the tax line. There are, however, numerous others which can swallow portions of it if that $3.5 million-plus is broken across multiple players. And the Heat, for its part, could use its $5.3 million of tradeable cash to offer a profit to anyone who does (for frame of reference, players will have just 35% of their salaries remaining to be paid at the trade deadline — which means that $5.3 million of cash could represent a huge profit). But you can see how this quickly starts to get complicated. 

And again, even if the Heat could find a way to either take none of that $3.5 million of salary back in the trade, or re-direct it in the subsequent trade, it would still leave them just $159 below the tax line, one player shy of the league-mandated 14-player minimum. Which, again, could leave the Heat stuck with the possibility of needing to trade McGruder to keep themselves under. 

Scenario 3: Combining Ellington into a larger trade in which the net return is $6.3 million less than what they’ve sent out

The first two scenarios above deal with the prospect of the Heat trading Ellington alone, but that’s not the only possibility. The Heat could trade Ellington as part of a larger package to potentially duck the tax. 

Trading Ellington’s $6.3 million salary alone would require a team (that doesn’t have the necessary cap room or trade exception) to send back at least $3.5 million in salary; a maximum net salary difference of just $2.7 million. To juice that net salary difference up into the $6 million range, the Heat would need to package him with a very high-salaried player(s). 

Among the highest-priced Heat players, the maximum net salary difference could increase as follows: with Goran Dragic, $5.0 million (if the salary the Heat takes back is exactly $24.4 million); with Tyler Johnson, $5.2 million (if the salary the Heat takes back is exactly $20.3 million, and the Johnson agrees to waive his entire $1.0 million trade bonus); and with Hassan Whiteside, $6.4 million (if the salary the Heat takes back is exactly $31.7 million). Adding McGruder into the trade would juice the net salary difference in each case by $309K.  

Since the Heat are currently $6.3 million above the tax line, the only trade package that would drop the Heat below the tax would involve an Ellington package with Whiteside, in exchange for a package of players making between $25.3 million and $25.4 million (or, including McGruder, between $26.5 million and $27.0 million). That’s extremely limiting. 

***

None of these scenarios are perfect.

The first two involve a very limited number of potential Heat trade partners and, even if such a trade were successful, could involve the Heat trading both Ellington and McGruder for the Heat to duck the tax. The third scenario involves an exceedingly exacting trade scenario which could be virtually impossible to find. 

Simply put, it’s not easy to dump $6.3 million of team salary at the trade deadline. 

But, maybe the Heat won’t have to. 

Built into the Heat’s current $130.0 million team salary – which, again, puts them $6.3 million over the tax line – is up to $1.4 million in bonus money for Kelly Olynyk.

Olynyk, who has an $11.1 million base salary, would collect an additional $400K if the Heat make the playoffs and another $1.0 million if he plays 1,700 regular season minutes. Since he achieved both of those thresholds last season, both are built into the Heat’s current team salary. But, for purposes of the luxury tax, the Heat’s final team salary will be adjusted based on whether or not Olynyk achieves them this season.

Assuming the Heat makes the playoffs this season(3), Olynyk’s $400K bonus is assured. But his $1.0 million bonus for playing 1,700 regular season minutes is very much in doubt. In fact, he’s not currently on track to receive it.

Olynyk has played 859 minutes through the Heat’s first 44 regular season games (of which he’s played in 43). Which means that even if he were to remain healthy and play in every single one of the Heat’s remaining 38 games, he’d need to average more than 22 minutes to achieve his $1.0 million bonus. He’s averaged under 20 minutes thus far, and, at least at the present time, that average is going down, not up. He’s averaged fewer than 12 minutes in his last five games.

The Heat is a class organization. They almost certainly wouldn’t intentionally limit Olynyk’s playing time. But if he fails to achieve his $1.0 million bonus for playing 1,700 regular season minutes, the Heat’s team salary would fall to $129.0 million – just $5.3 million above the tax line.

So, to avoid the luxury tax, the Heat might not really need to dump Ellington’s full $6.3 million salary. Instead, it might only need to dump $5.3 million. Which would give the Heat some added flexibility in potential Ellington trade scenarios.

