While Arenas-to-Orlando has been talked about in the past, sources say the Magic have initiated this round of discussions. Orlando has lost five of their last six games -- including double-digit losses to Milwaukee, Utah, Portland and Denver -- and fallen behind Boston, Miami and Chicago in the Eastern Conference standings.
Sources say Magic forward Rashard Lewis would likely be part of any deal involving Arenas. Lewis, 31, has struggled with Orlando this season. His scoring average (12.2) is his lowest since the 1999-2000 season and his field goal percentage has dipped to 41.9 percent, the lowest since his rookie season.
An Arenas-Lewis swap would work under the salary cap. Arenas is scheduled to make $62 million over the next three seasons. Lewis has two years and nearly $44 million remaining on his contract after this season, but the final year is only guaranteed for a minimum of $10 million.
An NBA source stressed that any deal for Arenas, which was first reported by Yahoo! Sports, is not considered imminent. Sources say Orlando's ownership group has reservations about taking on Arenas' contract after already sinking $94.7 million into the payroll this season.
"The length of his contract and health probably have been more of my concerns," Magic GM Otis Smith told reporters on Saturday. "With the length of his contract, you're always concerned about taking on more, of course. That's always been one of my concerns."
Still, rival team executives believe Orlando is growing desperate to make a move. The Magic have the NBA's highest payroll and despite a dominant early season performance from Dwight Howard have struggled to live up to expectations. Arenas is a risk -- he has had three surgeries on his left knee and is coming off a 50-game suspension for bringing guns to the Wizards locker room -- but is a unique talent with explosive offensive ability. In 21 games this season, Arenas is averaging 17.3 points.
There is another consideration: Howard is not expected to exercise his $19.5 million player option for the 2012-13 season and instead test free agency. While the suitors for Howard will line up, there is one that stands out: the Knicks. New York has turned the corner under Mike D'Antoni and has a standout power forward already in place in Amar'e Stoudemire. Winning a championship in the next two seasons might be the only way to keep Howard in Orlando for the long term.
That's part of the reason the Magic have targeted Arenas. Arenas has a strong relationship with Smith -- Smith was an executive with Golden State during Arenas' time with the Warriors -- and is just the kind of calculated risk Orlando might need to make to vault themselves back into contention in the Eastern Conference.