Miami Heat’s Deadline Trade Provides Current Improvement, Future Flexibility

The Miami Heat attempted an ambitious move in advance of Thursday’s NBA trade deadline, seeking to package forward Justise Winslow with the unwanted contracts of James Johnson and Dion Waiters and turn them into championship forward Andre Iguodala and prized forward Danilo Gallinari.

Things didn’t quite work out as planned.

Discussions with Oklahoma City for Gallinari advanced to the point where the Thunder approved Heat representatives to negotiate with Gallinari on a possible extension, indicating that OKC clearly felt there was a path toward a deal.

Gallinari, an upcoming free agent who is earning $22.6M this season, was eligible to receive an extension from the Heat of up to $48.7M over up to two years – $23.7M for next season, and $24.9M for 2020-21. The extension was a critical component to a potential deal. Miami did not want Gallinari merely as a four-month rental, given the draft compensation that OKC was demanding (which likely included removing the protections on the 2023 first-round pick Miami already owes OKC, and sending a second one in 2025).

Despite the discussions, the sides were not able to come to agreement. Gallinari presumably wanted to fully guarantee both extension seasons at or near the maximum possible payout, while the Heat wanted to attach a team option onto the 2021-22 season. Miami wants to preserve max cap space in 2021, for a pursuit of Milwaukee Bucks forward Giannis Antetokounmpo (among other prized potential then free agents).

(Huge, rambling, parenthesized aside: As you undoubtedly know by now, I viewed Gallinari as a transformative talent for the Heat, and my preferred trade target all season long. In fact, my long-time readers know that I’ve actually wanted him for three years now. It felt amazing to have nailed what would ultimately become the Heat’s primary trade deadline interest a full six months in advance, so I’m somewhat biased (it’s up to us all, individually, to evaluate the talent of the player). But the Heat put itself in the odd (though understandable) predicament of not wanting to trade for him if it were to be just a four-month rental, and not wanting to commit to anything beyond one extra new season — that’s a very precise and specific extension demand. I, too, don’t think they should’ve traded for him without agreeing to a longer-term arrangement. But I, personally, don’t think the Heat can plan its entire future, bypassing transformative opportunities, around the possibility of signing GiannisIf Giannis were to become a possibility, and the Heat finds itself needing more cap room to sign him, it could always have pursued trade scenarios to get it. What says you can’t trade a then reasonable and expiring Gallinari salary (no greater than $24.9M)? Perhaps, as Zach Lowe points out in his eloquent article, these kinds of trades tend to cost a lot; when everyone knows you need space, you have no leverage. But relying upon a potential trade wasn’t the only option available to recover the necessary cap room for Giannis, if he indeed became a possibility. There were several other ways to do it too. As you’ll see further down in this post, the Heat could’ve paid out up to $15M in 2021-22 and still had enough room for a max. So, if the negotiations broke down over whether or not to attach a team option on Year 2 of a potential two-year, $48.7 million extension, the Heat could have, for example, instead made that $24.9M second-year salary partially guaranteed for $10M – enabling Gallinari to still get his full extension-max salary next season and a free $10M to walk away in the second if the Heat were to need to cut him to preserve max cap room for Giannis. And, lest we forget, if all else failed, the Heat could’ve always waived and stretched Gallinari’s $24.9M salary (or $10M partial guarantee) to create the max room. Technically speaking, there was no extension Miami could have given Gallinari that would’ve eliminated the possibility of having flexibility for a max in 2021, because the most he could’ve gotten was $24.9M, which could’ve been stretched away to $8.3M. Of course, none of these ways are anywhere near as eloquent as simply not trading for him if he wasn’t willing to forgo a second-season full guarantee. The Heat’s position is understandable. And, yes, as you’ll see below, the Heat can also sign him in free agency this summer, without sacrificing the draft considerations. And maybe, after experiencing a down free agent market, he will accept a one-year deal. But even if that happens, the Heat will have lost this season of his transformational talent, and they likely will have had to have sacrificed the ability to re-sign Goran Dragic and Meyers Leonard to make it happen. The beauty of trading for him lies in the potential to do three things: (i) get him now, (ii) retain the entire rest of the roster, and (iii) may even add to it next summer. Is that worth an extra draft pick? Or potentially squeezing the team’s 2021 cap room? These are high stakes, gut-wrenching decisions. The Heat played it cautiously. I don’t know whether that was right or wrong. I might have been more aggressive. Either way, I’m bummed.)

