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 both parties 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).

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.(1)

As part of the trade, the Heat signed Iguodala, who was on an expiring contract, to a two-year, $30M extension, the second season of which is subject to a team option. It’s maybe not the greatest of extensions – actually, it’s pretty questionable, really, from my humble perspective, and therefore rightly deserves its own analysis, over and above that of the actual trade itself – but it does allow the Heat to retain full flexibility for the summer of 2021.

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. If history is any indication, the 2015 NBA Finals MVP tends to shine in the biggest of moments. He’ll receive his biggest minutes in the playoffs. His stat line won’t blow you away at this point in his career, but he’ll be asked to play strong perimiter defense and provide just enough perimeter shooting to be respected.

Crowder and Hill, both on expiring contracts, would have been redirected to the Thunder had a three-way deal including Gallinari been possible. Crowder, however, as a rugged perimeter defender and high-volume (though not particularly efficient) three-point shooter, could see meaningful minutes in Miami – giving the Heat the opportunity to take a small-ball approach with Bam Adebayo at the five position and a host of highly versatile wings, a philosophy which, as with the thinking behind the Iguodala acquisition, tends to be increasingly valuable during the playoffs. He too, like Iguodala, could be back in a Heat uniform next season.

So that’s three guys who weren’t playing a whole lot – Waiters, Winslow and Johnson — out, and two could who could play key playoff minutes — Iguodala and Crowder — in.

Whether the Heat actually got better remains unclear. Defensively, the Heat sacrified two of their best (including the best of the bunch, in Johnson). Offensively, every player the Heat traded away is a better career 3-point shooter than any it received in return. Iguodala may have been the headliner, but his contributions will primarily be intangible. Crowder will be the key. He’ll take lots of 3s. If he’s making them, the trade will look awesome. If he’s not, it won’t. But the trade, which came at the cost of sacrificing Winslow’s future in Miami, was dictated as much by locker room dynamics and financial considerations as by basketball merit, and has implications for the current and each of the following two seasons.

Implications for 2019-20

Difference in salaries sent and received: A bit over $2M.

Which saves some $3M in luxury taxes, leaving Miami anywhere between $1.4M and $2.9M above 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 if the Heat were to be willing to pay the corresponding tax dollars; that’s more than any contender has available. And if the buyout market pursuit fails, the Heat also maintains the flexibility to either convert Gabe Vincent’s two-way contract into a (potential multi-year) standard NBA contract or to sign someone else.

Implications for 2020-21

More impactful is that the trade clears a whopping $27M off the books for next season.

A proper assessment of the trade, insofar as its impact on next season, therefore requires an analysis of what the Heat does with that $27M of savings – which provides the team a ton of flexibility for next summer.

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

If you’re answer is “yes” based on basketball merit alone, stop right here. If you’re still hesitant, then how the Heat utilize that $27M will play a role in your decision-making.

If the Heat utilize the $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 could be mitigating the benefit of the deal. So let’s analyze how the Heat can use that $27M.

One note before we begin: Timing will play a giant role in how the Heat approaches its future. Giannis becomes eligible for a massive 5-year supermax extension with the Bucks next July, which is projected to pay out $254M. If he remains healthy, the Bucks will certainly offer it. And if he accepts, the Heat’s entire roster-building strategy will instantly change. The entire summer of 2021 class will looks far less attractive than it once did — Giannis would no longer be a possibility; other potential free agents such as LeBron James, Kawhi Leonard and Paul George would only be possibilities if the Heat were able to rip them away from Los Angeles (the latter two at a highly advanced age), and, beyond Victor Oladipo, that’s about it for truly transformative talents. Which, in theory, could cause the Heat to about-face and shift focus to the summer of 2020. But Giannis doesn’t need to make a decision until long after the free agent rush is over. Which could force the Heat to act as if he is still a possibility for 2021, even if we learn a few weeks later that he isn’t. So… watch for a Giannis decision, and how the Heat reacts to it.

With that, let’s analyze how the Heat could utilize the $27M. They can take one of two approaches:

Approach 1: Operate as an Above the Salary Cap Team

This is perhaps the most likely approach.

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).

The Heat will have full Bird rights to all six of its impending free agents this summer (including Solomon Hill and Udonis Haslem), so they’ll have the means to re-sign whoever they want. This scenario likely entails signing most everyone to one-year deals (with the possible exception of Jones Jr.; see Approach 2 for more details on the Heat’s newfound flexibility with respect to his contract situation), with team options for a second season, preserving max cap room for the summer of 2021.

