Circumventing the Cap

By , July 20, 2010 3:23 pm
Im rich byatch!

Im rich, byatch!

The title of this article sounds like some sort of ski or snowboard movie, possibly starring a young Keanu Reeves or Christian Slater. However, I’m of course talking about teams like the Devils and Canucks and Flyers who have successfully or not so successfully (looking at you, Holmgren) circumvented the NHL’s salary cap.

There are a few different ideas out there to prevent teams from circumventing the cap. I figured since it’s the topic du jour, I’d throw out my own suggestion (which might already be an idea out there)….

What about calculating the cap hit in separate parts, using age 35 as the division for the cap hits? There would be a cap hit calculated for salary paid when the player is less than 35 years old, and another cap hit calculated for salary paid when the player is 35+. In addition, there would need to be some sort of cap on the number of years you can sign a player for, after age 35 (to prevent teams from circumventing that 35+ portion of the cap).

So for example, a player age 30 signs a contract for 10 years, broken down like so:

Years 1-5: $9M, 8M, 8M, 8M, 7M. Years 6-10: $4M, $4M, $4M, $2M, $1M

The cap hit from age 30-34 would be $8M per season (9+8+8+8+7 / 5).

The cap hit from age 35-39 would be $3M per season (4+4+4+2+1).

The idea is based on the thought that a player retiring early shouldn’t be allowed to reduce the value of overall cap hit. So using 35 as sort of a ballpark age at which most players will play until, it forces teams to face the full cap hit for that under 35 age, and allows them a more relaxed cap hit for a player on the decline.

Thoughts? Would it work? Is there a reason it wouldn’t? Just throwing some other random ideas out there.

One of the other ideas going out there is just simply based on capping the max number of years you can sign a player to (say to 5). This can be based on age as well, perhaps on a sliding scale depending on how old the player is, or if they are signing with their current team. Any other ideas out there?

22 Responses to “Circumventing the Cap”

  1. Racki says:

    Voici la nouveau post, or something.

  2. RyanB says:

    Not a bad idea, I think it could work. For sure something has to change.

    For my money I’d like to see a system that would have the team pay back their cap savings. Take your example – 10 years and $55 million, cap hit of $5.5 million. If this player retired after 8 years he’d have been paid $52 million but the team only accounted for $44 million against the cap. So the way I see it they “owe” $8 million. Spread it out over twice the term of what was left on the deal (like a buyout), in this case 2 years, and viola a cap hit of $2 million for the next 4 years. Teams would think real hard before handing out deals that last into a players mid 40s.

  3. Racki says:

    That would work too, but what if a team legitimately had hopes of a player playing until 38 or 39 or whatever, and the player decided to retire early. Wouldn’t that be punishing them unnecessarily? Just bouncing thoughts here.. not saying you’re wrong or I’m right or anything.

    Nice blog linked in your name btw! Nice looking layout. A reminder that “The Foil” is due for an overhaul..

  4. RyanB says:

    Early retirement is certainly a problem, that’s probably why the NHL lets deals signed before the players turn 35 just drop by the wayside when a player hangs them up. I guess if my suggestion were adopted in the new CBA (oh I’d feel so important) teams would be much more careful to ensure that the yearly salary didn’t deviate too much from the cap hit just to make sure they didn’t have to take a penalty should the player retire.

  5. gr8one says:

    The following link is a fantastic and must read for anyone that has even the slightest interest in capology and potential bargaining issues for the next CBA.

    http://www.mc79hockey.com/?p=3266

    It is a really interesting take on how front loaded contracts actually take money out of the pockets of the vast majority of NHL’ers and benefits only the handful of players that have these sorts of contracts.

    It is actually in the players best interest as a whole to do away with these types of contracts as well, and in that article it explains how the escrow works with the current CBA, which I found very enlightening. I’d always heard about the “escrow” and stuff, but never really had any idea what it meant in relation to the NHLPA and the current CBA.

  6. Steve-O says:

    Apparently the deal has been rejected by the league

  7. gr8one says:

    wow…this ought to be interesting.

  8. gr8one says:

    I just don’t get how they can reject this, if it was the first one like this then they might have grounds, but with the past precedents having been set how can they suddenly just say no?

  9. Bostonoiler says:

    NHL has rejected to contract. Good on them. That deal was complete BS

  10. Racki says:

    The contract is not complete BS though. It’s within the CBA. The deal is fine, it’s the CBA is BS. Bettman et al fucked it up and left a loophole in there. Hopefully they can actually correct the CBA in the process. But it isn’t the first contract that obviously circumvented the cap, as others have pointed out. Seems a little odd that they’d let those go and suddenly jump on this one. Like gr8one said, I don’t get how they can reject this either after allowing other contracts to go through.

    That said, I don’t think these kinds of contracts are good for the league, so I am actually glad that the league stepped in, but really they should have done the same with Luongo and anyone else with similar cap circumventing contracts. I bet the Flyers are wishing they’d get Pronger’s contract ripped up.

