$650k of the money the Cavs contribute to a buyout would not count against the cap. Anything above that would be "paid by the player", which means for the Cavs, they'd have to sign him to more than a rookie minimum contract (think mid-level exception) and have him pay off his former club. Since the Cavs have used up their midlevel this year, they can't offer Osman more than the minimum.
However, next year and in following years, they can offer him up to the taxpayer mid-level exception ($3.477M), but only because he was a second round pick. If he was a first round pick, he'd be subject to the rookie salary scale. If you're going to draft and stash, you do it in the second round so that you have the ability to pay more if you need to to lure them/get them out of their Euro contract.
Though it doesn't explain taking Rakeem Christmas at 36 and flipping him for a 2019 second rounder, but that's another thread.