With the Gallinari pursuit stalled, the Heat completed the deal for Iguodala alone – sending Winslow, Waiters and Johnson to the Memphis Grizzlies (who then redirected Johnson to the Minnesota Timberwolves in exchange for Gorgui Dieng) in exchange for Iguodala, Jae Crowder and Solomon Hill. The latter two, both on expiring contracts, were likely not primary Heat targets, and would have been redirected to the Thunder had a three-way deal including Gallinari been possible. Crowder, however, will crack the Heat’s rotation, and could become a valuable contributor.

The Heat signed Iguodala, who was also on an expiring contract, to a two-year, $30M extension as part of the trade. It’s maybe not the greatest of contracts, but it includes a team option for the 2021-22 season, ensuring that it does not compromise the Heat’s cap room for the summer of 2021.

(One last rambling, parenthesized aside: Why oh why would the Heat lock in a $15M salary for Iguodala next season? He could be great. He could be not great. We don’t know what he’ll be. Is that worth $15M? Is that worth anything? Why not actually wait and see what he is before committing to giving him such a massive amount of money? I imagine Iggy negotiated for it. But think about what it did. As you read on below, you will discover that, as a result of the trade, the Heat can now generate either $28M or $40M in cap room next summer (with the difference based on whether Kelly Olynyk exercises his player option). But it would’ve been $43M or $55M (again, based on Olynyk’s decision). That’s a huge difference in flexibility, sacrificed on a player whose potential contributions are still uncertain. You can do a lot of things with $43M that you can’t do with $28M. For example, Gallinari could certainly become the Heat’s primary free agent target this summer. So imagine a scenario where he demands the very same $24M he was negotiating for in his extension. That would just about wipe away the Heat’s cap room. Which means the Heat could find themselves in a position where they can’t bring back Dragic and/or Leonard, simply because they gave $15M to Iguodala. Or, as another example, imagine a scenario where Joel Embiid becomes available in trade. Well, he costs $30M. How peeved would you be if you fell just shy of being able to take Embiid into cap room after all the trade dynamics are worked out, and had to attach a first-round pick to Olynyk to create the last bit of needed room, simply because they gave $15M to Iguodala. I’m not suggesting any of these scenarios will happen, or that Iguodala won’t ultimately prove to be worth it. But what I am saying is that there was zero urgency. The Heat could’ve always given him that same money next summer. So why now? What it tells me is: (i) the Heat really do highly value Iguodala (maybe too highly?) and wanted his full buy-in(1), and (ii) the Heat aren’t really planning to utilize the cap room they created, but rather to pocket the savings. So I’m bummed some more.)

Iguodala will bring the Heat championship-caliber leadership for at least the next season and a half. What on-court production the 36-year-old will provide is impossible to know, given that he’s spent the first three months of the season at home in California awaiting a potential trade. But, if history is any indication, the 2015 NBA Finals MVP tends to shine in the biggest of moments.

The trade also, by dumping the final seasons on the contracts of Johnson and Waiters, clears $27M off the books for next season.

It also had some financial benefits for this season too. Difference in salaries sent and received: A bit over $2M. Which saves some $3M of luxury tax dollars, leaving Miami anywhere between $1.4M and $2.9M below the tax line (with the range based on $1.0M and $0.5M bonuses for Olynyk and Hill reaching 1,700 and 1,000 minutes, respectively)(2). It also leaves Miami $2.8M below the hard cap, which creates the ammunition for the Heat to attack the buyout market. With the roster now standing at the 15-player limit, they’d need to waive a player to do so. That player would certainly be Hill(3), which would have the added benefit of increasing the Heat’s room below the hard cap to $3.9M, all of which could be deployed; that’s more than any contender has available. And if the buyout market pursuit fails, the Heat also maintains the flexibility to convert Gabe Vincent’s two-way contract into a (potential multi-year) standard NBA contract.

That’s an impressive haul — saving tax dollars and freeing up buyout flexibility for this season, and, for next season, swapping $41.7M of salary to three players (Winslow, Waiters, Johnson) who have barely cracked the team’s current rotation with the $15.0M extended salary (Iguodala) of a champion, all without surrendering a single draft pick from a heavily depleted stockpile.

But a proper evaluation of the trade requires a closer look.

