The Miami Heat’s salary-cap situation entering free agency is set.
After exercising the $19.4 million team option in guard Goran Dragic’s contract and declining the $15 million team option in forward Andre Iguodala’s contract for next season on Sunday, the Heat is on track to enter free agency with six players who have guaranteed salaries for next season that total $92 million: Jimmy Butler ($36 million), Bam Adebayo ($28.1 million), Dragic ($19.4 million), Tyler Herro ($4 million), Precious Achiuwa ($2.7 million) and KZ Okpala ($1.8 million).
That means there are 11 players from Miami’s season-ending roster who will become free agents this summer: Trevor Ariza, Nemanja Bjelica, Dewayne Dedmon, Udonis Haslem, Iguodala, Kendrick Nunn (restricted), Victor Oladipo, Duncan Robinson (restricted), Max Strus (restricted) and Gabe Vincent (restricted). The Heat also declined the $1.5 million team option in the contract of developmental center Omer Yurtseven on Sunday to make him a free agent, but Yurtseven will stick with the Heat for summer league.
Next season’s salary cap and luxury tax line have not been finalized yet, but projections indicate the salary cap will be about $112.4 million and the luxury-tax threshold will be about $136.6 million. Teams can begin negotiating with free agents on Monday at 6 p.m. and officially begin signing free agents on Friday at 12:01 p.m.
With the Heat exercising the team option in Dragic’s contract, Miami is expected to operate as an over-the-cap team in free agency because his $19.4 million salary takes up most of the available cap space the team would have had if it declined the option.
OPERATING ABOVE THE CAP
There are clear advantages to operating as an over-the-cap team, but there’s at least one challenge the Heat will face taking this path.
Working as an over-the-cap team allows Miami to make the most of the Bird rights it holds for players like Oladipo and Ariza to exceed the salary cap to retain them without having to renounce their Bird rights to create space.
The Heat holds full Bird rights (allows teams to exceed the salary cap to re-sign a player up to his maximum salary) on Bjelica, Haslem, Iguodala, Nunn, Oladipo and Robinson. And Miami holds Ariza’s early Bird rights, which allows Miami to exceed the salary cap to pay him 175 percent of his 2020-21 salary of $12.8 million.
The Heat does not have Dedmon’s Bird rights since he was signed as a free agent, so Miami will need to use cap space or an exception to re-sign him. Miami also doesn’t hold Bird rights for Strus, Vincent and Yurtseven.
Another benefit of operating as an over-the-cap team is the Heat would have two exceptions available: the non-taxpayer mid-level exception for $9.5 million and the bi-annual exception for $3.7 million. As a room team, Miami would only have the $4.9 million room mid-level exception.
There’s also still a way for the Heat to add a big-name free agent as an over-the-cap team. That’s through a sign-and-trade, which is how Miami acquired Butler during free agency in 2019 despite having no cap space.
One obstacle the Heat will face in executing a potential sign-and-trade transaction: sending out enough salary in the deal to make the trade math work. With Iguodala’s option declined, the Heat currently only has three players under contract with a salary greater than $4 million for next season —Adebayo, Butler and Dragic.
The Heat would also be facing a $143 million hard cap that’s triggered when acquiring a player through a sign-and-trade. Along with the salaries of the players on the Heat’s roster, Ryan Anderson’s $5.2 million waive-and-stretch cap hit must be added into calculations when considering the luxury tax and hard-cap threshold.
PURSUING KYLE LOWRY
At this point, it’s no secret that the Heat is interested in adding impending free agent guard Kyle Lowry to its roster. And as of Sunday night, Miami was viewed as a frontunner to land Lowry, according to league sources.
As an over-the-cap team, the Heat would need to acquire Lowry through a sign-and-trade deal. Getting this type of transaction done would take the cooperation of the Toronto Raptors and all free agents involved, and Miami and Lowry would still need to agree to terms on a new contract.