Their primarily limitation in this approach would be avoiding the luxury tax, which they wouldn’t be willing to cross (for a second time in as many seasons). But, by virtue of having cleared that $27M off the books, they’ll start $50M+ below the tax line. So they shouldn’t have a problem bringing back whoever they want, at whatever salary they negotiate.

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, Jae Crowder and/or Derrick Jones Jr., (ii) pursue outside free agents, and/or (iii) 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. 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 needs to be creative there. One benefit of the Heat’s new flexibility? They could potentially offer him a very large one-year contract in exchange for bypassing a multi-year deal, without having to be a taxpayer next season and while preserving max cap room for, and providing additional flexibility with respect to, the summer of 2021. They could take the opposite approach too — offer him a very low contract, which would produce a lower cap hold, and then leverage it to sign him to a high-value, longer-term contract after all cap room is used up in summer 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 surely, without hesitation, bypass the Giannis plan if a Davis long-term contract were a possibility (and who knows; maybe the Heat could make both work). As a consequence of the Iguodala extension, the Heat will only have $27M of cap room if Olynyk were to exercise his option. Therefore, 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). That’s the first, and perhaps most significant, consequence of the Iguodala extension. But it’s highly unlikely Davis leaves Los Angeles.

Miami could also leverage the rest of its cap room to re-sign their own players and/or less than superstar 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 a defensive presence. Yet another could be Davis Bertans, a personal favorite of mine.

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 who, exactly, could become available in trade. I’ve heard fellow Heat fans already speculate about anyone from Damian Lillard to Bradley Beal to Joel Embiid, 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, and the fact that it’s not going to happen). These are among the most thrilling potential trade opportunities with the space, but what fans should realize is that just about all of these possibilities would involve sending out some big assets (i.e., players) AND taking on big long-term money (unless Butler or Bam is traded as part of the transaction), and could therefore eviscerate the Heat’s post-trade team and/or its summer of 2021 plan. A more realistic trade target on which I might personally focus: the Bulls’ Lauri Markkanen. He seems to have grown increasingly disgruntled in Chicago, and his play has reflected it; I personally believe his game could be revitalized in Miami, and, as a combination playmaking-shooting 7-foot forward, it would fill a key need. Markkanen would be a restricted free agent in the summer of 2021, so acquiring him wouldn’t reduce the Heat’s potential cap room for 2021; and, with a $20M cap hold, it wouldn’t be impossible to think the Heat could squeeze in both Giannis and Markkanen, if the latter were to live up to expectations.

Finally, Miami could leverage the rest of its cap room to take on some undesirable expiring contracts in exchange for future assets. Perhaps grab a first round pick or two if other opportunities fail. With two future ones gone, replacements could be a welcome addition (though this scenario could potentially cost the Heat the ability to re-sign some of its current free agents).

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 Okpala, 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.

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 fit a Giannis max into cap room, and still have up to $15M of cap room left over(4) — whether it’s for an existing Heat player, the second year salary of a new Heat player signed next summer, or another second free agent beyond just Giannis in 2021. Which mean that, in the case of Bertans for example, the Heat could build an up to 4-year, $63M contract around a $15M salary in 2021-22, and still have enough cap room for Giannis at the max. Imagine the spacing that a Tyler Herro, Duncan Robinson AND Davis Bertans could create around any two of Jimmy, Giannis, and Bam (and in a post-Jimmy generation)!

Implications for 2021-22

None of the players sent or received in the trade will have a salary for 2021-22, except, possibly, for Iguodala — his extension gives the Heat a $15M team option for the summer of 2021, which they can decline in favor of cap room.

As noted above, as a result of the trade, the Heat can now generate $28M in cap room next summer. But it would’ve been $43M. That’s a huge difference. You can do a lot of things with $43M that you can’t do with $28M.

You might be able to get Danilo Gallinari with either one. But the latter one might cost you Dragic and/or Leonard. So how would you feel if you lost Dragic and/or Leonard because you gave Iguodala $15M?

And what if Anthony Davis becomes a possibility? At $43M, you can swallow him into cap room. At $28M, you can’t. So you’d need some exceedingly costly help to make it happen. How would you feel about surrendering it all because you gave Iguodala $15M?

