Heat Completed The Acquisition of Jimmy Butler In What Turned Out To Be A Costly Trade

It took nearly 24 last-day-of-June-and-first-day-of-July hours and two structures to finalize, but the Miami Heat made its signature move this summer by executing a sign-and-trade for four-time All-Star Jimmy Butler.

Butler signed a four-year, $141 million maximum contract with the Heat, who now have the leading man they’ve been chasing for the past several years.

But it didn’t come without controversy, or cost.

For the capped out Heat this summer, bringing in Butler via sign-and-trade was the only way to get him. But it came with a couple of key complications: salary-matching, and the imposition of a hard cap on spending.

According to salary cap rules, to match to Butler’s $32.7 million maximum first-year salary, the Heat needed to send out at least $26.1 million in salaries in return.

Part of that outgoing salary had to be in the form of a player attractive enough to the Philadelphia 76ers, Butler’s prior team, to entice them to facilitate the transaction, after it was established he would not re-sign. Josh Richardson’s $10.1 million salary was therefore always going to be a centerpiece.

The Heat initially thought it had the other part of the transaction locked up as well.

They felt they had negotiated to send Goran Dragic’s $19.2 million expiring contract to the Dallas Mavericks, where he would be acquired with a Dallas trade exception and be paired with his Slovenian friend and countryman Luka Doncic. $19.2 million + $10.1 million = $29.3 million, which was more than enough.

Apparently, however, there was a miscommunication.

The Mavs felt they agreed to become the third team in the Butler sign-and-trade transaction with the belief that they were getting Kelly Olynyk ($12.7 million) and Derrick Jones Jr. ($1.7 million).

How Dragic could be mistaken for Olynyk and Jones is unclear. But the Heat didn’t want to include Jones in the trade, and the salary-cap math fell $1.7 million short of working anyway (and substantially more than that, when considering hard cap concerns). And while the Mavs very much liked Dragic, they felt his salary was too high.(1)

That misunderstanding threatened to blow up the entire deal, and sent the Heat scrambling to revive it.

They found the answer, in two pieces.

First, they agreed to trade Hassan Whiteside ($27.1 million) to the Portland Trail Blazers in exchange for Meyers Leonard ($11.3 million) and Maurice Harkless ($11.1 million).

Second, they got the Los Angeles Clippers to take Harkless into their cap room. But it came at a huge cost: Miami’s 2023 first-round pick, which is lottery protected through 2025 and unprotected in 2026. This, for a player who could become the starting small forward on the NBA’s title favorite this season. Essentially, L.A. exploited Miami’s desperation to extract both a starting-caliber small forward and a first-round pick, without giving anything back in return but the league-mandated minimum requirement of $110,000 in cash.

When it was all done, the Butler acquisition was structured as a four-team trade – the Heat traded away Richardson to the 76ers, Whiteside to the Blazers, and a protected 2023 first-round pick to the Clippers and acquired Butler from 76ers, Leonard from the Blazers, and $110,000 in cash from the Clippers.

As a result, the Heat now has one fewer future first-round pick, and can no longer unconditionally trade a future first-rounder until its 2028 pick becomes available for trade after the 2021 NBA draft.(2)

The Butler trade also proved costly for the Heat from a financial perspective – increasing Miami’s team salary by $6.3 million, leaving it $14.3 million over the tax line and, more importantly, $9.6 million over the apron.

Teams that acquire a player in a sign-and-trade aren’t allowed to exceed the apron at any time for the rest of the season. Which meant more action had to be taken by the Heat before the trade could technically be executed.

To fall below, the Heat stretched the $15.6 million salary of the waived Ryan Anderson over three seasons, reducing the cap hit to $5.2 million each season. That produced $10.4 million of savings ($15.6 million – $5.2 million), but left Miami with an ugly $5.2 million annual dead-money cap charge through the 2021-22 season.

As a result, the Heat is now stuck with a three-year $5.2 million dead-money cap charge on its books that stretches through the all-important summer of 2021, when the Heat plans to leverage what already figures to be a tight amount of cap room to attract a star.

They’ll also now likely enter the regular season with 14 players, one shy of the regular season maximum, and just $855K below the apron. They’ll be able to add an additional player in January.

Cost of the “Miscommunication”

Ultimately, the “miscommunication” with the Mavs ended up being quite costly for Heat.

Let’s see just how costly:

STEP 1:
When the Dragic portion of the deal blew up, the Heat had to adjust – instead of acquiring Butler ($32.7 million) for Dragic ($19.2 million) and Richardson ($11.3 million), they got Butler and Leonard ($11.3 million) in exchange for Richardson, Whiteside ($27.1 million) and a future first-round pick.

