Summer of 2016 Update
The Heat, as of now, projects to have Goran Dragic, Josh Richardson, Justise Winslow, Josh McRoberts and Chris Bosh under contract next summer and, at a projected $89.0M salary cap, up to $37.4M of cap space for Dwyane Wade, Hassan Whiteside and another player. If Richardson is cut, that amount would increase to $37.7M. If McRoberts is traded, it would increase further to $43.0M. If Winslow is also traded (i.e., most aggressive case plausible), it would further increase to $45.0M.

Maximum contract values would be as follows: $20.9M for 0-6 year veterans, $25.0M for 7-9 year veterans, $29.2M for 10+ year veterans.

Heat Re-Signs Tyler Johnson to Two-Year Minimum Salary Contract

February 8th, 2015 1 comment
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It was a simple twist of fate. Had it not been for Dwyane Wade’s third significant hamstring injury thus far this season, he would not even be here at all. And yet, it now appears that combo guard Tyler Johnson could be here for years to come, as the Miami Heat development machine has churned out another talented rookie.

First, it was Hassan Whiteside. Whiteside has been rampaging through the NBA with reckless abandon, utilizing his massive 7-foot-7-inch wingspan to throw down monstrous alley-oop dunks, snatch rebounds out of the sky from high above the rim, swat basketballs as Godzilla would planes, and generally wreak havoc on both ends of the floor.

Now, it is Johnson, whose exploits have provided promise for the future. Johnson is undersized at 6-foot-3 with a slender frame, but compensates for it with his shooting stroke, athletic abilities and determination. In his limited time, Johnson has shown excellent three-point range that can be leveraged to provide a critical floor-spacing complement to a play-making Wade in the backcourt, as well as the speed and quickness to defend opposing point guards in such a pairing. He has also shown an ability to leverage his big-time athleticism — when he attacks the rim, he’s a potential highlight every time he takes off — to create offensive for himself and others. Despite his physical limitations, Johnson’s skill-set is NBA quality and a perfect fit for the Miami Heat.

For president Pat Riley, head coach Erik Spoelstra and the Heat front office, Johnson, who went undrafted in June out of Fresno State, has become a scouted, developed talent. The team paid him $75,000 to attend training camp before he was waived in late October so that he could be directed to the Heat’s NBA Development League affiliate, the Sioux Falls Skyforce.

Johnson played well for the Skyforce, averaging 18.5 points, 4.3 assists and 4.3 rebounds. He shot 49.0 percent from the field, including 42.6 percent from beyond the three-point line.

Johnson was re-signed by the Heat on Jan. 12, to a 10-day contract paying out $29,843, just before the NBA D-League Showcase in Santa Cruz. It did not amount to much. He was with the team for five games. He was inactive in one and did not play in three others. His only action was 1:44 of mop-up duty in one game, during which he scored two points on a pair of free throws, his only statistics. The Heat then chose not to re-sign him. He went back to the Sykforce on Jan. 22 as an unrestricted free agent.

Five days later, on Jan. 27, Wade strained his right hamstring. Two days after that, Johnson was re-signed to a second 10-day contract.

Johnson had two breakout performances during his second 10-day stint – producing 13 points, nine rebounds, four assists, two steals and two blocks in a road win over the Boston Celtics on Feb. 1, followed by an 18-point effort against the San Antonio Spurs on Friday.

Multiple NBA teams were circling as he again became an unrestricted free agent Sunday morning. The Heat, however, got their man.  Read more…

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NBA Announces Digital Partnership With Chinese Internet Giant Tencent

January 29th, 2015 No comments
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The NBA has formed its largest international digital partnership through an expansion of its arrangement with Chinese Internet giant Tencent Holdings Limited, the league announced in a joint press release issued late Thursday night.

Tencent – a publicly-traded company with a current market capitalization of $163 billion, whose shares trade on the Hong Kong Stock Exchange (HKSE: 0700) and whose American Depository Receipts trade over-the-counter in the U.S. (OTC: TCEHY) – will become the league’s exclusive official digital partner in China.

