Heat faces major cap crunch after doling out five big contracts. How it impacts the future

Sydney Walsh/swalsh@miamiherald.com

The upshot of the Miami Heat’s lucrative extension with Tyler Herro? The Heat now has one of the league’s most skilled young scorers under contract for five years.

The downside? Barring major roster changes, the Heat will not have significant salary cap space for years to come, and even using exception money to improve the roster next summer appears increasingly unlikely. What’s more, the Heat is now positioned to pay the punitive luxury tax next season.

And that luxury tax payment would grow significantly if Miami gives sizable deals to Max Strus, Gabe Vincent or Omer Yurtseven in free agency next summer.

The bottom line: If the Heat wants to add another good player to its roster any time soon, it will need to be through a trade because making a significant addition with cap space will not be an option unless a big chunk of salary is shed.

Heat’s Herro gets contract extension; now under contract for five seasons

Herro’s four-year extension, which includes $120 million guaranteed and another $10 million in incentives, has no player or team options and will keep the NBA’s defending Sixth Man of the Year under contract with the Heat through the 2026-27 season.

He’ll earn $5.7 million this upcoming season in the final year of his rookie deal before the extension takes effect beginning in the 2023-24 season. According to ESPN analyst and former Nets executive Bobby Marks, Herro’s extension will pay him $27 million in 2023-24, $29 million in 2024-25, $31 million in 2025-26 and $33 million in 2026-27.

Herro will give the Heat four players who are due to make at least $27 million in 2023-24.

The Heat currently has $161.9 million committed to the seven players it has signed to guaranteed contracts for the 2023-24 season: Jimmy Butler ($45.2 million), Bam Adebayo ($32.6 million), Kyle Lowry ($29.7 million), Herro ($27 million), Duncan Robinson ($18.2 million), Caleb Martin ($6.8 million) and Nikola Jovic ($2.4 million).

Those seven salaries alone will take the Heat right up to the luxury tax line, with current projections indicating the salary cap will be about $134 million and the luxury tax threshold will be about $162 million for the 2023-24 season.

NBA teams must carry at least 14 players.

In addition to the aforementioned seven players with guaranteed salaries for 2023-24, Victor Oladipo holds a $9.5 million player option with the Heat for that season. Also, Dewayne Dedmon’s $4.3 million salary and Haywood Highsmith’s $1.9 million salary with the Heat for 2023-24 are fully non-guaranteed.

Vincent, Strus, Yurtseven will be unrestricted free agents next summer, with the team able to surpass the salary cap to re-sign them because it holds their Bird rights. Udonis Haslem, on a one-year deal, said this will be his final season.

The luxury tax will make it expensive for the Heat to re-sign Vincent, Strus and/or Yurtseven in free agency. Consider the consequences of re-signing them:

For teams between $0 and $4,999,999 over the tax line, the tax rate is $1.50 for every dollar over the tax threshold.

For teams between $5,000,000 and $9,999,999 over the tax line, the tax rate is $1.75 for every dollar over the tax threshold.

For teams between $10,000,000 and $14,999,999 over the tax line, the tax rate is $2.50 for every dollar over the tax threshold.

For teams between $15,000,000 and $19,999,999 over the tax line, the tax rate is $3.25 for every dollar over the tax threshold.

For teams $20,000,000 over the tax line or above, the tax rate is $3.75 for every dollar over the tax threshold and increasing $0.50 for each additional $5,000,000 over $20,000,000.

So if the Heat signs Strus, hypothetically, for $8 million in 2023-24 and surpasses the tax line by $14 million, Miami would be paying $20 million (between salary and taxes) for Strus’ services.

Such a scenario could increase the likelihood of Miami looking to trade the final four years and $75 million of Robinson’s contract.

What’s more, with the Heat poised to be a taxpayer in 2023-24, it seems unlikely that Miami would use a $6.9 million taxpayer mid-level exception if the team is able to re-sign at least one of Strus, Vincent or Yurtseven.

Considering that Adebayo, Butler and Robinson are under their big contracts through the 2025-26 season and Herro is under his expensive extension through the 2026-27 season, the Heat could be faced with the threat of the luxury tax for the next few seasons.

That means the threat of the ultra punitive repeater tax is a factor.

The repeater tax (when a team is over the tax at least three times during a four-year period) can be crippling for teams; it features even higher tax rates for each dollar a team salary exceeds the luxury tax line. For example, teams faced with the repeater tax that are between $0 and $4,999,999 over the tax line are faced with a tax rate of $2.50 instead of the normal $1.50 for every dollar over the threshold.

This is one of the biggest reasons why the Heat has worked to avoid the luxury tax this season, as it pushes back the clock on the looming repeater tax. The last time the Heat, which is just about $200,000 away from entering the tax for this season, finished as a tax team was in the 2019-20 campaign.

All of this could create more urgency for the Heat to shed long-term salary through trades in the coming months, which would alleviate some of the impending tax concerns.

The other implication tied to Herro’s new extension is that he’s now essentially untradeable until the 2023 offseason. First-round picks (Herro was a first-round pick in 2019) who receive extensions before their fourth NBA seasons are subject to the “Poison Pill Provision,” which would make it difficult for the Heat to include Herro in a trade until July 1, 2023.

In other words, the Heat is hoping a core of Adebayo, Butler, Herro and Lowry is good enough to contend for championships. Lowry will enter free agency in the summer of 2024 and Butler turns 35 that offseason.

Following Monday night’s Red, White and Pink intrasquad scrimmage, the Heat opens its five-game preseason schedule against the Minnesota Timberwolves on Tuesday at 7:30 p.m. at FTX Arena.