Scenario 1: To get below or near the luxury tax line after signing Brad Miller they trade Battier for Sheed's contract. Then we sign McGrady or Butler at the minimum
Scenario 2: NY signs and trades McGrady at around 3 million and also sends us Azubuike for Sheed's contract. NY sends Portland a 1st rounder (much more valuable than ours) and they get Rudy Fernandez (NY is one of teams on his list)
Scenario 2.5: This 2.5 because I believe its the least likely. Same scenario as above but you remove Azubuike. We sign McGrady for about a million more. We get Rudy Fernandez, NY sends a first rounder to Portland and we send Sheed's contract and 2-3 million to NY for the contract buyout. Not sure why NY does this except for the cap savings, but all the big name free agents are gone, unless they have a trade target in mind?
You can also substitute Wilson Chandler in scenario 2 because Azubuike cannot be traded with another player.