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The deal, for three years and $10 million according to USA Today, raises the possibility the Knicks will not match the offer sheet Jeremy Lin signed with the Houston Rockets earlier this week. They could pass after signing Jason Kidd and acquiring Felton.
A source close to the process told ESPN.com's Marc Stein the Knicks officially received the offer sheet Saturday night, meaning they have until 11:59 p.m. ET Tuesday to match it or let Lin go to the Rockets.
While the Knicks haven't announced what they're going to do about Lin, there is growing sentiment that they won't match the Rockets' offer sheet.
Jeffries is one who shares the sentiment that Lin won't be back with the Knicks.
"I never thought they would let him go," he told ESPN New York via text message on Sunday.
Earlier, a source close to the Lin talks said Houston had been unsuccessful in several attempts to deliver the offer sheet to Knicks general manager Glen Grunwald. League rules say the offer sheet must be physically delivered.
A source close to Lin told ESPNNewYork.com that the Knicks trade for Felton caught Lin off guard.
"He was very surprised," the source said. "He felt the whole time that the Knicks would just match the offer."
The Knicks also confirmed Saturday they have decided not to match the Toronto Raptors' three-year offer sheet to Landry Fields. That deal approaches $20 million.
"I want to thank ALL the Knick fans out there for their support over the past two years!" Landry wrote on Twitter. "Much love and respect, you will be missed."
The Rockets' offer sheet for Lin is worth a little more than $25 million -- $5 million in the first year, $5.225 million in the second and $14.8 million in the third.
Initial reports had the Rockets offering Lin a four-year deal for around $28 million. That deal included salaries of more than $9 million in each of the last two years, which would be a big hit on the Knicks' salary cap.
Still, the organization seemed intent on matching.
"They will match any offer on Lin up to $1 billion," a source told ESPN.com's Stein last week.
Knicks coach Mike Woodson said Wednesday that Lin would not only be back but would enter next season as the Knicks' starting point guard.
It's not clear, however, if the new deal has changed that thinking since the third year of the current deal carries an even bigger cap hit.
If the Knicks re-sign Lin, they'll have $75 million tied up in four players -- Lin, Amare Stoudemire, Carmelo Anthony and Tyson Chandler -- in 2014-15.
Lin, a restricted free agent, made $788,000 last season. He averaged 14.6 points, 6.2 assists and 3.1 rebounds in 35 games with 25 starts before his season was cut short because of surgery to repair torn cartilage in his knee.
But in the 35 games he was healthy, Lin went from an end-of-the-bench afterthought to an international phenomenon. The undrafted guard out of Harvard, who was cut twice in the preseason (once by the Rockets) and played in the D-League, set the league on fire in February, leading the Knicks to seven consecutive wins. He scored at least 20 points in nine of 10 games during that stretch.
Felton, meanwhile, will return to New York where he played 54 games during the 2010-11 season before being traded to the Denver Nuggets as part of the Carmelo Anthony blockbuster. Felton played well in half a season in New York, averaging 17.1 points before the Knicks sent him to Denver.
He struggled this season with the Trail Blazers, scoring 11.4 points per game on 40.7 percent shooting and briefly losing his starting job.
Felton's agent, Tony Dutt, told ESPN The Magazine's Chris Broussard that returning to New York has been Felton's first choice all along.Information from ESPN The Magazine's Chris Broussard, ESPN.com's Marc Stein, ESPNNewYork.com's Jared Zwerling and The Associated Press contributed to this report.