But they didn’t give him that money blindly. They truly believe in Iguodala — both the player and locker room presence.

Still… at the price it cost, it’s difficult not to search for a hidden purpose. Iguodala could be a valuable contributor for the Heat, but I’d be hard-pressed to believe – at his advanced age, and factoring in his declining contributions and excessively long time off – that he’s truly worth that kind of money. So why else could they have given it to him?

It’s tough to say.

Here’s a purely speculative theory:

The Heat has clearly positioned itself to have cap room for a max contract free agent in the summer of 2021. But convincing their primary target, Giannis, to come to Miami will still be a monumentally difficult task. The task would be made substantially easier if Miami had enough cap room for two max (or near max) contract free agents – possibly Giannis and Oladipo. Unlike in the summer of 2010, however, the Heat won’t have that kind of cap room. So how can the Heat best position themselves to acquire two max (or near max) free agents with the cap room they will have for that summer?

Either: (i) trade for them, or (ii) sign one, and trade for the other. Which is a relatively simple task if Jimmy Butler is part of (one of) the trade(s), but a complicated and challenging exercise if not.

Trade for Both

If the Heat were to trade for both, they wouldn’t need to worry about cap room. Instead, they’d need to worry about having the tradable salary to salary-match.

For perspective, to match to Giannis’ $37.5M max salary, the Heat would need to send out $30M+. And for two max players, it becomes $60M+.

If you’re excluding Butler, the Heat don’t have that kind of salary on the books. Which means, to get it, they’d need to turn to their free agents in potential sign-and-trade scenarios.

The challenges there? First, each would need to agree to the sign-and-trade. Second, there could be complex base-year compensation challenges if they’re signed to first-year salaries that are too high.

What is base year compensation? If a team re-signs its (full or early bird) free agent in order to trade the player in a sign-and-trade transaction and he receives a greater than 20% raise, and the team is at or above the cap immediately after the signing, then the player’s outgoing salary for trade purposes is either his previous salary or 50% of his new salary, whichever is greater. The team receiving the player always uses his new salary. That imbalance can cause huge problems, that often require either the receiving team to either have cap room or the involvement of a third team.

The good news in this scenario is that most of the players who might be involved in such a sign-and-trade if they approve (e.g., Dragic, Olynyk, Meyers Leonard, Crowder, Jones, etc.) will either already be coming off a relatively large salary (Olynyk) or, as mentioned in the Implications for 2020-21 section above (for the rest), can be signed to a large one-year salary this summer, after which they too would be coming off a relatively large salary.

Which brings us back to the Iguodala extension. In this scenario, you’ve already locked him in at $15M if they choose to exercise his team option. So that’s a large salary that can be traded, without restriction, veto rights or base year compensation issues.

Sign One, Trade for the Other

Miami could also attempt to first acquire Giannis into cap room in the summer of 2021, and then exceed the cap in trade for a second star.

That won’t be easy either. To exceed the cap in trade, a team needs to have the minimal amount of salary necessary to trade match. And that concept precisely contradicts an intention to maximize cap room. So how do you balance these two conflicting concepts? By giving a player a large salary (high enough to be meaningful for trade match purposes), but subject it to a team option (so that if that salary isn’t needed for trade match purposes, the Heat can instead elect to recover the cap room).

Now re-read the first sentence of the last sentence of the previous section above: “…the Heat could potentially fit a Giannis max into cap room, and still have up to $15M of cap room left over…”

Which again brings us back to the Iguodala extension. The $15M the Heat gave Iguodala is the precise projected amount of cap room they could have left over after acquiring Giannis into cap room. And, according to the NBA’s trade rules, a team trading away $15M in salary can take back a salary of up to $20M.

So, if they can negotiate a potential trade for a second star prior to the start of 2021 free agency, they can exercise Iguodala’s $15M option, still have the necessary cap room to sign Giannis at the max, and then exceed the cap by trading Iguodala’s $15M for a player making up to $20M. And if they combine Iguodala with other then-current Heat players into the trade (e.g, Herro, Okpala, the 2020 first-round pick), they can trade for someone making up to nearly $30M. And if they re-signed free agents into the trade, they can get to $30M+ (though only players to whom the Heat retain Bird rights would qualify, which, in this scenario, would be Adebayo, Robinson and Nunn, and including any of them in this particular scenario would surely create base year compensation challenges).