How much flexibility? 

In Ellington trade scenarios in which the Heat take back no salary, or take back salary which they then re-trade (the first two scenarios above), not only would they not need to subsequently trade McGruder, they could actually accept back a player in return. But only one, very specific type of player – a second-round draft pick signed this summer who makes $1.0M or less.

In Ellington trade scenarios involving a larger construction (the third scenario above), the Heat would only need to take back a net $5.3 million (not the full $6.3 million) if they take back an equivalent number of players, or $5.4 million if they take back one fewer player (and, as a result, need to re-add a 14th player). That could allow the Heat to pursue not just Ellington packages with Whiteside, but also Ellington packages with Dragic or Johnson (and McGruder). 

***

With the trade deadline fast approaching and Miami stuck in a seemingly endless cycle of mediocrity, Heat fans are naturally craving something big. We’re going to want the Heat to swing for the fences. Or dump some serious salary. But neither is likely. Ellington trade scenarios are about as exciting as it’s likely to get.

There will be serious interest. The Heat will want a serious return – perhaps a first-round pick, a pair of second-round picks, significant tax savings, or some combination. Interested parties will offer more tempered packages – perhaps a second-round pick and/or reasonable tax savings. So keep an eye out for whether the Heat can bridge that gap with anyone. 

But even if the financial limitations could be overcome, there are still the strategic limitations to consider. The Heat may not want to trade Ellington to an in-conference playoff contender (unless they’re blown away by an offer), which primarily leaves Western Conference playoff contenders — teams in this category could include the Houston Rockets, Los Angeles Lakers, or (in salary-match scenarios) possibly the Thunder — and non-competitive teams in either conference who might be willing to exchange bad contracts. So keep an eye on them (and the other on Kelly Olynyk’s minute totals)!

Notes:

(1) The Nuggets have $2.5 million in “unlikely” but potentially realistic bonuses potentially payable to Nikola Jokic, Paul Millsap and Gary Harris. Most of it is tied to how far they advance through the playoffs: $581K for making it in, another $631K for advancing to the second round, and another $200K each for the Western Conference Finals, NBA Finals and winning the title. Of the $700K remaining, $550K requires Harris to play at least 60 games in addition to other team-based milestones (he can get to 64 if he plays all remaining games) and the other $150K requires Millsap to play at least 65 games and grab at least 7 defensive rebounds per 36 minutes (he’s only at 6.4 right now).

(2) Note: This footnote has been updated on January 25, 2019 to reflect the Nikola Jokic suspension. As a way solve this issue, the Nuggets could free up the necessary roster spot to acquire Ellington by sending Tyler Lydon ($1.9 million expiring) back to the Heat – making the hypothetical trade Ellington for Lydon, who could be expendable after his third-year team option wasn’t exercised. The Nuggets are currently $7.0 million below the tax line, so doing so would leave them $2.6 million under; that’s just enough to cover the $2.5 million in realistic bonus moneyOf course, such a trade would still leave the Heat above the tax line, and needing to dump Lydon’s expiring contract to drop below. But more than a third of the league can currently swallow a contract that size without crossing the tax line themselves, and the Heat could offer a ridiculous amount of cash to offset the mere $657K which would be remaining to be paid on Lydon’s $1.9 million salary at the trade deadline. And if Lydon proves difficult to trade, the Heat could try to move Rodney McGruder instead. And even if they couldn’t get all the way under, we’re still taking about $6.7 million in tax savings, and $8.2 million total savings, in the Ellington-Lydon swap.

(3) While the Heat missing the playoffs would open up additional opportunities for the Heat to avoid the luxury tax, this post was written utilizing the assumption that the Heat would not make any trades that would compromise winning and, therefore, does not break down such scenarios. 

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3 Responses

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  3. January 24, 2019

    […] would give the Heat just enough cap relief to escape the luxury tax, writes salary cap expert Albert Nahmad for HeatHoops . Miami currently projects to be $6.2698MM over the tax line and Ellington’s salary is $6.27MM, […]

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