    The league has stepped in and rejected contracts before, but that has been for not properly weighing the contract. This is new as far as I can figure.

    Btw, the CBA does have a clause in it about circumventing the cap, so I presume they exercised that rule. I’m not sure how open ended it is, but I’d imagine they left the wording open a bit to help with situations that they wouldn’t have thought of.

  11. Haboiler says:

    Here are my two cents on the topic at hand… As Racki knows from our banter the past few days, I hate these deals from Hossa to Keith (although he may play it out) to Zetterberg to Franzen to Luongo (really Vancouver). I understand its a great loophole and if I was a GM, I would be doing the same thing if I had a chance to improve my team. This Kovy deal is interesting in a few ways. First, Lou sounded like the deal wasn’t his idea, rather the new owner in NJ. We all know that Bettman and Lou are like glue; Bettman even warned Lou not to go forward with the new conference as the deal was probably going to be rejected. The conspiracy theorists might say that Lou wanted the deal rejected, it would certainly go along with Bettmans plan.

    IMO, NJ went way to far in this deal on 2 parts: 1. the length of 17 years and 2. the extremely low cash value of those last five years. There is a great chance that in 12 years $550K won’t be anywhere near the minimum wage in the NHL and then where would the league and NJ be at that point? How would they deal with a below minimum league salary being allowed and what repercussions would there be at that point.

    All the power to Lou et al to get this reworked out. It will be interesting to see the outcome after the NHL has drawn a line in the sand on these contracts. I have a funy feeling the 2012 winter may be another long, dragged out boring one of us watching AHL hockey again.

  12. Haboiler says:

    Something to brighten the day about all this mess, a little tongue in cheek…

    http://prosportsblogging.com/nhl-hockey/around-the-rinks/nhls-official-notification-on-voiding-kovalchuks-contract/

  13. Bostonoiler says:

    Haboiler: Here are my two cents on the topic at hand… As Racki knows from our banter the past few days, I hate these deals from Hossa to Keith (although he may play it out) to Zetterberg to Franzen to Luongo (really Vancouver). I understand its a great loophole and if I was a GM, I would be doing the same thing if I had a chance to improve my team. This Kovy deal is interesting in a few ways. First, Lou sounded like the deal wasn’t his idea, rather the new owner in NJ. We all know that Bettman and Lou are like glue; Bettman even warned Lou not to go forward with the new conference as the deal was probably going to be rejected. The conspiracy theorists might say that Lou wanted the deal rejected, it would certainly go along with Bettmans plan. IMO, NJ went way to far in this deal on 2 parts: 1. the length of 17 years and 2. the extremely low cash value of those last five years. There is a great chance that in 12 years $550K won’t be anywhere near the minimum wage in the NHL and then where would the league and NJ be at that point? How would they deal with a below minimum league salary being allowed and what repercussions would there be at that point.All the power to Lou et al to get this reworked out. It will be interesting to see the outcome after the NHL has drawn a line in the sand on these contracts. I have a funy feeling the 2012 winter may be another long, dragged out boring one of us watching AHL hockey again.

    If there is a 2012 strike, I honestly can see the league getting flushed down the toliet in a lot of cities. Bettman knows the league would be screwed with another lockout. It will not come to that. I think this was the right move for the NHL, no way can you allow this contract. Like you said they should have stepped in on the other deals though (I think Keith will paly his out though, and Hossa will too). I hope this is fixed soon and both sides can figure something out for the next CBA. We can’t have another lockout

  14. Racki says:

    Well I guess you got to start sometime (cramping down on obvious bad contracts). So I’m glad the league actually did step in. Just it was initially hard to accept that Loo and others got their crazy contracts and nothing was done about those. But yah… gotta start somewhere I suppose. Should have started a while ago though.

  15. Racki says:

    Haboiler: July 20, 2010 at 11:35 pm  (Q

    Haha, good stuff

  16. Trogdor says:

    I can certainly see a long appeals process playing out on this one considering some of the other contracts out there as support for letting it through under the current cba. Kovalchuk isn’t going to waiver much. He wants his money and thinks he deserves it.

  17. Racki says:

    The PA might and probably actually will file a grievance (just because they protect their own, even if deals like this fuck over 99.9999999999% of them).

    In which case, it would be pretty hard for an arbitrator not to rule in favor of the contract being legal, I would think, since the CBA has more holes in it than swiss cheese.

  18. victoriaoilerfan says:

    Racki: The PA might and probably actually will file a grievance (just because they protect their own, even if deals like this fuck over 99.9999999999% of them).In which case, it would be pretty hard for an arbitrator not to rule in favor of the contract being legal, I would think, since the CBA has more holes in it than swiss cheese.