Since the trade effectively had no impact on the Heat’s summer of 2021 plans — all players sent and received will (or, by not exercising team options, could be made) free agents before then — it can ultimately be evaluated largely(4) on the basis of one simple question: Do you feel that acquiring Iguodala/Crowder and creating an extra $27M of cap room for next summer (and next summer only) was worth the cost of Winslow?

The answer demands not only a comparison of the players(5), but also an analysis of what the Heat does with the $27M – which provides the team a ton of flexibility for next summer.

If the Heat utilize that $27M to transform the team’s future, they’d be leveraging the full power of the deal but potentially putting the summer of 2021 plans at risk. More realistically, the Heat’s focus remains on the summer of 2021. But if they limit their summer largely to resigning their own players on single-season contracts in anticipation of the following summer, then, in effect, they’re mitigating the benefit of the deal – reducing it largely to monetary benefits, which fans tend not to care about.

So let’s analyze how the Heat can use that $27M. They can take one of two approaches:

Approach 1: Operate as an Above the Salary Cap Team

Under this approach, the Heat would likely retain all of its key free agents – Goran Dragic, Meyers Leonard, Jae Crowder and Derrick Jones Jr. – and potentially supplement them with access to the non-taxpayer mid-level exception ($9.8M), bi-annual exception ($3.8M), and/or the trade exception they created in the Iguodala deal ($7.5M).

This scenario likely entails signing most everyone to one-year deals (with the possible exception of Jones Jr.), preserving max cap room for the summer of 2021.

But with the possible exception of the Heat maybe only having access to the taxpayer mid-level exception ($6.0M) and no bi-annual exception, most of this would’ve been possible without the Iguodala deal too (though the luxury tax could have become a restricting issue).

Approach 2: Operate as a Cap Room Team

This approach carries the more exciting possibilities.

By virtue of having dumped that $27M of salary in the trade, the Heat now go from projecting to have no cap room next summer to being able to create up to $28M of cap room, which would increase to $40M if Kelly Olynyk were to decline his player option.

They can utilize their $28M+ cap room to: (i) re-sign Goran Dragic, Meyers Leonard, and Derrick Jones Jr., (ii) pursue outside free agents, and/or (ii) engage in potential trade scenarios.

At a net cost of less than $1M of that projected cap room, the Heat can use Jones Jr.’s Bird rights to re-sign him to any contract they negotiate. With Winslow gone, it seems possible that the Heat now view Jones as every bit a part of the team’s future as Kendrick Nunn, Tyler Herro, and Duncan Robinson (the latter two perhaps being untouchable, absent a star-caliber return). However, his full second year in any potential multi-year deal would count against Miami’s cap sheet, which would subtract from its summer 2021 cap room. So the Heat must be cautious there. But one of the benefits of Miami’s new flexibility is that it could potentially offer him a very large one-year contract in exchange for bypassing a multi-year deal, preserving max cap room for the summer of 2021.

Beyond that, here’s a look at some of the opportunities with the remaining $27M or $39M of cap room:

Miami could try to leverage the rest of its cap room to sign prized Lakers free agent forward Anthony Davis. The Heat would, without hesitation, bypass the Giannis plan if a Davis long-term contract were a possibility. Since, as a consequence of the Iguodala extension, the Heat will only have $27M of cap room if Olynyk were to exercise his option, to get all the way to the $35M required for a Davis max would require some maneuvering, involving perhaps an Olynyk trade ($12M net savings) or waive-and-stretch ($8M net savings). But it’s highly unlikely Davis leaves Los Angeles.

Miami could also leverage the rest of its cap room to unlock an unlimited number of potential trade opportunities. It’s impossible to speculate about what, exactly, could become available in trade. I’ve heard fellow Heat fans already speculate about anything from Damian Lillard to Bradley Beal to Joel Embiid(6), and I’ll wildly and without basis throw personal favorite Karl Anthony Towns’ name into the mix (despite his apparently tense relationship with Jimmy Butler). These are among the most thrilling potential opportunities with the space, but what fans should realize is that just about all of these possibilities would involve taking on big long-term money (unless Butler is traded as part of the transaction), and therefore eviscerate the Heat’s summer of 2021 plan.

Miami could also leverage the rest of its cap room to take on some undesirable expiring contracts in exchange for future assets. Who knows – maybe grab a first round pick if all other opportunities fail.

