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Wednesday night Heat news: free agency, summer league, looming financial obstacles

Couple quick notes before we get to our longer piece on looming financial obstacles for the Heat:

### Darko Milicic's agent, Marc Cornstein, cautioned not to overstate Heat interest in the free agent center. He said he had a preliminary "fact-finding" conversation with the Heat, but Miami has not made an offer. The Heat can make offers only at the league minimum. The Clippers, Brooklyn and Chicago also have been linked to Milicic.

### Not a particularly good night for the three incumbent Heat players in Golden State's 65-62 Summer League win against Miami late Wednesday night in Las Vegas. Norris Cole scored 15 points but shot 3 for 9 with as many turnovers as assists (four apiece).

Terrel Harris (10 points) shot 2 for 11 and committed eight fouls (no misprint) in 29 minutes. On the plus side, he had four steals.

Dexter Pittman remained a foul magnet, drawing seven in 17 minutes on a six-point, four-rebound night. He also had five turnovers.

FYI: You need 10 fouls to be expelled from a summer league game.

### Rookie second-rounder Justin Hamilton, who missed Miami's first two games with a hamstring injury, had four points, one rebound and five fouls in 14 minutes. His only basket (in three attempts) was a layup off a nice pass from Cole. He was physical and active defensively and drew a charge.

### Former Heat second-rounder Robert Dozier also returned from injury and started at forward, closing with four points and two rebounds in 11 minutes. Loyola Marymount rookie Drew Viney, who has been the best of the Heat players without NBA experience, shot just 3 for 10 but had 10 points, 8 rebounds, a steal and a block in 27 minutes. He looks like a player worthy of a training camp invitation.

# # #

The Lakers, the Thunder and perhaps the Celtics could pose obstacles for the Heat next season in its quest to repeat as champions.

But long-term, the Heat’s most daunting obstacle might not be another team, but a document.

The collective bargaining agreement ratified last December will create serious challenges, depending in part on owner Micky Arison’s willingness to pay a luxury tax bill that could reach $20 million or more annually in a few years.

If the Heat wins the next championship or two, it would be surprising if the Big 3 is broken up in two years, considering Arison’s desire to win. But it’s not out of the question, considering the luxury tax becomes far more punitive beginning with the 2013-14 season. And keep in mind that LeBron James, Dwyane Wade and Chris Bosh can opt out of their six-year contracts after 2013-14 or 2014-15.

But if the Big 3 stays intact, the luxury tax will impact how the Heat constructs its supporting cast. And other stipulations in the agreement will limit how the Heat can fortify its roster as long as it retains three contracts at or near the maximum.

The Heat was one of six teams required to pay a luxury tax for this past season, with Miami owing $6.1 million (or $1 for each $1 spent over the $70.3 million threshold).

But beginning with the 2013-14 season, teams that are between $1 and $5 million over the tax threshold must pay $1.50 on every $1 above the threshold. Teams that are $5 million to $10 million above the threshold must pay $1.75 for every $1.

And teams that are taxpayers in four out of any five seasons (starting in 2011-12) must increase their payment by $1 for each dollar spent, which would be financially painful for any owner.

Heat president Pat Riley said Arison “loves winning championships, but there is also a limit, and we have to be very conscious of that. We haven’t had long discussions about the luxury tax. Micky has always had the opinion, you give him the right name and that right name can lead this team to the promised land, he has always said yes.

“With how punitive the luxury tax is, and not only that, but the bite he has to take from a revenue sharing standpoint, that has to be considered, but that’s going to be his decision.”

For 2013-14, when the luxury tax threshold is projected to be in the $73 million range, Miami will have $85.6 million in cap commitments if Ray Allen and Rashard Lewis don't exercise opt-in clauses; if it exercises a $4 million option on Mario Chalmers; and if it doesn't use the amnesty provision. And that’s before the Heat even considers using its $3 million taxpayer’s mid-level exception.

Amnestying Miller and his $6.2 million salary for 2013-14 would save the Heat as much as $10.2 million in taxes that year and as much the following one, making it highly tempting.

Two summers from now (after the 2013-14 season), James, Wade and Bosh all have opt-out clauses, with James and Bosh set to earn $20.6 million and Wade $20 million for 2014-15 if they do not opt out.

How much more, if anything, could they make if they opt out? That’s undetermined and will remain so until the summer of 2014. Cal-Irvine computer scientist and ESPN analyst Larry Coon, considered the foremost expert on the NBA salary cap, explained it this way:

“Players can receive either the league wide maximum (which for them would be approximately 35 percent of the cap) or their personal maximum (105 percent of their previous salary), which is greater. We won’t know the league-wide maximum for 2014-15 until July 2014, but right now, it’s $19,136,250.”

But that figure is expected to grow – and potentially surpass their “personal maximums” - because league revenues are projected to grow.

All three players sacrificed some salary in 2010 to leave the Heat with enough money to re-sign Udonis Haslem and add Miller. Whether they would be willing to do that again eventually is conjecture.

If all three opt out in two years, they would be eligible to sign five-year deals with 7.5 percent annual raises from the Heat, compared with four years and 4.5 percent pay hikes if they change teams.

Miller ($6.6 million), Haslem ($4.6 million) and Joel Anthony ($3.8 million) also have opt out clauses that summer of 2014 but seem unlikely to use them, and there's a good chance Miller will have been amnestied by then.

Each team can amnesty only one player during the length of the new 10-year labor agreement, but can only use it on a player signed before the deal was ratified last December.

The Heat’s other challenge is the strong likelihood that regardless of whether it amnesties Miller, Miami will have only the $3 million taxpayer’s exception – not the $5 million exception – next summer and likely beyond in the Big 3 era, unless it dumps at least one player from among Haslem, Anthony and Mario Chalmers.

That’s because non-tax paying teams that use the $5 million exception have a hard cap that’s $4 million above the tax threshold ($74.3 million this season, likely in the $77 million range for 2013-14). 

Arison has said he does not believe the Heat will end up making money for this past season, despite winning a championship.

“Every year in [AmericanAirlines Arena] we’ve lost money aside from last year under the old collective bargaining agreement, because of LeBron,” Arison told CNBC. “This is a hobby and passion – it’s not a business.

“The reality is we’re not a big market team,” added Arison, who was one of five owners who voted against the new labor agreement. “Minnesota is a larger market than Miami.

“Where we find ourselves struggling is our local TV revenue. It’s smaller than big markets, and despite sellouts, we’re only seventh or eighth in gate revenues. Obviously, our payrolls are up and our revenues are not because of limitations of the market.”

Arison recently noted that the Knicks and Lakers make $175 million to $120 million annually for TV rights, but the Heat’s number is in the $20 million range.

 

 

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