The new five-year pact will provide Tencent the exclusive right to stream live games, original programming and highlights to hundreds of millions of active users across its online and mobile platforms, including Tencent QQ, Tencent Video, Tencent News and Weixin, the popular messaging app also known as WeChat.

The deal will provide Tencent the right to offer for the first time in China the NBA’s League Pass package, which will allow subscribers to watch a full season’s worth of games live and on-demand on their computers and mobile phones. The deal also provides for interactive gaming and the sale of merchandise.

According to The New York Times, the agreement calls for the NBA to receive a guaranteed payout of $500 million over the life of the deal, with an additional $200 million more expected through a revenue-sharing arrangement. It will start on July 1, 2015, the first day of the 2015-16 NBA season.

It remains unclear as to how much of the revenues in this new deal would be incremental to those provided in its existing arrangement, but the increment figures to be substantial. And it will have a material impact on the salary cap.

By the league’s math, an estimated annual payout of between $100 million and $140 million increases the salary cap by $1.5 million to $2.1 million, respectively, and the luxury tax by $1.8 million to $2.5 million.  Read more…

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Hassan Whiteside Is Very Much A Part of Miami Heat’s Future

January 12th, 2015 No comments
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It was a simple twist of fate. Had it not been for Chris Andersen’s sprained ankle, Chris Bosh’s strained calf and Josh McRoberts’ torn meniscus, he might not even be here. And yet, 7-foot rookie center Hassan Whiteside, the Miami Heat’s mid-season acquisition, is quickly becoming the team’s most vital player.

Whiteside has become the focal point of a fan base desperately seeking out hope for the future during a painful post-LeBron-James transition. He’s rewarding us all with boundless energy, youthful exuberance, and quick ascent. In his limited experience, Whiteside has been rampaging through the NBA with reckless abandon, utilizing his massive 7-foot-7-inch wingspan to throw down monstrous alley-oop dunks, snatch rebounds out of the sky from high above the rim, swat basketballs as Godzilla would planes, and generally wreak havoc on both ends of the floor.

Whiteside is averaging a staggering 16.6 points, 14.4 rebounds and 4.4 blocks per 36 minutes played. He is shooting 69.2 percent from the field, while players he is defending are shooting just 43.3 percent.

He was never supposed to be this good this quickly. For a city so long starved for anything approaching decent play at the center position, the extraordinary exploits of the budding 25-year-old have been a joy to watch.

But Whiteside is quick to clarify one thing: He is not a rookie, at least in terms of NBA designation. And that distinction, however technical, is more significant than you may realize.  Read more…

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Memphis Grizzlies Seeking Possible Trade For Luol Deng

January 8th, 2015 No comments
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The Memphis Grizzlies, aiming to bolster their scoring and playmaking options on the wing in the increasingly competitive Western Conference, are having discussions about trading for the Miami Heat’s Luol Deng or the Boston Celtics’ Jeff Green in advance of the Feb. 19 trade deadline.

Any Grizzlies offer for Deng or Green is likely to feature the $7.7 million expiring contract of Tayshaun Prince, as well as the promise of future draft compensation to serve as an enticement to complete the trade.

It is not immediately clear how willing Miami would be to trade Deng, who is not even halfway through the first of a two-year, $19.9 million contract he signed with the Heat in the wake of LeBron James’ return to the Cleveland Cavaliers via free agency this past summer.

After James departed, Heat president Pat Riley said “I want this team to be as competitive as it’s ever been.” But he spoke of pursuing two distinct and simultaneous courses of action: trying to stay in the playoff race for the following two seasons – even while the Heat’s 2015 first round pick is owed to the Philadelphia 76ers if it is outside the top 10 – but with a clear focus on maintaining flexibility for the expected availability of several top free agents in the summer of 2016.

