Sources: Martin moving; Knicks in play?

The Houston Rockets have unexpectedly emerged from their long-running efforts to trade Tracy McGrady with an agreement in place to acquire coveted guard Kevin Martin from the Sacramento Kings, ESPN.com has learned.

Multiple sources told ESPN.com that the Rockets and Kings will spend Thursday trying to make this a three-way deal that lands McGrady with the New York Knicks, who have been McGrady's preferred destination ever since he and the Rockets mutually agreed in late December to find the 30-year-old a new team via trade.

"I think it will happen," one source close to the situation told ESPN.com of McGrady winding up with the Knicks.

On orders from team management, Martin was pulled from the second half of the Kings' game Wednesday night at Golden State in anticipation of the fast-developing trade with Houston, sources said.

One source with knowledge of the talks confirmed to ESPN.com late Wednesday that routing McGrady to the Knicks is still the goal. But the Kings and Rockets -- who are longtime fans of Martin -- are committed to the deal they've struck, even if they are unable to work something out with the Knicks.

The deal hammered out Wednesday night would send Martin, Kenny Thomas, Hilton Armstrong and Sergio Rodriguez to the Rockets for McGrady, Sixth Man Award contender Carl Landry, Joey Dorsey and an undisclosed amount of cash.

Sources told ESPN The Magazine's Ric Bucher that McGrady and Rodriguez would be sent to the Knicks in a three-team scenario sure to feature New York's Jared Jeffries if it comes to fruition.

"It's a sad day for me in the sense that [Sacramento] was the first team that took a chance on me late in the first round of the draft," Martin told the Sacramento Bee from the team bus after news of the deal spread. "They showed so much loyalty to me throughout the years. They gave me the big contract to show that [they] loved me. ... [But] I just think it was time for us to go in a different direction. I was the young guy before, and now I'm the oldest starter. I think it's good."

If the deal cannot be expanded Thursday to include the Knicks, it remains to be seen whether Sacramento will simply buy out the remainder of McGrady's $22.5 million expiring contract, setting up McGrady to sign as a free agent and be eligible for the playoffs as long as a buyout happens before March 1.

Earlier Wednesday -- before Sacramento relaxed its stance on Martin after insisting for weeks that the high-scoring guard could exist alongside prized rookie Tyreke Evans and would not be made available -- Houston and New York continued their long-running dialogue toward a deal for McGrady.

Even though the sides have clashed on the final parameters, specifically the draft considerations going from the Knicks to the Rockets, one source close to the talks said of McGrady winding up a Knick: "I'm pretty confident."

Sources say that the Knicks were also increasingly interested Wednesday in swinging a separate deal with the Chicago Bulls before the deadline that would send out Al Harrington in exchange for Tyrus Thomas and the expiring contract of former Knicks center Jerome James.

But it remains to be seen which Knicks would be needed to satisfy the Kings and Rockets in a three-way trade construction.

Houston had narrowed the McGrady field Tuesday to the Knicks and Bulls as the only destinations for the disgruntled two-time scoring champion.

But Chicago began moving in different directions with its trade assets as Wednesday wore on, sending John Salmons and his $5.8 million contract next season to the Bucks.

"I'm hopeful," Knicks president Donnie Walsh said Wednesday of McGrady before ESPN.com's initial report regarding Houston's acquisition of Martin had been circulated. "It's a matter of trying to a fair deal for your franchise and a fair deal for the other franchise."

The Knicks are determined to move Jeffries in any trade they complete Thursday, because that would remove $6.9 million from next season's payroll and put Walsh in better position to make offers this summer to two top-tier free agents.

But the Knicks and Rockets clashed Wednesday over the price New York should pay for the privilege of shedding Jeffries' deal, with Houston seeking three assets: the Knicks' 2012 first-round pick; the right to swap first-round picks with the Knicks in the 2011 draft; and Knicks rookie Jordan Hill.

The Knicks, sources said, conveyed in response that they're only willing to package two of those assets along with Jeffries and the $13.7 million expiring contract of Larry Hughes for McGrady's own expiring deal. Sources said the Knicks also wanted 1-to-10 lottery protection on any draft pick it surrendered to the Rockets, while Houston was pushing for the 2012 pick to be fully unprotected.

"We'd like McGrady and the cap relief," one Knicks source told ESPN.com's Chad Ford on Wednesday. "But the Rockets are asking for too much. We're willing to pay a premium to make a deal. But the price right now is still too high."

It's expected that many of the same names and assets will be discussed Thursday when talks resume on bringing the Knicks into this deal.

The Bulls' re-entrance in the McGrady talks, meanwhile, was considered unlikely after Chicago's minor deal with Milwaukee, which has huge implications.

The Bulls pulled Salmons out of Wednesday's game in New York because of the pending trade. Initial reports had the Bulls getting the expiring contracts of Kurt Thomas and Francisco Elson from Milwaukee, but the Chicago Tribune reported late Wednesday that the Bulls could receive Thomas and Elson or a package of the expiring deals of Hakim Warrick and Joe Alexander.

Finding a home for Salmons' salary next season was legitimately as huge for the Bulls as trading Jeffries would be for the Knicks. That's because it will give Chicago sufficient salary-cap space to bid for a top-tier free agent to pair with its All-Star guard Derrick Rose, along with teams such as New York, Miami, New Jersey and the Los Angeles Clippers.

The Clippers joined that enviable club by shedding the contracts of Al Thornton and Sebastian Telfair in a three-way trade earlier Wednesday that sent Wizards forward Antawn Jamison to Cleveland.

The Bulls initially sought McGrady's expiring contract to break into that club, but found another way with the help of the Bucks. And Houston -- having landed Martin after numerous inquiries were rejected by Sacramento -- has ensured that it landed a rising star in exchange for McGrady, no matter what happens Thursday in discussions with the Knicks.

That was the Rockets' aim from the start when they mutually agreed in late December to try to find a new home for McGrady via trade, after the two-time scoring champion's labored recovery from microfracture knee surgery. The only apparent downside for the Rockets is the fact they will have to surrender Landry, after the young forward's wholly unexpected emergence as one of the league's most prolific fourth-quarter scorers this season.

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