Heat Have Reportedly Registered Some Level of Interest In J.R. Smith’s Contract

The Miami Heat has expressed interest in a “salary-designed” trade for Cleveland Cavaliers guard J.R. Smith, according to The Athletic’s Shams Charania.

­Smith hasn’t been with the Cavs organization since November, but his unique contract situation nonetheless has value in trade, upon which they are seeking to capitalize. Cleveland covets draft picks, and are willing to take on bad money to get them.

“We have a trade chip in J.R. Smith and his contract, where we can take on some money that other teams are trying to get some cap relief from,” general manager Koby Altman told reporters in mid-April. “We are actually the only team in the NBA that can provide guaranteed cap relief until July 1. We can guarantee that right now. So we’re going to keep on being aggressive adding those assets because we do eventually want to consolidate and be really good at some point.”

That’s precisely what they did with the Houston Rockets at the February trade deadline. The Rockets, eager to both slip below the luxury tax line as well as shed unwanted salary for the following season, attached their 2019 first-round draft pick (which ultimately became No. 26) and 2022 second-round draft pick as an incentive for the Cavs to swap their expiring contracts of Alec Burks, Nik Stauskas and Wade Baldwin in exchange for the more onerous contracts of Brandon Knight and Marquesse Chriss. The trade increased Cleveland’s team salary by $3.2 million, and added Knight’s $15.6 million to their cap sheet for 2019-20.

It’s also what they did with the Milwaukee Bucks the prior December. The Bucks, looking to clear long-term money off their books, attached a 2022 first-round pick (top 10 protected, and likely to be similarly low) and 2021 second-round pick as an incentive for the Cavs to take on the contracts of Matt Dellavedova and John Henson in exchange for the contracts of George Hill and Sam Dekker. The trade added an extra $18.3 million to their cap sheet for 2019-20.

Any potential Heat deal for Smith could employ a similar framework.

The Heat don’t have interest in Smith as a player. His value lies purely in the nature of his contract – which calls for a $15.7 million salary for next season, that is only guaranteed for $3.9 million if he waived by June 30.

Smith’s contract was signed in 2016, under the prior Collective Bargaining Agreement. That was before the NBA changed the rules regarding how such partially guaranteed contracts are handled in trades. Because the contract was signed before the current agreement went into effect, Cleveland can use his full salary for this season as outgoing salary ($14.7 million), and not just next season’s guaranteed amount ($3.9 million).

For contracts signed after the new CBA took effect, the non-guaranteed portion would not count as outgoing salary for salary-match purposes (while the trade partner would use the full salary as incoming salary) – effectively eliminating this possibility.

Despite the rule change, contracts signed under the previous CBA have been grandfathered in, which effectively allows a trade partner to send back a matching, high-priced salary in exchange for Smith, and then only be responsible for his $3.9 million guarantee. For that to happen, the trade would need to be executed (and then Smith would need to be waived) by June 30.

Cleveland’s prior two trades serve as benchmarks for what the Cavs would seek from the Heat in a potential trade of Smith. They covet first-round draft picks. A lottery pick would clearly be preferable.

The Heat have the No. 13 pick in the upcoming draft.

But that doesn’t necessarily mean they’d offer it, at least not if it means forgoing the draft entirely – it’s not who they are as an organization. Beyond just the No. 13 pick, the Heat also have up to four second-round picks (2022, 2024 (31-55), 2025 and, after the draft, 2026) and up to $3.4 million of available cash (which would get replenished to the full $5.6 million on July 1 anyway) to offer. They could also ask for Cleveland’s newly-acquired No. 26 pick in exchange.

The Cavs previously received calls on Smith’s contract back at the February trade deadline. The offers weren’t to their liking. So the front office decided to wait until after the season, hoping they’d receive better offers as the pressure of the June 30 deadline approached, for teams eager to dump salary to fulfill their summer dreams. It’s imminently possible that the Heat are registering interest in Smith along the lines of prior offers that were previously deemed unacceptable.

But one thing has changed for Cleveland since last February. After taking on an extra $35.0 million of salary for next season in its prior two trades, the Cavs have backed themselves into a corner when it comes to taking back additional salary. They’re pressed right up against the luxury tax line for next season. And having been a taxpayer in three of the last four years, they’d be facing repeater tax consequences if they cross it.