With the Heat already at 15-20 as it begins a challenging five-game road trip out west, it is unclear as to how willing Riley might be to sacrifice the former for the benefit of the latter.

Trading Deng could, among other things, damage the Heat’s ability to make the playoffs this season as well as put at risk its ability to clear its first round pick obligation off the books this summer. The pick is top-10 protected for this season and next, and becomes fully unprotected if not previously conveyed.

But trading Deng could also provide the Heat with a far better pick — a top 10 pick — in what is presently considered to be a deep draft this summer as well as with the additional draft pick compensation to be received in the trade. That could set the Heat up quite well for the summer of 2016.

All trade proposals should surely be considered even if not ultimately pursued.

But trade scenarios are complicated.

Deng is earning $9.7 million this season, and he has a player option that would pay him $10.2 million for next season if he exercises it in June. But he also has a trade bonus which, by rule, he cannot waive, in whole or in part, except to make a potential trade legal.

Deng’s trade bonus would be valued at 15 percent of his remaining salary for the season, the amount of which would depend upon the exact day he is traded. If Deng were to be traded today, his bonus would be $840K; if he were traded at the trade deadline, it would be $480K. The amount of the trade bonus, if any, would be allocated entirely to this season.

A straight up trade of Deng for Prince would be legal, but only if Deng were to agree to surrender the vast majority of his trade bonus (all but $20K). Deng would therefore effectively hold veto power over such trade discussions.  Read more…

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Miami Heat Receive Josh McRoberts Disabled Player Exception

December 26th, 2014 No comments
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The Miami Heat lost Josh McRoberts for the rest of the season after he underwent surgery to repair the torn lateral meniscus in his right knee last Monday. As a result, the league office has granted the Heat a disabled player exception equal to half his salary, or $2.65 million.

The Heat can use the exception to acquire one player to replace him:

  • The Heat can sign a free agent to a contract for the rest of the season only, with a salary of up to $2.65 million.
  • The Heat can trade for a player in the last season of his contract only (including any option years), who is making no more than $2.75 million.
  • The Heat can claim a player on waivers who is in the last season of his contract only (including any option years), who is making no more than $2.75 million.

McRoberts’ status with the team will not be affected. He will continue to count as one of the NBA-maximum 15 players on the roster. He can return to the active roster before season’s end if he is able to do so (and any replacement player would not be affected). He can be traded while injured. However, if he does return or is traded before the Heat has used the exception, the team would lose it. Otherwise, it expires on March 10.

The Heat had hoped to use the exception to lure free agent forward Josh Smith to Miami. The Detroit Pistons made an abrupt and shocking move to release Smith last Monday, despite $36 million in guaranteed money still to be paid on his contract. Players that good who are owed that much money virtually never hit the open market in such fashion. Smith, however, chose to sign with the Houston Rockets.

The Heat must now look elsewhere in its search for a player who can replace the injured McRoberts and help improve a thin power rotation. Potential targets are both intriguing and problematic.  Read more…

Heat Apply for Disabled Player Exception, Set Sights on Josh Smith

December 22nd, 2014 No comments
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The Miami Heat formally applied to the league office for a disabled player exception on Monday, shortly after Josh McRoberts had season-ending surgery to repair the torn lateral meniscus in his right knee, in a move they hope will help them land soon-to-be free agent Josh Smith.

The Detroit Pistons made an abrupt and stunning move to release Smith earlier in the day, despite $36.0 million in guaranteed money still to be paid on his contract. His contract has an additional $9.0 million still to be paid on his $13.5 million salary for this season, and calls for salaries of $13.5 million in each of the following two seasons as well.

Smith will now spend 48 hours on waivers, during which time any team with the necessary cap space or a qualifying exception large enough to absorb his $13.5 million salary cap hit can make a claim to pick up the remainder of his contract. The only such team is the Philadelphia 76ers, which is not about to do so.

At 5 p.m. on Wednesday, Smith will clear waivers and become an unrestricted free agent, free to sign with the team of his choosing. Players this good who are owed this much money virtually never hit the open market in this fashion.