Finally, Miami could also leverage the rest of its cap room to re-sign their own players and/or outside free agents. In this scenario, the team would have the $27M to $39M of cap room remaining after accounting for Jones, plus the room mid-level exception ($5.0M), to allocate to everyone: Dragic, Leonard, Crowder and new additions. One possibility could certainly be Gallinari himself, perhaps after he’s reconsidered his position on a short-term deal after experiencing the throws of a relatively muted free agency market. Another could be someone who provides defensive help. Most of these scenarios would likely involve oversized one-year deals — which could turn into longer-term situations if the Heat were to be unsuccessful in luring a Giannis-type. But not all of them need to be.

Here’s why signing everyone to one-year deals doesn’t necessarily need to be the case, despite the Heat’s efforts to maximize its summer 2021 cap room:

For the summer of 2021, the Heat currently projects to have Jimmy Butler, Tyler Herro, KZ Okapala, and its 2020 first-round pick under contract, as well as the free agent rights to re-sign Bam Adebayo, Duncan Robinson and Kendrick Nunn. In addition to that, the Heat could potentially generate up to $50M+ of cap room, if they decline Iguodala’s $15M option.

Projected max salaries, at the currently projected $125M salary cap, would range from $31.3M for players with 0-6 years of service, $37.5M for players with 7-9 years of service (e.g., Giannis, Davis), and $43.8M for players with 10+ years of service (e.g., Kawhi Leonard, LeBron James).

Heat max cap room: $50M+. Giannis’ max: $37.5M.

Which means the Heat could potentially afford to give out as much as $15M in the second year of a multi-year contract(s) next summer, and still have a full max salary slot available for Giannis in 2021.(7)(8)

How the Heat will utilize its newfound flexibility is yet to be determined, but one thing is certain: The trade produced a bunch of it for the Heat next summer, and, with it, for Heat fans, even greater hope for the future.

Notes:

My grade for this trade is highly dependent on what the Heat has in mind for next summer. 

I recognize that using Justise Winslow to dump a net $27M in salary for next season is by itself inherently a good deal (let along receiving back Andre Iguodala and Jae Crowder), but that’s a purely financial incentive. I, perhaps more than anyone I know, appreciate the value of generating financial savings (which most fans don’t care at all about), but I do take issue when doing so could compromise legitimate assets. If I were to tell you that you’d be trading Winslow for Iguodala/Crowder straight up, I imagine many of you would have a real problem with it. If I’m right, then what you’d inherently be saying is that the $27M of savings for next summer was a big factor for you. But that $27M is something of a mirage. Yes, it opens up $28M – $40M of cap room (with the range depending on whether Kelly Olynyk exercises his player option). But it’s for next summer only. I can’t stress that enough. It has ZERO bearing on the following season, because the Heat has shown that it won’t use that $28M – $40M to take on long-term salary that eats into its cap room for 2021 (perhaps unless it brings back a star, the likes of which for whom the Heat would abandon its plans for the summer of 2021). You might respond that improving, even for one year, is also important. But keep in mind that the $28M – $40M is for everyone (including Goran Dragic and Meyers Leonard). And do you really think that this trade was all about having that kind of flexibility for next summer anyway? If it was, do you really go and give Iguodala $15M? Because, without it, you’d walk into next summer with $43M – $55M of cap room; that’s flexibility!

The most likely scenario with that $27M of savings for next summer is that the Heat simply brings its own players back (and maybe adds a player on a one-year deal at the MLE). And if that turns out to be the case, ask yourself what you’ve really done — you’ve traded away Winslow in exchange for Iguodala/Crowder and substantial savings for Micky Arison. I have never been the greatest Justise Winslow fan. I preferred the four first-round draft picks the Boston Celtics were offering. I really wanted Devin Booker. And I really, really wanted Booker, plus two of the four first-round picks. But we had Winslow. And he is still just 23 years-old, and still has untapped potential. And, let we forget, the Heat needs his defense. Now, he’s gone.

We, as fans, tell ourselves that the cap room gives us a shot at signing Anthony Davis. But is he really going to leave the Lakers? We, as fans, come up with grand trade visions for that cap room (e.g., Bradley Beal)? But how many of us would want that if we realized that doing it would leave the Heat with no shot at Giannis the following summer? I tell myself that I would rather have Winslow than Iguodala/Crowder, that the $28M+ of cap room the trade generated for next summer will likely ultimately not matter much, and that if the Heat were truly planning to utilize that cap room they wouldn’t have given Iguodala $15M.

