Following a tough season, they've missed out on their primary head coaching candidate and are at serious risk of losing of Carmelo Anthony to a more competitive team.
To make matters worse, they enter free agency with only the taxpayers' mid-level exception and veteran's minimum contracts to spend—and a first-time president in charge of decision-making.
All hope is not lost for a successful offseason, however.
There are a few other good coaching candidates available, Melo may stay for the max contract New York can offer and with some digging, they may be able to find some quality free-agent additions on the cheap.
Let's take a look at some under-the-radar options the Knicks should consider to supplement the rebuilding process or even attempt to get the team back to the playoffs as soon as next year.
Regardless of what happens with Melo, the Knicks are in serious need of a point guard, even if it's just a stopgap before they make a move for a big name like Rajon Rondo in 2015.
If last season proved anything, it's that Raymond Felton cannot handle the starting job at this point in his career, which explains why New York is adamant about trading him as soon as possible.
Getting an upgrade will be difficult in this price range, but after a tough season, veteran Luke Ridnour should be available for a bargain price.
Just a year ago, the Knicks were considering trading for Ridnour, so the opportunity to pick him up for the minimum is one they can't avoid to pass up.
Ridnour averaged only five points on 39 percent shooting last season, but that can partly be explained by injury and the lack of talent around him on the Milwaukee Bucks.
While it is a risk, the Knicks should see this as an opportunity to get the Ridnour we remember from 2012-13, who averaged 11.5 points and 45 percent shooting with solid defense and a lot more consistency than the franchise has had from the point guard position in a while.
Admittedly, Ridnour is not the ideal option. Frankly, there is no ideal option for such little money. But along with the likes of Nate Robinson, Kirk Hinrich and Shaun Livingston, he needs to be explored at this price range.
After a big comeback in the 2013-14 season, Jermaine O'Neal proved to the Knicks that they made a mistake overlooking him to be Tyson Chandler's backup.
O'Neal was available for the veteran's minimum, but instead New York ended up in a situation where Andrea Bargnani had to take over center duties when Chandler went down early in the season.
Injuries are, admittedly, an issue for O'Neal, too, but that will ensure that he demands no more than a portion of the mid-level this summer.
Adding a center shouldn't be the Knicks' priority at this point, but if they decide to trade Chandler this summer (ideally to get into the first round of the draft), O'Neal would be a solid replacement considering the cap limitations.
Even if the Knicks do keep Chandler, adding a player like O'Neal and a decent starting point guard has the makings of the kind of offseason that could vault them right back into the playoffs.
The Knicks have had a distinct lack of two-way players these last few seasons, relying on players who contribute only on one end of the floor, which tends to be the offensive end.
Fixing that with such little cap space will be impossible, but the least they can do is pick up a player like Thabo Sefolosha, who's fantastic on the defensive end and capable of spreading the floor on offense.
Having Sefolosha on the team would allow New York to play small ball without sacrificing perimeter defense.
Since acquiring Caron Butler, the Oklahoma City Thunder haven't needed Sefolosha quite as much as they used to, and paired with their need to avoid the luxury tax, that could make him available in free agency.
Alternatively, adding Sefolosha could free the Knicks up to trade Iman Shumpert while his value is still relatively high. He may have potential, but at this point in his career he doesn't contribute to the team any more than Sefolosha would on either end.
Having no draft picks doesn't necessarily mean the Knicks can't add a player this offseason that can contribute to the future of the franchise.
Al-Farouq Aminu, for example, is in the sweet spot where he's no longer covered by restricted free agency but hasn't proved himself to the point where he can expect a raise this summer.
The Knicks can offer him a number close to the $3.7 million he made last season, which may be worthwhile to see if they can get something out of the raw athleticism and talent he has.
With his length, Aminu is already a great rebounder for his position and has the potential to be similarly good as a defender with the right coaching.
The major issue for Aminu is offense. He's not a good shooter by any stretch of the imagination and hasn't found a way to contribute any more than 7.3 points per game without that in his arsenal.
As it stands, though, Shumpert and Tim Hardaway Jr. are the only legitimate young talents New York has for the future, and without any picks, this would be a rare opportunity to add to that core.