The issue is that if they thought Matthews cap hit was going to be inflated by an Arizona offer sheet, keeping him with the contract they did wasn't really a solution. It destroyed their salary structure and made it impossible to build their team. Worse, the term they gave Matthews was not long enough to where the contract could become less of an issue after the first half.
It was a lose/lose situation for Toronto, and a very unique one because it isn't often there is a hometown superstar coming off their ELC who is potentially going to be a max offer sheet target from a different team. So you can't just apply the convention do everything to keep your superstars wisdom, which normally, I'd agree with.
Without Matthews, Toronto would still have Marner+Tavares, which in terms of superstar forwards would still put them way ahead of most other teams. Marner would also come in at a much better contract, because there wouldn't be the issue of Matthews throwing off the internal salary structure. Some people might argue Tavares threw off the internal salary structure, but I would disagree. If anything, he helped it. He was a UFA superstar, the other players were RFAs. So if anything, it shows that Matthews and Marner should have been much much better than Tavares to get the contracts they did. The contract Matthews got was significantly more lucrative than the Tavares contract.
So if you're Dubas, you hope Matthews/Arizona are bluffing. If they aren't, you get four first rounders and probably 13-14 million to work with via not re-signing Matthews and not having to pay Marner an amount reflective of the Matthews salary structure. You also don't have to be the bad guy because Matthews and Arizona caused a very unique situation. Very few fans are going to be behind the idea of giving Matthews 13-15 million, which would then mean losing Marner.
Here is how the Matthews saga will probably end in Toronto. He and Dubas single handedly destroyed their chances at a cup by wrecking their salary structure. They won't win anything with him, and he will either leave as a UFA and go to Arizona, or he will stay for a much bigger UFA contract that will cause the same problem to perpetually continue in Toronto.
When I say Toronto won't win the Cup, I am obviously not speaking in absolutes. We almost won the Eastern Conference championship a few years ago, but we really shouldn't have, and we weren't really a true contender. Toronto will be really good, and always sort of in the mix for it because they are loaded with superstars, but they will continue to tread water. It will always be that they are chasing problems with their teams like their defense, or after Andersen needs a raise, their goaltending. But they will have trouble addressing them because their salary structure was completely nuked.
It will only be worse now because of the COVID-19 flat salary cap, but I didn't mention it up until this point because it would be silly to evaluate a GMs moves based on something nobody saw coming.