Sources: Rockets mull offers for T-Mac

The Houston Rockets have narrowed their long-running quest to trade Tracy McGrady to offers from the New York Knicks and Chicago Bulls and plan to choose between the offers Wednesday, according to sources with knowledge of the Rockets' thinking.

One source close to the process told ESPN.com that the Rockets, after intense talks with both teams leading up to Thursday's trading deadline, are determined to finalize a deal for McGrady and are leaning toward taking the Knicks' offer.

The source said Tuesday night: "I expect it to happen tomorrow."

The Knicks were considered a slight favorite as the evening wore on because, according to one source, New York has agreed to swap first-round picks with Houston in 2011 and include a 2012 first-round pick in the deal to convince the Rockets to take back Jared Jeffries' $6.9 million contract for next season along with rookie forward Jordan Hill and out-of-favor guard Larry Hughes.

The Knicks and Rockets, however, have not yet agreed on the level of lottery protection that will be applied to the 2011 and 2012 picks. ESPN.com's Chad Ford reported earlier Tuesday that the Knicks -- even though shedding Jeffries' contract would position them to bid on two max-contract free agents this summer -- are fearful that surrendering multiple picks would prove too costly in the event they strike out in free agency and are not prepared to go through with a trade for McGrady if they have to surrender that much.

ESPN's Chris Sheridan also reported Tuesday night that Knicks president Donnie Walsh and team chairman James Dolan are scheduled to meet Wednesday to discuss the parameters of a deal with Houston. Sources say that any prospect of a McGrady-to-New York deal before Thursday's deadline could fall apart if the teams can't agree on the protection levels of the draft picks.

One source with knowledge of the Knicks' thinking added that New York is reluctant to make all three concessions -- swapping picks in 2011, surrendering the 2012 first-rounder and giving up Hill -- as eager as Walsh and Dolan are to move Jeffries, which would create the requisite salary-cap space to pursue another top-tier talent in addition to Cleveland's LeBron James.

New York has been atop McGrady's wish list since his camp and the Rockets mutually agreed in December to part company and search for a workable trade before the deadline. Sources say Houston is demanding Hill and the aforementioned draft considerations in exchange for its willingness to take back Jeffries' contract for next season, which has to be included for the Knicks to meet their free-agent objectives, whether or not they deal directly with the Rockets or recruit a third team.

Although the complete specifics of the Bulls' proposal could not be immediately confirmed, Chicago has multiple expiring contracts to package in a deal for McGrady's own $22.5 million expiring contract. Chicago's available assets include longtime Rick Adelman favorite Brad Miller, Jerome James' cap-friendly contract and the increasingly coveted Tyrus Thomas, who is being pursued in separate trades by several teams, including New York, San Antonio and Denver.

The Chicago Tribune reported on its Web site Tuesday night that the Bulls were still trying to recruit a third team interested in Kirk Hinrich to help facilitate a McGrady deal, since the Rockets are unwilling to take on Hinrich. One source told ESPN.com that Miller and Thomas are the Bulls most coveted by Houston, which has also resisted the Bulls' attempts to include John Salmons in the trade.

The Los Angeles Lakers' attempts to acquire Hinrich have stalled because they want to surrender Sasha Vujacic's contract in the same trade, but the defending champions have been unable to find a taker for Vujacic.

McGrady has been working out in Chicago with noted personal trainer Tim Grover for much of the past six weeks in hopes that the Rockets and his agent, Arn Tellem, could broker a deal that would get him back on the court this season.

ESPN.com's Sheridan reported earlier Tuesday that the Rockets and Knicks were indeed "making progress" in their McGrady discussions. If the teams swap McGrady, Brian Cook and Joey Dorsey for Hughes, Jeffries and Hill, Houston would drop nearly $2 million below the NBA's $69.9 million luxury-tax threshold and thus become eligible for a $4 million-plus rebate through the league's tax redistribution system for teams under the threshold.

Tellem initiated talks with the Knicks, who believe McGrady still can help New York make a bid for a playoff spot in the East and help persuade James to come to New York in July. But even if McGrady achieves neither, New York's ability to recruit multiple top-tier free agents -- as envisioned when Walsh first arrived in 2008 -- would be cemented.

The Knicks, though, have also been talking directly with Chicago regarding a deal for Thomas in case their McGrady bid falls short. That deal would send Al Harrington to Chicago for Thomas and Jerome James, although Chicago has been holding out for a future first-round pick in exchange for Thomas.

Senior writer Marc Stein covers the NBA for ESPN.com.