Felton's agent confirmed a Yahoo! Sports report Saturday that Felton would be signed and traded by Portland to New York.
Lin has signed an offer sheet with the Houston Rockets, and the Knicks have repeatedly said they would match any offer for their breakout star. But with the third year of the contract worth about $15 million, they can certainly pass now after signing Jason Kidd and getting Felton back.
Felton played well in half a season in New York, averaging 17.1 points before the Knicks sent him to Denver as part of the package for Carmelo Anthony in February 2011. 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.
Still, he was considered an option as a veteran backup to Lin if the Knicks didn't get Steve Nash or Kidd. They signed Kidd, and still pursued Felton.
Now the question is where Lin will play next season.
Coach Mike Woodson said Wednesday that Lin would not only be back but would enter next season as the Knicks' starting point guard. He then signed his offer sheet worth about $25 million for three years Friday and the Knicks have until 11:59 p.m. ET Tuesday to match the offer, according to a person with knowledge of the process. The person spoke to The Associated Press on condition of anonymity because the contract had not been announced.
The Knicks already lost one guard Saturday when they elected not to match the offer Landry Fields signed with Toronto, worth around $20 million over three years. The second-round pick from Stanford had been a starter during his two seasons with New York.
"I want to thank ALL the Knick fans out there for their support over the past two years!" he wrote on Twitter. "Much love and respect, you will be missed."
It would be more surprising if the Knicks passed on matching Lin's offer. The undrafted guard from Harvard emerged as the starter in February and averaged 17.9 points in 27 games before needing surgery to repair torn knee cartilage. The league's first American-born player of Chinese or Taiwanese descent became one of the team's most popular players and helped the Knicks draw huge TV ratings locally and in Asia. His merchandise sold heavily, making it unlikely the Knicks would want him to leave.
But with Kidd and Felton, they have two veterans who would be respected by the Knicks' frontcourt trio of Anthony, Tyson Chandler and Amare Stoudemire. Stoudemire and Felton had good chemistry in the pick-and-roll offense and neither has been as good since without the other.