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).

(My first 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 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 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 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 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) maybe 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. 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, as well as a candidate to re-sign on a one-year deal next summer.

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.

(My second rambling, parenthesized aside: I typically allow myself to be more blunt  in my asides, so… Why in the world would the Heat give Iguodala a $15M extension for next season? He could be good. He could be not good. 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. 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 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 Embiid becomes a possibility? At $43M, you can swallow him into cap room. At $28M, you can’t. So how would you feel if it cost you a first-round draft pick to dump the necessary salary because you gave Iguodala $15M? Whether or not you like this trade overall, the Iguodala extension was a highly questionable component of it. There was no urgency to give him that money. The Heat could’ve always given it to him next summer. So why now? What it tells me is that: (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 for next summer; they’re more likely to bring everyone back and reap the savings associated with avoiding the luxury tax. So I’m bummed even 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 either convert Gabe Vincent’s two-way contract into a (potential multi-year) standard NBA contract or to sign someone else.

On the surface, that appears like an impressive haul — adding some wing depth, saving some tax dollars, and freeing up some 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 be (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/Hill and clearing $27M off the books for next summer (and next summer only) was worth the cost of Winslow/Johnson/Waiters?

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

(My third rambling, paranethesized aside: As for a comparison of the players, let me again be more blunt in my aside. I understand that the majority of the world seems to think that the Heat upgraded its roster with this trade. But I tend to disagree. In fact, I might argue that every player the Heat traded away (Winslow, Johnson and Waiters) was better than every player it received in return (Iguodala, Crowder and Hill). As for Waiters, despite all of his issues, he was still a strong (if frustratingly inefficient) playmaker, still a strong floor-spacing shooter, still a capable and versatile (if unspectacular) defender, and still a well-liked presence in the locker room. For a team lacking in playmaking beyond Jimmy Butler and Bam Adebayo, they just traded away their third-best option. As for Johnson, he was overpaid and underwhelming, but also a strong and highly versatile defender. And as for Winslow, you are well aware that I’ve never been the greatest fan. I wanted 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. I also know that he’s been sidelined for quite some time, and that there were some attitude issues that may have prompted the deal. But he is still just 23 years-old, still a strong and improving wing defender, still an evolving playmaker, and, while a frustrating floor spacer, still a better career 3-point shooter than every one of the players the Heat received in return. Now, he’s gone. For a team severely lacking in defense, the Heat just traded away two of its best three. In return, they get Iguodala, who I humbly don’t feel can be relied upon to have a meaningful impact; Crowder, who I humbly believe is being a bit overrated and should more properly be valued as a competent player on defense and an unreliable spacer as a career 33% 3-point shooter on offense; and Hill, who likely won’t play very much. So, which grouping of players would you rather have? If you agree with my perspective, then any net positive value that could be extracted from the trade would be based exclusively on the flexibility the $27M cleared off the books for next summer provides.) 

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:

(My fourth parenthesized aside: Nobody is talking about this yet, but timing will play a huge role in how the Heat approaches its future. Giannis becomes eligible for a massive 5-year, $254 million supermax extension with the Bucks next July. 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; LeBron James, Kawhi Leonard and Paul George would only be possibilities if the Heat were able to rip him them away from Los Angeles (the latter two at a highly advanced age)and… 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 (yet another reason why the $15M Iguodala extension is so infuriating). 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.) 

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).

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 no problem re-signing whoever they want, at whatever salary they negotatiate. 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), preserving max cap room for the summer of 2021. Their primarily limitation would be avoiding the luxury tax, which they almost certainly would not be willing to cross (for a second time in as many seasons).

(My fifth, and final, parenthesized aside: This would be a disappointing outcome for me. As I note in my third parenthesized aside above, I believe that the players the Heat gave up (Winslow, Johnson and Waiters) were better those they got back in return (Iguodala, Crowder and Hill). So if all they do next summer is bring everyone back, which they could’ve just as easily done with their pre-trade roster, all this trade will have accomplished is downgrade the roster while allowing the team to avoid the tax. Tax savings is important, trading away talent to get it is frustrating.) 

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 (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. One benefits 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, preserving max cap room for the summer of 2021 without having to be a taxpayer next season.

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(5), 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 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 much-needed 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.(6)(7)

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:

The entire country seemingly gave the Heat an A for this trade.  

As you can tell by all my rambling asides, I humbly believe that grade is too high. 

I personally think that EVERY player the Heat surrendered (Winslow, Johnson and Waiters) was better for the Heat than ANY player that it got back in (Iguodala, Crowder or Hill). If you agree, then the only true value to the Heat inherent this trade lies in the savings it generated for next summer — going from being right at the cap to being able to generate up to $28M of cap room. And please, please, please keep in mind that that savings is for ONE SEASON ONLY. It doesn’t carry over to the summer of 2021. So my grade for this trade is highly dependent on what the Heat ultimately does with that one season of savings next summer. 

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, personally, think the Heat are not planning to do much with their potential cap room next summer. If they do have something in mind, why in the world would they have given Iguodala a lofty $15M salary? Of course, things can always change, but I suspect that the Heat are CURRENTLY planning to simply re-sign their own players next summer, and bide their time to the summer of 2021. Which effectively boils the trade down to a player swap plus some tax savings. So, if that truly is their CURRENT plan, I am forced to give them a lower than A trade grade. 

But the beauty of the trade lies in the flexibility to capitalize on the unexpected (which itself has trade-grade-increasing value).

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), 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., I would absolutely consider giving up the Giannis possibility to acquire either 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) 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 $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. That 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. 

(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) 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). 

(6) 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.

(7)  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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