Jeremy Lin looks on during a game against the Miami...

Jeremy Lin looks on during a game against the Miami Heat. (Feb. 23, 2012) Credit: Getty Images

LAS VEGAS -- Raymond Felton is coming back to the Knicks, raising questions about Jeremy Lin's future in New York.

The Knicks agreed to acquire Felton from Portland in a sign-and-trade, two league sources said. Felton and another former Knick, Kurt Thomas, will join the Knicks and Jared Jeffries and Dan Gadzuric will go to the Trail Blazers, a source said.

There might be more involved in the deal. Felton and Jeffries are free agents, so both have to sign their contracts before the trade can be complete. A league source said Felton will get a four-year deal for close to $18 million.

Felton remained on the Knicks' radar after they lost out on Steve Nash. They ultimately signed Jason Kidd, but they maintained dialogue with Felton's agent. Talks apparently heated up after Lin signed a three-year, $25.1-million offer sheet with the Rockets on Friday that includes an escalator in Year 3 that will pay him $14.9 million.

The Knicks received the offer sheet Saturday, according to a league source. They have until 11:59 p.m. Tuesday to match it.

Meanwhile, the Knicks didn't match the three-year, $18.7-million offer sheet that Landry Fields signed with Toronto. That deal also balloons in Year 3 to about $9 million. It was a long shot that the Knicks would match that before Saturday's deadline, but if they don't retain Lin, it will be a stunning development.

Lin helped rescue the Knicks' 2011-12 season and became an international phenomenon with his brilliant play in February. He's wildly popular here and abroad. His value to the Knicks off the court from a marketing standpoint and promise on it always made it seem a given that they would retain him.

On Wednesday, coach Mike Woodson said the Knicks "absolutely'' would match Houston's offer sheet for Lin, but that was before the Rockets changed the terms from a guaranteed three-year, $19.5-million offer to the current deal.

It's a hefty price to pay for the still unproven Lin, especially considering the Knicks already have about $70 million committed to Carmelo Anthony, Amar'e Stoudemire, Tyson Chandler, Jason Kidd and Steve Novak for the 2014-15 season.

Also, the luxury-tax penalties get really stiff beginning with the 2013-14 season, when teams will pay anywhere from $1.50 to $4.75 for every dollar they are over, depending on how much it is and whether the team is a repeat taxpayer. If the Knicks don't keep Lin, the luxury-tax situation and trying to maintain future flexibility might be the reasons.

Speaking at Olympic practice, Anthony said he wants Lin back but knows the third year could be an issue. "Houston threw a wrench in there with that third year, from what I'm seeing,'' he said. "We'll see what happens. I would love to have him back, but I'm not the financial guy in the front office, so we'll see what happens.''

Lin averaged 18.2 points and 7.7 assists in 25 starts as a Knick before a knee injury that required surgery ended his season. Those are the only starts in his career. He hasn't played in a playoff game in his two-year NBA career.

Felton, a seven-year veteran, averaged 17.1 points and 9.0 assists in 54 games as a Knick before he was traded to Denver for Anthony in 2011. For his career, he's averaged 13.4 points and 6.7 assists.

One source said that during the Felton discussions, there was never any indication about what the Knicks would do with Lin. It is possible the Knicks could play Lin and Felton or Lin and Kidd together. But they already have agreed to terms with another point guard, Pablo Prigioni of Argentina, and might not want four point guards on the roster.

The Knicks had to do a sign-and-trade for Felton; otherwise, they would have been able to offer him only a minimum contract. Thomas, 39, remains a hard-nosed low-post defender.

They are building a veteran-laden team that they expect to go deeper than the first round of the playoffs. They also have acquired Marcus Camby and re-signed J.R. Smith and Steve Novak.

With Fields gone, the Knicks will need more help on the wing. As it stands, Smith could be the Knicks' starting shooting guard.

Veteran forward Matt Barnes is on the Knicks' radar, according to a league source who said the interest is mutual. Other free agents who remain unsigned include Carlos Delfino, Mickael Pietrus, Randy Foye and Shannon Brown. Minimum salaries might not be enough to sign some of those players, though.

Notes & quotes: The Knicks' summer league team lost its opener, 93-77, to Memphis. Swingman James White, who signed a guaranteed one-year deal, shot 1-for-4, scored four points and had seven assists. Forward Chris Copeland had eight points and guard Chris Smith -- J.R.'s younger brother -- scored seven. Both could be in Knicks training camp in October. Swingman Wesley Witherspoon, a rookie out of Memphis, led the Knicks with 15 . . . J.R. Smith was on the Knicks' bench watching his brother play. Baron Davis, who will miss next season after right knee surgery, sat in the stands with Woodson.

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