Will the Heat operate as room or over-the-cap team? A look at the free agent possibilities

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Part two of a three-part series addressing important offseason questions facing the Miami Heat, with the NBA Draft set for Thursday and free agency opening Aug. 2.

With the start of free agency one week away, the Miami Heat is preparing to make important decisions that could lead to a new-look roster ... or not.

The Heat, currently without a pick in Thursday’s NBA Draft, is on track to enter free agency with just five players who have guaranteed salaries for next season: Jimmy Butler ($36 million), Bam Adebayo ($28.1 million), Tyler Herro ($4 million), Precious Achiuwa ($2.7 million) and KZ Okpala ($1.8 million).

Trevor Ariza, Nemanja Bjelica, Dewayne Dedmon, Udonis Haslem, Kendrick Nunn (restricted), Victor Oladipo, Duncan Robinson (restricted), and two-way contract players Max Strus (restricted) and Gabe Vincent (restricted) will become free agents this offseason. Also, Goran Dragic ($19.4 million team option), Andre Iguodala ($15 million team option) and Omer Yurtseven ($1.5 million) have team options in their contracts that the Heat must decide on by Sunday.

Teams can begin negotiating with free agents on Aug. 2 and officially begin signing free agents on Aug. 6.

Next season’s salary cap and luxury tax line have not been set, but projections indicate the salary cap will be about $112.4 million and the luxury-tax threshold will be about $136.6 million.

That means the Heat could have between $21 million and $27 million in cap space this summer, including cap holds, unless it opts to move forward as an over-the-cap team and leverage the Bird rights of its own free agents to bring back some players from this past season’s roster.

Where Miami Heat stands with Kyle Lowry and Bradley Beal and options under consideration

That’s the first important decision the Heat needs to make entering free agency: Should Miami operate as a room team or an over-the-cap team? There’s a case to be made for both options, with information gathered in advance of free agency likely determining how the Heat chooses to proceed.

With a Sunday deadline (at 5 p.m.) to decide on the team options in the contracts of Dragic and Iguodala, the Heat’s decision on those two could be the first hint at whether the front office wants to work as a capped-out team or one with cap space. Exercising even just one of those options would essentially eat up most of the Heat’s cap space and serve as a sign that it plans to operate over the cap.

“I think [the Heat operating as a room team] is likely if they have somebody in their back pocket,” ESPN analyst and former Nets executive Bobby Marks said in a phone interview with the Miami Herald. “I just don’t see them taking this approach where they decline those guys’ options and they’re just going to go out and take meetings with [Kyle] Lowry, [Spencer] Dinwiddie, [Mike] Conley, Chris Paul. Then at the end of the day, they’re 0 for 4. That’s hard to justify.”

If the Heat chooses to work with cap space, it would have about $21 million in space if it extends $4.7 million qualifying offers to Nunn and Robinson by Sunday’s deadline (by 11:59 p.m.) to make them restricted free agents, as expected. Miami would have about $27 million in space if it instead chooses not to extend qualifying offers, allowing both to become unrestricted free agents and decreasing their cap holds to $1.7 million (but this move would only likely be made if Miami had a prearranged deal agreed upon to re-sign Nunn and/or Robinson after the Heat uses its cap space).

These calculations include a $5.2 million waive-and-stretch cap hit for Ryan Anderson that’s still on the books. Even after the Heat extends qualifying offers to Nunn and/or Robinson, as expected, the Heat could still pull those qualifying offers if it needs additional cap space during free agency.

“I think the only way you operate with room is that you know you have somebody lined up already,” Marks explained. “Like if Kyle Lowry said, ‘I’m going to come here for $20 million.’ Then you need space. You don’t decline the options, act as a team with room and then all of a sudden you’re throwing darts at the dart board with a blind fold on. That’s not how they operate.”

It’s worth noting that even $27 million in cap space isn’t enough for the Heat to sign most max-level free agents. Miami would need to shed additional salary to move closer to having a max slot available, but it won’t be easy considering Adebayo and Butler combine to take up more than half of the salary cap.

The 2021 free agent class could be headlined by Conley, Kawhi Leonard, Lowry and Paul.