A number of teams have expressed an interest in signing Smith once he clears waivers, including the Heat, Houston Rockets, Dallas Mavericks, Sacramento Kings, Los Angeles Clippers and Memphis Grizzlies.  Read more…

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The Curious Case of Greg Monroe

December 18th, 2014 No comments
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According to NBA rules, Pistons center Greg Monroe is now eligible to be traded. According to the Sporting News, he wants that, badly. The Heat have reportedly made an initial inquiry.

But, according to the Sporting News, teams seeking Monroe will need to cough up a first-round pick, and that’s a serious sticking point. It’s a rich asking price for a player who will become an unrestricted free agent at the end of the season, at which point any team can sign him without sacrificing anything in return.

Under normal circumstances, that’d be ok. Because the audience would be different. In free agency, the audience for a player would be limited to teams with the necessary cap room to sign him. The audience for a player in potential trade scenarios might include a handful of teams which don’t project to have the cap space to sign him the following summer, and might be willing to pay a hefty price to gain access to the Bird rights which give them the opportunity to do so. Bird rights are what allow a player’s prior team to exceed the salary cap to re-sign him, for up to as much as a maximum salary. Under normal circumstances, Bird rights tag along with a player in trade.

But Monroe’s predicament is anything but normal.

Monroe, selected by the Pistons with the seventh overall pick in the 2010 NBA draft, completed the fourth and final season of his rookie-scale contract last year. Players coming off rookie-scale contracts can be made restricted free agents – a more restrictive form of free agency whereby the player’s prior team gains a right of first refusal to match a contract he signs with any other team – but only if they first issue a qualifying offer. The qualifying offer is a standing offer for a one-year guaranteed contract, which becomes a regular contact if the player decides to sign it. This ensures that the team does not gain the right of first refusal without offering a contract itself.

Monroe’s representatives steered other teams away from presenting Monroe with any offers last summer because they didn’t want the Pistons to match, and keep Monroe for another four seasons. Instead, Monroe accepted his $5.5 million qualifying offer. Now, after playing out his one-year contract, Monroe will have the freedom to pick his new team in July, and that’s what he wanted: control of his future.  Read more…

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Josh McRoberts Tears Right Lateral Meniscus, Possibly Out for Season

December 15th, 2014 No comments
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Update (12/22/14): Josh McRoberts had the torn lateral meniscus in his right knee repaired (versus partially removed). A repair approach has a significantly longer recovery time, but much better long-term prognosis. The surgery will be season-ending. The Heat has applied for a $2.65 million disabled player exception. 

The Miami Heat announced that Josh McRoberts has torn the lateral meniscus in his right knee.

McRoberts injured the knee late in the fourth quarter of the Heat’s win in Phoenix last Tuesday when he fell awkwardly to the court while pursuing a loose ball. He is scheduled to undergo surgery this week, and could miss the rest of the season.

“This will not be a short-term thing,” head coach Erik Spoelstra said. “He’ll be out a while, if he even does make it back this season.”

Injury Overview

Each knee has two menisci, which are C-shaped wedges of fibro-cartilage positioned between the femur (thighbone) and the tibia (shinbone), one on the medial (inside) compartment of the knee and the other on the lateral (outside) compartment of the knee.

The mensci serve several functions:

  • They safely transmit loads across the knee, the most weight-bearing joint in the human body. The forces across the joint can reach up to two to four times your body weight while walking and up to six to eight times your body weight while running. The lateral meniscus bears more of the load than the medial meniscus.
  • They act as shock absorbers that protect the femur and tibia from constantly pounding into each other, thus maintaining the health of the articular cartilage that resides at the ends of both of these bones. Articular cartilage is what prevents bone-on-bone interaction as the knee is flexed and extended, called osteoarthritis, which can be excruciatingly painful.
  • They act as secondary stabilizers for the knee (in conjunction with the ligaments which connect the tibia and femur), protecting it from abnormal front-to-back motion.