There are three primary scenarios in which I would love this trade (barring the miracle Davis scenario, which would elevate this trade into historic greatness), despite my issues with the Iguodala extension, and they all depend on the Heat’s intentions with its newly-created cap room for next summer: (i) trading for a superstar, even if the Heat would need to surrender the room for Giannis (e.g., Joel Embiid or Towns), (ii) signing a transformational player to a one-year deal, as the basis for a potential longer-term arrangement if things don’t work out in the summer of 2021 (e.g., Gallinari), or (ii) signing a player to a long-term contract this summer that still preserves room for a Giannis max in 2021 (e.g., Davis Bertans, or Gallinari if he’d take it). That latter option would require a 2021-22 salary of no more than $15M, which translates to no more than 4 years, $63M. 

We’ll see what ultimately happens. The Heat have an uncanny way of being creative, and surprising everyone (including me) for the better. 

(1) In addition to his $15.0M salary, the Heat also gave Iguodala a 7.5% trade bonus, which would pay out up to $1.125M in the event of a trade. You can go up to 15%, so that number was clearly negotiated.   

(2) Parts of me where surprised that the Heat didn’t try to re-trade one of their two new expiring contracts in an effort to save that $2M and drop below the tax line. I didn’t think far enough ahead to evaluate to what kind of trade that would’ve entailed, but what I do know is that, at the very least, a $2M reduction in team salary, mid-way through the season, equates to actual salary savings of $1M, and the Heat still has $5.6M of as-yet un-deployed cash available for trade. 

(3) The Heat’s room below the hard cap is currently $2.8M. It can increase to as much as $3.9M if Hill were to be waived. But the Heat could lose half of that added flexibility if Hill were to reach his 1,000-minute target on his $0.5M bonus. He’s at 901 now. 

(4) Crowder is likely to crack the Heat rotation and have an impact. Hill isn’t. But don’t entirely dismiss the impact Waiters and Johnson would’ve had either. Lest we forget, the Heat player with the best shot at shutting down Giannis in the playoffs, as dictated by his past successes, could well have been Johnson.

(5) When comparing the two primary players involved in the deal, one needs to be fair. By trading 23-year-old Winslow — who was under contract for $13M in each of the next two seasons, with a team option on the latter 2021-22 season, and who still has some degree of untapped potential — the Heat are losing a potential future asset they are not fully replacing with 36-year-old Iguodala, for whom it remains unclear as to what he can provide. That future asset could have been leveraged in multiple ways. They could’ve used him in more aggressive (non-salary-dumping) trade scenarios next summer. Or, they could’ve retained him and, if he performed next season, exercised that option, and either: (i) kept him, which still could’ve left enough room for a Giannis max, or (ii) traded him, which could’ve perhaps generated future draft considerations. All of this potential flexibility is now gone. But, on the other hand, less tangible considerations should also be factored in. Winslow is suffering a lower back injury that is keeping him from playing. The Heat believes he can play; he doesn’t. This type of discrepancy can be a symptom of broader issues that indicate it’s time to move on. If that is the case, it puts this trade into further context for the Heat, and makes it quite a good one.  

(6) I would absolutely trade for Joel Embiid (based on what I know), even if it means sacrificing max room for Giannis in 2021. The Adebayo-Embiid defensive wall would, in my humble opinion, be the best defensive frontcourt in basketball, which would enable the Heat to play the best possible shooting frontcourt they have (e.g., any three of Kendrick Nunn, Tyler Herro, Duncan Robinson, Jimmy Butler, etc.), even if they aren’t necessarily the best defenders. The only option to acquire Embiid and still have max room for Giannis is to trade away Butler in the Embiid trade (which could be another option to consider). 

(7) Maybe it’s not a fluke that Iguodala’s extended salary for 2021-22, $15M, is the exact amount they can pay someone and still have enough room for a Giannis max.

(8)  This is where that $5.2M dead-money cap charge really hurts. It could’ve been $20M+.

1 Response

  1. Adrian Wilkins says:

    Can the Heat negotiate the protections on the 2023 pick to convey without actually having to make a transaction? Because of the top 14 protections they can’t use those picks until there is a conveyance that’s goes to 2026!

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