Leonard, who has a $36 million player option in his contract for next season, is expected to remain with the Clippers but the Heat is among the many teams who would be interested in adding him if he surprisingly decides to leave Los Angeles. And it appears that Lowry will be near the top of the Heat’s free agent list when it comes to guards based on mutual interest, Butler’s close relationship with Lowry, and Miami’s pursuit of Lowry at the March trade deadline.

“I just think sometimes we get caught up with cap space. I always call it fool’s gold,” Marks said. “I think it’s a lot easier to build out your roster through trades and in the draft, of course.”

That’s one of the reasons the over-the-cap plan seems to make sense for the Heat in most scenarios.

This would allow Miami to make the most of the Bird rights it holds for players like Oladipo and Ariza to exceed the salary cap to re-sign them. By moving forward as an over-the-cap team, the Heat can also decline Dragic and Iguodala’s options for next season while still retaining their Bird rights to bring them back at lower salaries.

To take the alternate route and open cap space, the Heat would need to renounce most of its own free agents to get their cap holds off the books. By renouncing a player, Miami would lose their Bird rights and only be able to re-sign them by using cap space or exception money.

Another benefit of operating as an over-the-cap team is the Heat would have two exceptions available: a mid-level exception for $9.5 million and a bi-annual exception for $3.6 million. As a room team, Miami would only have a $4.9 million mid-level exception.

There’s also still a way for the Heat to add a big-name free agent if it chooses to be an over-the-cap team this summer. That’s through a sign-and-trade, which is how Miami acquired Butler during free agency in 2019 despite having no cap space while being right up against the hard cap that’s triggered when acquiring a player through a sign-and-trade.

Of a possible Heat sign-and-trade for Lowry, the Athletic’s John Hollinger recently wrote that “a sign-and-trade of Iguodala, Okpala and Achiuwa for Lowry would extend the Heat’s cap room, and the Raptors would walk away with two young frontcourt players.” Hollinger also brought up another creative possibility “on a smaller sign-and-trade (i.e., Okpala for Lowry) if the Raptors are interested in generating a large trade exception,” but the Heat would need cap space to take on Lowry’s contract while only giving up Okpala’s $1.8 million salary in this scenario.

Obviously, the Heat and Lowry would still need to agree to terms on a contract to complete any sign-and-trade transaction. ESPN’s Adrian Wojnarowski noted recently: “There’s a big market for Kyle Lowry. You’re talking potentially $25 million-$30 million a year for Kyle Lowry, it’s going to be expensive to get at him in free agency or a sign-and-trade.”

Here’s one notable aspect of a sign-and-trade: Players acquired via a 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.

“They’ve done it before,” Marks said when asked about the Heat potentially acquiring Lowry through a sign-and-trade. “The Butler one was as complicated as I’ve ever seen just because of the tax situation they were in. I think it’s based on does Toronto want Goran Dragic? Do they want him at $19 million or maybe they decline the option, and maybe Toronto and Dragic negotiate a deal. Maybe it’s for $12 million in that scenario. I don’t think it’s as complicated as it was from two years ago. It just takes a lot of cooperation from everyone.”

Nunn, if he gives Miami permission, can also be included by the Heat in a sign-and-trade as a restricted free agent.

“He just has to agree with it,” Marks said of Nunn. “If he thinks he can get a deal out of it, yeah.”

There’s also the possibility of landing a star who’s under contract via trade this offseason. Portland’s Damian Lillard and Washington’s Bradley Beal are two names that have surfaced in recent reports who could become available on the trade market.

“You hope that you’re in position for that next disgruntled All-Star,” Marks said. “That’s how you compete, and that you have enough assets to make a deal. That’s why the Dragic and Iguodala contracts, you have those contracts to make a deal. The problem with the roster is that you have Jimmy and Bam that make $64 million. After that, it’s just basically $4 million, $2.7 million, $1.8 million and guys like that.

“How do you get to that level? You hope that you have enough draft picks and you have enough young players that teams like and you’re in a position to get a Damian Lillard or a Bradley Beal and guys like that. It’s not easy.”

The Heat has plenty of difficult decisions to make in the coming weeks.

[Part one: How is Heat preparing for NBA Draft without a pick?]

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