Net Cost: $3.4 million, and a future first-round pick.

STEP 2:
Even if the Dragic deal didn’t blow up, the Heat still could’ve done the very same Whiteside ($27.1 million) in exchange for Harkless ($11.0 million, plus a $500K unlikely bonus for shooting 35% on three-pointers that he likely won’t achieve) and Leonard ($11.3 million) trade, which had a ton of merit on its own — both strategically and financially.

Strategically, the reality of the situation was that both the Heat and Whiteside were working together to find a better solution for both parties. This was it. Whiteside now gets a fresh start in Portland, while the Heat gets a much better fit for what they’re trying to do. Leonard’s perimeter shooting serves as a far better complement to the all-court skills of Bam Adebayo. Despite his defensive shortcomings, Leonard’s offense is so ideally suited to the Heat that he has the potential to become a significant part of its rotation.

Financially, the deal was a just as impactful for the Heat — reducing its team salary by at least $4.3 million, but more likely by $4.8 million (assuming Harkless doesn’t earn his bonus).

This portion of the trade is often misconstrued as only having happened because of the Butler situation. The reality is that it surely would’ve happened either way.

Net Cost: $4.3 million – $4.8 million.(3)

STEP #3:
So far, the Heat would’ve saved between $7.7 million and $8.2 million (depending on if Harkless gets his $500K bonus) AND a future first-round pick if the Dragic portion of the trade had been possible.

But that’s not all – the Heat would be just $1.9 million away from being able to avoid the Anderson stretch, which added a $5.2 million dead-charge to the Heat’s books for 2020-21 and 2021-22. And just $3.5 million away from being able to add a 15th player in the process.

If you’re Andy Elisburg, there’s got to be a trade out there that nets a mere $1.9 million to $3.5 million in savings without compromising the core of the team — particularly since (a) he would’ve had Harkless’ reasonable expiring contract available for trade, (b) the net cost to a trade partner for him could’ve been as little as $1.4 million (since the Heat has to account for his $500K bonus for purposes of the hard cap, no matter how unlikely he is to achieve it, but the trade partner doesn’t), (c) the Heat would’ve had the means to take back a contract with two years remaining on it without significantly affecting the Heat’s future, if necessary, and (d) the Heat had up to $5.6 million of cash available for trade as a sweetener.

So the question really becomes: Could Elisburg have identified a trade partner willing to acquire a starting-caliber small forward in Harkless ($11.0 million, expiring) and a wad of cash in exchange for a player(s) making no more than $8.0 million (if the Heat wanted to add a 15th player) or $9.6 million (if they were fine remaining at 14, where they are today), in either the last or second to last year of his contract?

You have to believe the answer to that question is yes.(4)

(And, even if not, Miami could’ve instead stretched Harkless, reducing the dead-money cap charge through 2021-22 from $5.2 million to at most $3.7 million, but more likely to between $2.9 million (buyout) and $3.5 million (set-off)).

Net Cost: $1.9 million – $3.5 million, and a $5.2 million annual dead-money cap charge through 2021-22

CONCLUSION:

So… What did the Goran Dragic “miscommunication” with the Mavs end up costing the Heat?

Very likely: (i) $10 million-plus in salary, (ii) a future first-round pick, and (iii) a costly $5.2 million dead-money cap charge through 2021-22 (when Miami could be a major player in free agency). That’s painful!

Forgone Opportunity?

The Mavs bypassing the opportunity to become the third team in the Butler sign-and-trade transaction certainly proved painful. But could that portion of the trade have ultimately happened?

The Heat responded to the Mavs refusal by finding an alternative with the Blazers and Clippers, which saved the Butler trade. But it makes you wonder: Given the significant cost it took with L.A., did Miami first consider trying to revive the trade with Dallas?

What if Miami simply waited Dallas out?

The final Butler trade was agreed to on July 1, but it couldn’t be officially executed until after the league’s annual moratorium ended on July 6. So, theoretically, the Heat could’ve given the Mavs five days to consider its alternatives and circle back if they couldn’t find anything better.

On July 6, the Mavs were in the midst of striking out on their top free agent target Danny Green — meaning they weren’t able to find any alternative to Dragic over those five days — and were preparing to make a run at Memphis Grizzlies’ restricted free agent point guard Delon Wright. Ultimately, with the room they would’ve used for Dragic, Dallas instead gave up two second-round picks to acquire Wright in a sign-and-trade. Which begs the question: Would Dallas rather have (a) Dragic ($19.2 million expiring), or (b) Wright (three years, $27.0 million), minus the two second-round picks it cost to acquire him?