Proper treatment of a meniscal tear is therefore vital, in order to maintain the structural integrity of the knee and to preserve the health of the articular cartilage.

There are two recognized surgical treatments for meniscal tear: repair and removal (i.e., meniscectomy).  Read more…

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A History of Tax Sheltering For Sports Team Ownership

November 24th, 2014 No comments
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It all traces back to a September 1934 court ruling that settled a battle between the Pittsburgh Pirates and the IRS.

In those days, MLB contracts had a one-year term with a standard renewal option (called a “reverse clause”). The reverse clause gave the player’s team the right to renew the contract each year upon expiration at a salary to be negotiated between the parties. If they were unable to agree on a salary, the team could, within certain limitations, fix the player’s salary. Although the team could not force the player to accept the renewal, it did hold the exclusive right to his services and could prevent him from playing for any other team. The player was, in effect, bound to his team for his entire professional career. For teams exercising their renewal options, players effectively had two choices: accept or retire from the game of baseball.

Player contracts were therefore valuable assets, which were bought and sold for cash amongst MLB teams. For tax purposes, the Pirates expensed the cost of the contracts they bought in the year incurred.

The IRS disagreed. Its position was that the Pirates were purchasing not only the right to use the services of the player for a year, but also the right, at its option, to continue to use his services for the entirety of his career. Therefore, the cost of the contracts should not be deducted in full in the year of purchase, but rather capitalized onto the balance sheet and then depreciated over the length of his projected career (contracts at the time had an average life of three years).

The court sided with the Pirates on the grounds that there was no guarantee that the purchasing team would be able to utilize its renewal rights, as nothing could prevent the player from quitting pro baseball(1).

More than a decade later, the ruling would give flamboyant baseball entrepreneur Bill Veeck an idea that would forever change the economics of team ownership, not just in baseball, but in all team sports. He would employ the ruling to fabricate a tax shelter designed exclusively for sports team owners, and then utilize specious logic to convince the IRS of its legality.  Read more…

Salary Cap Smoothing Is As Complicated As It Is Necessary

November 17th, 2014 No comments
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Update 2 (3/11/15): The National Basketball Players Association informed the NBA that it will not agree to “smoothing” in the increases in the salary cap that will result from the new national media agreements beginning in the 2016-17 season. It is not difficult to understand their logic. Expect a big spike in the 2016-17 salary cap.


Update (2/13/15): The National Basketball Players Association officially rejected the NBA’s salary cap “smoothing” proposal on Friday. NBPA executive director Michele Roberts said the union hired two forensic economic teams to evaluate the league’s proposal and both recommended the union not accept it.

The league’s proposal apparently contained some elements of artificially suppressing the salary cap (the second scenario described below) and increasing the salaries in all existing contracts (the third scenario described below). The union is opposed to artificially suppressing the salary cap.

The league and union can still negotiate, but time is running increasingly short.


“At first glance, [it] is not that attractive, I won’t lie. But we’re studying it to figure out if there really is some advantage for players.”

That was NBA players’ union executive director Michele Roberts last week, describing her aversion to salary cap “smoothing” in the wake of the league’s massive new national TV rights deals.

The new deals with Disney and Turner will pay out $23.4 billion over nine seasons, starting with 2016-17 and running through 2024-25, an average of $2.6 billion per year. That’s a huge increase from the current deals, which pay out $7.44 billion over eight seasons, an average of $930 million per year.

The new deals escalate over time, starting at $2.1 billion and climbing to $3.1 billion. The current deals will pay out just over $1.0 billion in their final season in 2015-16, which means the league’s national TV revenue will jump by nearly $1.1 billion in 2016-17.

The salary cap is tied directly to league revenues, and this will be the largest injection of revenues in NBA history. It alone will cause a $16 million spike, above and beyond any increases from sources other than national TV money.  Read more…

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