Players acquired via sign-and-trade must be signed to contracts for at least three seasons. The first year of the contract must be fully guaranteed, but the remaining seasons can be non-guaranteed.
With the 35-year-old Lowry, the length of his next contract and how many guaranteed seasons he receives will be an intriguing part of negotiations with any team. Lowry is seeking a contract this offseason that includes a starting salary between $25 million and $30 million with at least two guaranteed years, according to league sources.
If Lowry does end up with the Heat via sign and trade, one possibility is to add a partially guaranteed third year to the contract.
The Dallas Mavericks and New Orleans Pelicans are also expected to aggressively pursue Lowry when free agency begins, and both teams could create $30-plus million in cap space at the expense of their own free agents. The Philadelphia 76ers also shouldn’t be ruled out of the Lowry sweepstakes.
But it looks like the Heat will enter free agency with an edge.
Playing for Miami appeals to Lowry, and it helps that Butler and Lowry are close friends. Butler said earlier this year that Lowry is the godfather of his daughter Rylee.
The expectation is that Dragic’s $19.4 million salary would likely be included in any potential sign-and-trade transaction for Lowry to help make the trade math work. But at least one young player or even draft picks, which the Heat doesn’t have many of, would probably need to be included in the package to entice the Toronto Raptors.
In the hypothetical scenario that Lowry signs a deal with a starting salary of $27 million, the Heat would need to send out at least about $21.6 million in salary to complete the deal. Packaging the contracts of Dragic ($19.4 million) and Achiuwa ($2.7 million) would achieve that.
A third team could also be added into the mix to help facilitate the trade.
Miami could also still include Iguodala, Nunn or some of its other free agents in a double sign-and-trade with the Raptors for Lowry, but that would take some cooperation from Toronto and free agents involved in the deal.
Then there’s the $143 million hard cap that’s triggered when acquiring a player through a sign-and-trade.
If Dragic and Achiuwa are hypothetically dealt for Lowry and Lowry signed a contract with a starting salary of about $27 million, the Heat would have Butler ($36 million), Adebayo ($28.1 million), Lowry ($27 million), Herro ($4 million) and Okpala ($1.8 million) for a total of $96.9 million, and that becomes $102.1 when throwing in Anderson’s $5.2 million waive-and-stretch cap.
If Robinson hypothetically re-signs with the Heat on a contract with a starting salary of $16 million, that number grows to $118.1 million. That leaves the Heat with about $24 million to complete the roster before reaching the hard-cap line, and it would still have the non-taxpayer mid-level exception for $9.5 million and the bi-annual exception for $3.7 million to use.
OTHER FREE AGENTS
While Lowry looks to be the Heat’s top free-agent target at guard, the list of other free-agent options at the position includes Chris Paul, Mike Conley, Lonzo Ball, Tim Hardaway Jr. and Spencer Dinwiddie.
Besides adding an experienced guard to the roster — preferably a point guard who can help run the Heat’s offense — Miami also has a need at power forward. A four who’s a versatile defender and can make threes at a respectable rate would fit the Heat’s mold.
A few potential four options in free agency include Jeff Green, Otto Porter Jr., Rudy Gay, Bobby Portis, Nicolas Batum, Doug McDermott, Kelly Oubre, Paul Millsap, JaMychal Green and Lauri Markkanen.
ONE MORE THING
Butler, who turns 32 on Sept. 14, will seek a maximum four-year extension that’s expected to be worth about $181 million from the Heat, and there’s optimism that a new contract will be agreed upon when he becomes eligible to sign the deal starting Friday, according to a league source.
A four-year max extension would include salaries of $40.5 million for 2022-23 (nearly a $3 million increase from the player option in Butler’s current contract for 2022-23), $43.8 million for 2023-24, $47 million for 2024-25 and $50.3 million for 2025-26 when he will be 36 years old.
The Heat’s window to sign Butler to an extension closes on Oct. 18 if the team adds three more seasons to his contract and closes on June 30 if the extension is for four seasons.