So, no matter how the Heat would approach it (which would be dictacted by the circumstances), Iguodala could hypothetically become an asset for the summer of 2021, potentially as a means to acquire not just one, but possibly two, max contract players.

Iguodala’s camp, realizing all of this, negotiated for a 7.5% trade bonus on top of his $15M salaries for each of the next two seasons. The Heat surely didn’t want to include that, but they couldn’t negotiate it away. So it simply became the cost of doing business (as well as an additional challenge for salary-match purposes).

This all sounds great, but was it actually the Heat’s intention with the Iggy extension?

I don’t know. It’s just a wild theory. I’m really stretching with this logic. The circumstances in which the Heat would utilize Iguodala in this manner are rare enough that it’s entirely possible that I’m just making this up. I’m doing it because I, humbly, dislike the extension. I’d much rather have the added flexibility.

But Miami made a calculated choice – to sacrifice significant cap room for the summer 2020 in order to maintain maximum flexibility for the summer of 2021. They knew, far better than me, what they were doing. They likely told themselves that it was more valuable to have that flexibility in 2021 than it was to maximize room for 2020. And they likely told themselves that, in the unlikely event Anthony Davis did become a possibility next summer, they could create the necessary cap room to acquire him in trade. So Iguodala becomes a valued contributor and locker room presence for this and next season, and maybe (just maybe) a potential asset to use to acquire not one but TWO big pieces in the summer of 2021.

***

How will the Heat utilize its newfound flexibility for this and each of the next two seasons? Was it worth the cost of giving up on Winslow?

Should the Heat have given Iguadala his lofty extension? Was the possible extra flexibility for 2021 worth sacrificing the definite extra $15M of cap room for 2020?

How you evaluate the trade depends on these answers. But one thing is certain: the trade produced a bunch of flexibility for the Heat, and, with it, for Heat fans, even greater hope for the future.

What would I, personally, do? Well, two things…

First, I would target Bertans in free agency and Markkanen in trade THIS summer. I tend to feel that either one could be a better (and less expensive) enticement for Giannis.

Second, if Butler’s trade value is high, I wouldn’t consider him as untouchable in trade as you might otherwise think (whether this summer, or next). While that may not be a popular opinion in Miami, consider this: Trading Butler would give the Heat the ability to re-sign ALL of their summer of 2021 free agents (e.g., Adebayo, Nunn, Robinson, etc.), add TWO max contract free agents, and still have another $12M+ cap room to spare.

Notes:

(1) As you undoubtedly know by now, I viewed Danilo 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 actually wanted the Heat to sign him three years ago. So it felt amazing to have nailed what would ultimately become the Heat’s primary trade deadline interest a full seven months in advance. 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 remote 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 noted above 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 up to $14M – enabling Gallinari to still get his full extension-max salary next season and a free $14M 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 $14M 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 slot for Giannis 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. And, as detailed above, the Heat has bigger plans in mind. But, still, I’m bummed.

(2) Part of me was surprised that the Heat didn’t try to re-trade one of its two new expiring contracts in an effort to save that $1.4M and drop below the tax line. Assuming Solomon Hill would’ve be the primary salary the Heat would be dumping, trade rules allowed the Heat to take back as little as $7.8M in exchange for his $12.8M salary. Which means that there could potentially have been a bunch of potential opportunities to save that small amount. As just one example, the New York Knicks have Maurice Harkless ($11.0M, but they may want to keep him), Taj Gibson ($9.0M, and a $1.0M partial guarantee for next season that the Heat could swallow), and Wayne Ellington ($8.0M, and a $1.0M partial guarantee for next season that the Heat could swallow). Any one of those scenarios could’ve worked. But Miami didn’t have much to entice (just up to $5.6M of cash really, unless they would’ve been willing to take on 2020-21 money or part with KZ Okpala). But, that all being said, if there were ever a time not to worry about the tax, it’s this season. The tax hit will be no greater than $2.9M and the forgone tax distribution to non-taxpaying teams would’ve been less than $300K, for a cumulative cost of no more than $3.2M. And the Heat almost certainly won’t be a taxpayer next season. So, at some point, it’d be less costly just to pay the tax than to give up whatever it takes to drop below.  

(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. 

()  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!

Leave a Reply

Your email address will not be published. Required fields are marked *