Friday, July 8, 2011

NHL: Circumventing the Salary Cap: Why is it Allowed?

The NHL has the right to void contracts they feel circumvent the salary cap when they are presented to them when a player and an organization agree.

If this is the case, why have so many contracts been approved that so clearly are meant to get around the cap and lessen the cap hit over the length of the contract?

Lets examine some player contracts and why not go into the New York Rangers newest prized free agent signing Brad Richards.

The Rangers signed him to a nine year 60 million dollar contact, or an average of 6.6 million dollars a season. That doesn't sound so bad does it? Not on the surface it sure doesn't.

When you look closer it becomes more unsettling.

Looking at the contract it breaks down like this:

Year One - Age - 31 - Actual Salary: $12,000,000
Year Two - Age - 32 - Actual Salary: $12,000,000
Year Three - Age - 33 - Actual Salary: $9,000,000
Year Four - Age - 34 - Actual Salary: $8,500,000
Year Five - Age - 35 - Actual Salary: $8,500,000
Year Six - Age - 36 - Actual Salary: $7,000,000

Here is where it gets interesting.

Year Seven - Age - 37 - Actual Salary: $1,000,000
Year Eight - Age - 38 - Actual Salary: $1,000,000
Year Nine - Age - 39 - Actual Salary: $1,000,000

OK so what is going to happen between years one through six and years seven through nine? Does Glen Sather have some magical crystal ball that says Richards production as a player is going to drop by 1,200 percent from the start of his contract?

No it is a clear and concise way of reducing the cap hit the Rangers will incur to 6.6 million from the 9.5 million it would have been in years one through six.

How can the NHL or anyone else for that matter look at this contract and say its all fine and dandy and is within the rules of the NHL CBA and allow such blatant breaking of the rules in this case?

Hey do not blame the Rangers for this. They are not at fault for this disturbing trend. the blame falls solely on the NHL for allowing the practice.

Sure the Rangers have given out massive contracts before most recently to Wade Redden, Scott Gomez and Chris Drury and they were sort of front loaded in Gomez' case starting at $10,000,000 and reducing to $4,500,000 in the final year of the seven year $51,500,000 contract.

Sure that is an over 100 percent drop in value but no where near as egregious as Brad Richards new contract.

Let's examine some other questionable contracts.

Chris Pronger at age 35 signed a seven year contract worth $34,500,000 for an average cap hit of just over $4,900,000. Here is how this one breaks down.

Year One - Age - 35 - Actual Salary: $7,600,000
Year Two - Age - 36 - Actual Salary: $7,600,000
Year Three - Age - 37 - Actual Salary: $7,200,000
Year Four - Age - 38 - Actual Salary: $7,000,000
Year Five - Age - 39 - Actual Salary: $4,000,000

If the contract ended there, no one would say anything about it.

Here is where the interesting part is.

Year Six - Age - 40 - Actual Salary: $525,000
Year Seven - Age - 41 - Actual Salary: $525,000

Does anyone actually think Chris Pronger is going to play two years of hockey for $525,000 at age 40 and 41? Something tells me Pronger will be celebrating his retirement after cashing the last of his paychecks exactly two years before his contract expires.

Here is another head scratching contract.

Roberto Luongo is 32 years old and at age 31 signed a twelve year $64,000,000 contract with the Canucks. Smart move by the Canucks to get this guy tied up for the rest of his career right?

How the NHL allowed this contract to be approved is beyond comprehension.

The contract breaks down like this:

Year One - Age - 31 - Actual Salary: $10,000,000
Year Two - Age - 32 - Actual Salary: $6,716,000
Year Three - Age - 33 - Actual Salary: $6,716,000
Year Four - Age - 34 - Actual Salary: $6,716,000
Year Five - Age - 35 - Actual Salary: $6,716,000
Year Six - Age - 36 - Actual Salary: $6,716,000
Year Seven - Age - 37 - Actual Salary: $6,716,000
Year Eight - Age - 38 - Actual Salary: $6,716,000
Year Nine - Age - 39 - Actual Salary: $3,382,000
Year Ten - Age - 40 - Actual Salary: $1,618,000
Year Eleven - Age - 41 - Actual Salary: $1,000,000
Year Twelve - Age - 42 - Actual Salary: $1,000,000

Now tell me how the Canucks are not using the final three years when Luongo will be age 40-42 and well on his way to playing golf full time to lower the cap hit of this contract.

The Organizations in question are not at fault. They will do whatever the league allows them to to get one step ahead of the rest of the teams in the NHL.

Why have some organizations, like the Toronto Maple Leafs come out publicly and called contracts like the ones highlighted above cheating?

Why has the NHL not stepped in and nipped this one in the bud so to speak before the practice became more common?

These are not the only contracts that employ such a practice. Ilya Kovalchuck is the only instance where the league said enough is enough. But they allowed his restructured contract which is just as insultingly cap hit lowering than the first one which is 15 years in length and worth $100,000,000.

The last 5 years of the contract pay him $8,000,000 out of the total value of the contract.

How was his voided 17 year contract any less ridiculous?

There are other players signed to equally questionable contracts, Marian Hossa of the Blackhawks, Ilya Bryzgalov of the Flyers and Henrik Zetterberg of the Red Wings.

The NHL tried to fix this with the "Kovalchuck Amendment" which says that if a player retires before the end of his contract then the cap hit stays on the teams payroll for the duration of the contract.

OK that may work, but then what is a players incentive to stay and play for pennies on the dollar when he is way past his prime? Loyalty? Not many players are Niklas Lidstrom that can win major NHL awards at age 40.

The only answer is to make the cap hit of a contract the actual value the player is being paid instead of the average of the contract.

At this rate, the Rangers could have paid Brad Richards $60,000,000 dollars this season and then $1 every year after.

The CBA leveled the playing field when it was ratified the salary cap was $39,000,000. Six years later it is $64,000,000. We are right back in the situation we were in before the salary cap was implemented. The players have to be laughing at the NHL for thinking they got the short end of the stick back then.

So what will happen when the CBA is opened again for negotiation? Will the NHL insist on an actual numbers salary cap or continue the average method that allows teams to so easily get around the salary cap?

Something has to be done. Hopefully it does not result in another lost season.

Please post your thoughts below.

38 comments:

Marty said...

There are several ways to do it:

1. The "cap hit" is the GREATER of the average salary over the contract and the current season. So Richards' hit in the early years will be the actual salary and in the later years the average. The incentive disappears to some degree to circumvent the cap.

2. Make the rule that if the salary for any year is less than one-third of any other year, the cap hit in that year doubles or is the average of his 3 highest consecutive years' pay. Example: If a player gets 10M, 9M, 6M, 1M and 1M, his average is 5.4M as a cap hit but in the years where he gets 1M, it becomes 8.33M.

I am in favor of allowing teams to go 10% over the cap if they make a trade within 5 days of the deadline IF they trade a first-round pick and if they get back to the cap at least 10 days before the draft.

It's complicated, but sometimes that happens.

TheBard said...

Just wanted to point out that with the Pronger deal, because he is an Over 35 contract the cap hit stays even after he retires. Of course the Flyers continue to claim that he wasn't 35 when he signed the deal.

Jess Rubenstein said...

The answer you seek will come next year when the current CBA expires.

You will see Bettman and CO push for the end of front loaded deals as well as to put a limit on how many years.

And if you look at the amendent to the CBA from last year then the NYR deal is within the rules.

And no offense but the person you should be blaming is your own owner for starting this mess by giving RDP the deal he has.

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