Even if (a) is your choice, timing is important to consider here. While the Blazers and Sixers would not have been impacted by whether the Heat leveraged the Mavs or Clippers to complete the trade, L.A. itself would not have been too happy waiting on the Heat to determine whether or not they’d be getting the first-round pick (and Harkless) they ultimately used to acquire Paul George. It would’ve been very difficult and risky to pull off, even if it were possible. Butler’s fate in Miami was hanging in the balance, and that’s something with which the Heat couldn’t afford to gamble.

What if Miami instead just sweetened the deal?

If the Dallas portion of the deal could’ve saved Miami three valuable things – $10 million in salary, a future first-round pick, and a $5.2 million dead-money cap charge through 2021-22 – then Miami could’ve theoretically offered some of those things (or other things) to Dallas as an enticement, and pocketed the difference.

Would the Mavs have agreed to acquire Dragic if the Heat also offered, say, the first-round pick it instead sent to the Clippers? If so, the Heat would’ve still generated $10 million of savings AND avoided the $5.2 million stretch.

How about if the Heat offered Jones? If so, the Heat would’ve generated $10 million of savings, avoided the $5.2 million stretch, AND kept its first-round pick.

As Heat fans, we don’t much care about $10 million of savings. But an annual $5.2 million dead-money cap charge that extends through the summer of 2021, when Miami plans to make a huge splash in free agency?

The summer of 2021 could be historically loaded with unrestricted free agents, potentially including some or all of: Kawhi Leonard, LeBron James, Giannis Antetokounmpo, Paul George, Anthony Davis, Jrue Holiday, Rudy Gobert, Victor Oladipo, Mike Conley, Gordon Hayward, Otto Porter, Julius Randle and Steven Adams, among many others.

As it stands, the Heat project to have just Butler ($36.0 million) and KZ Okpala ($1.8 million) under guaranteed contract that summer, against the league’s currently-projected salary cap of $125 million, potentially allowing Miami to create up to $72-plus million of cap room (after accounting for necessary roster charges and the $5.2 million stretch charge).

More realistically, however, if the Heat were to retain Justise Winslow ($13.0 million team option), Tyler Herro ($4.0 million team option), Bam Adebayo ($15.3 million restricted free agent cap hit), Duncan Robinson ($2.2 million restricted free agent cap hit) and Kendrick Nunn ($2.2 million restricted free agent cap hit), and whomever is selected with their 2020 first-round draft pick (let’s assume $4 million), they could still get to $38 million or so in cap room.

Would you have wanted it to be $5.2 million more? What if you could’ve recovered that future cap room, and saved the Heat $10 million in salary payouts? And maybe even the first-round pick back too?

But here’s the ultimate question: Would you have rather had all that, or at least another season of Goran Dragic — fan favorite (at least to this fan) and hopefully valuable contributor this season (and potentially beyond)?

That’s the question you should be asking yourselves as you appreciate Dragic’s contributions next  season (and hopefully beyond).

Notes:

(1) As the Mavs’ summer worked out, they would’ve been able to create the exact same roster they wound up with AND acquire Goran Dragic if his salary were $6.4 million lower than it is (from $19.2 million to $12.8 million).

(2) The Heat can, however, send out a first-round pick that would convey two years after this pick conveys — which could be as soon as in 2025, and could be traded as soon as now. However, since picks can only be traded seven years into the future and this pick could convey as far out as 2026, it would need to be conditional (since two years after 2026 is more than seven drafts away).

(3) Luxury tax savings would’ve increased the savings further. A $4.8 million salary savings leads to at least $8 million in luxury tax savings. These savings aren’t incorporated into the analysis because of the third step presented above (in which the Heat would re-use the savings generated).

(4) As just one example, I’d imagine the Chicago Bulls would gladly entertain a trade of Cristiano Felicio (two years, $15.7 million left on his contract) in exchange for Maurice Harkless ($11.0 million, expiring) and a wad of cash. Such a trade would leave the Heat with plenty of room below the hard cap not to have to stretch Ryan Anderson’s $15.6M dead-money cap hit over three years. It’d also leave the Heat just $134K short of being able to add a 15th player to start the regular season; they’d need to wait at least 15 days, or could ask Anderson to surrender that much in a buyout in exchange for giving up rights to set-off.

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