As things stand, the only way for the organization to avoid the tax would be to waive Smith, and stretch his $3.9 million guarantee over three years – which may well be what they do if he isn’t traded by June 30. Any Smith trade that has them taking back money would cause them to cross into tax territory – which means they’d either need to commit to paying it, or pursue an eventual trade of one of their own expiring contracts.

Clearly, the Heat have reached out. So what are they offering?

It’s difficult to predict.

Big swings come with bigger asset requirements.

Trades proposals in this category would generally include a straight swap of Smith’s contract in exchange for a Heat multi-year contract. On its own, Smith’s contract would allow the Heat to send back anywhere between $11.7 million and $18.5 million of salary – that’s Goran Dragic ($19.2 million player option he’ll surely exercise), Kelly Olynyk (two years, $23.9 million), and James Johnson (two years, $31.4 million).

Dragic and Olynyk are unlikely targets for such treatment. Dragic has value, and Olynyk is very much a part of the Heat’s future.

Miami has reportedly been considering its options with respect to Johnson and Dion Waiters.

Clearing Johnson’s salary would save the Heat $9.9 million in net salary this season, and position the team to be able to drop below the luxury tax line. It would also clear his $16.0 million salary off the books for next season, positioning the team to create in excess of $50 million of cap room next summer.

Waiters, who earned $11.6 million this past season, doesn’t have a high enough salary to be included in a straight swap for Smith. While the Heat would only be $180K short, there’s no obvious way to bridge the gap. Duncan Robinson, Yante Maten and Kendrick Nunn aren’t eligible to be traded in June, which leaves only Derrick Jones as a possible low-cost addition. But even that has complications. His $1.6 million salary for next season is non-guaranteed. The Heat would need to guarantee at least $180K of his salary to make the trade work – that requires an amendment to his contract, which, of course, has to be mutually agreed upon, giving Jones an ability to block the trade if he doesn’t want to move to Cleveland.

Clearing Waiters’ salary would save the Heat a projected $6.6 million this season, and wipe his $12.7 million salary off the books for next season.

In either scenario, the Cavs would effectively be taking on an additional $21 million over two years for Waiters or an additional $28 million over two years for Johnson. They’re likely to request at least the Heat’s No. 13 pick for that. The Heat could hypothetically counter with a swap of their No. 13 for Cleveland’s No. 26 pick, if these are the parameters of what is being discussed.

If the Heat really wanted to get aggressive, they could attempt to shed the multi-year contracts of both Johnson AND Waiters, clearing $60 million-plus of potential cap room for next season. Such scenarios would allow the Cavs to pair Smith with the undesirable expiring-contract player (or players) of their choosing, potentially minimizing Cleveland’s tax ramifications for next season but committing them to $29 million in salary in 2020-21.

More modest swings come with lower asset requirements.

Trades proposals in this category would generally include scenarios in which the Heat send out one or more expiring or multi-year contracts in exchange for Smith and a second Cavs contract – possibly Tristan Thompson ($18.5 million expiring), Brandon Knight ($15.6 million expiring), Jordan Clarkson ($13.4 million expiring), John Henson ($9.7 million expiring), or Matt Dellavedova ($9.6 million expiring). Doing so would increase the range of corresponding salaries the Heat could send back, to include not only some combination of Johnson or Waiters, but also Ryan Anderson ($21.3 million expiring, with $15.6 million guaranteed) and Hassan Whiteside ($27.1 million player option he’ll surely exercise).

Scenarios can be constructed whereby the Heat would project to save anywhere from just a few million dollars to well into the ten-figure range. It’s possible the sides would discuss various permutations, with various draft assets to serve as an enticement.

The Heat aren’t likely to offer their No. 13 pick (whether on its own or as part of a swap for No. 26) unless there is significant multi-year relief.

The Cavs aren’t likely to cross into tax territory unless significant assets are exchanged in return.

Can a deal be structured that would be mutually beneficial, and simultaneously satisfy each party’s desires – the Heat’s desire for salary cap relief while limiting the loss of valuable draft assets, versus the Cavs’ desire to collect attractive draft assets to justify crossing into tax territory for next season and possibly cluttering their 2020-21 cap sheet?

Unlikely. But the definitive answer is less than 25 days away.

1 Response

  1. Dallin says:

    This is great analysis, thanks Albert. A question in considering these multi-player constructions: If the Heat were to send out Anderson in a trade in June, what would his outgoing salary be for trade purposes? (This year’s salary or next year’s non-guaranteed portion?) For these trades happening post-season, but pre-offseason, I’m confused on which year’s salary is used for incoming/outgoing salaries in trades…

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