It all comes down to Jerome James. Without that awful signing last summer, the Spurs wouldn't even be trying this. He's 31, fat, lazy, and has shown nothing more than an affection for garbage bags and one good series (ironicallly) against the Spurs.
If New York feels they can get him playing well enough to trade him, then they'll keep Butler.
If they decide to eat James's salary in some way, stashing him deep on the bench, then it's more likely they keep Butler.
I can't imagine what's Dolan's mind set on this, but know they're in meetings about it now.

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