    This is a good thought from Spector on the subject:

    SPECTOR’S NOTE:
    How ironic Devils GM Lou Lamoriello, who was one of the league’s chief negotiators in the last round of CBA talks, who apparently had a hand in crafting the current CBA, who was a hard line hawk against the PA and its former director Bob Goodenow, could now be dependent upon the PA to try and save this contract. If this goes before an arbiter the league will argue Kovalchuk has no intention of playing out the final years of the deal, yet that suggestion might not be easy to argue what with 42-year-old Mark Recchi returning with the Boston Bruins next season, 40-year-old Mathieu Schneider having played last season with Vancouver and Phoenix, and 48-year-old Chris Chelios having played a handful of games last season with the Atlanta Thrashers. So now we wait to see if the PA files the grievance or the Devils and Kovalchuk try to rework the deal.

  19. chucker says:

    Not gonna lie. I’m exstatic about this. It was obvious in it’s intent and should have been rejected. I think this is a pre-cursor to the next CBA. However, I agree that Vancouver, Philly, Detroit and Chicago all had similar contract go through without nary as much as a peep from the NHL.

    I like the idea of contracts having a maximum length or calculated in cap hits of small terms or a pre-set number of years, even if the contract is longer, like Racki suggested.

    The one thing I wonder is why is there no league maximum enforced on these contract? i.e. If a team tries this shit, then the league should reject the contract and put this player on a league mandated contact for the maximum cap hit allowed. Kind of harsh and taking away negotiating power, but it will instantly make GMs accountable. The other thing is that the league needs to institute a “marquee player clause” into the next CBA where every team has on player they can designate as their marquee player that does not count against the cap. I believe it’s been done in other leagues but I don’t know how successfully. This way everyone can bid on a free agent of this calibre and not go over the cap. I suppose that could be viewed as either a step forward or backward depending on your view of the current CBA.

    I think the solution is likely somewhere in between a maximum term and maximum percentage of cap space. There is no doubt it will be addressed in the next CBA.

    @ gr8one; It is interesting that Lou Lam of all people would submit this contract to the league. I really did wonder when I saw that structure. He absolutely knew he was flirty with it being rejected and I wonder if he secretly hoped it would be as well. He’s always been a penny pincher and never waivered from that. It may be his way to force the league and the PA to lockhorns and get a clear ruling on these types of deals, with him obviously falling on the side of the league. I love conspiracy theories, don’t you?

    Somewhere Dean Lombardi is telling his ownership “I told you so.”

  20. Racki says:

    I don’t know how many of you read it, but Jason Gregor interviewed Lou Lamarammadingdong yesterday: http://oilersnation.com/2010/7/20/kovy-and-highway-robbery

    Some pretty good stuff in there, and as mentioned, you get the feeling that ownership pulled the strings on that one, as he doesn’t seem to like the deal. Hearing stuff like this just adds more fuel to my own conspiracy theory about Katz pulling strings on occasion.

  21. Ktown says:

    I posted this on the OMB. Although impressive number crunching, it only really proves that I have way too much time on my hands. But I found it interesting.

    I’ve gone through and taken a hard look at some numbers and possible reference cases that the NHLPA could bring up in terms of defending Kovalchuks’s contract.

    I think the NHL has some really good points that will make the case for rejecting this contract, and the numbers can be used to indicate a lot. Now, numbers and facts can be skewed as many ways ’til Tuesday to make a case, but I’ve tried to be somewhat objective looking at these.

    For the comparison cases I looked at Franzen, Zetterberg, Luongo, Lecavalier and Hossa (these seem to be the names that come up the most, although looking at the numbers, Franzen doesn’t seem to be a very good comparison).

    Here’s what I did:

    I looked at the percentage value paid before a SIGNIFICANT salary decrease (I went with 30% as an arbitrary minimum cutoff – NOTE: Bobby Lou takes a 32% paycut from year 1 to year 2 of his deal, but I ignored this as he then spends the next 7 seasons at this amount).
    I looked at the percentage value paid before the GREATEST percentage salary decrease.
    Age at expiration
    Age at salary reduction (again, SIGNIFICANT vs. GREATEST percentage decrease)
    Percentage value of lowest year vs. highest.
    Years at reduced salary (significant vs greatest).

    [b]Franzen:[/b]
    82.76% paid (s – 30.00% cut)
    95.40% paid (g – 50.00% cut)
    37 years old(s) and 38 years old(g) at decrease.
    18.18% (l vs h)
    4 and 2 years left (s vs. g)

    [b]Zetterberg:[/b]
    92.67% paid (s – 52.14% cut)
    97.26% paid (g – 70.15% cut)
    38 years old(s) and 39 years old(g) at decrease.
    12.90% (l vs h)
    3 and 2 years left (s vs g)

    [b]Luongo:[/b]
    89.06% paid (s – 49.63% cut)
    94.35% paid (g – 52.16% cut)
    40 years old(s) and 41 years old(g) at decrease.
    10.00% (l vs h)
    3 and 2 years left (s vs g)

    [b]Lecavalier:[/b]
    92.35% paid (s – 52.94% cut)
    97.06% paid (g – 62.50% cut)
    37 years old(s) and 38 years old(g) at decrease.
    10.00% (l vs h)
    3 and 2 years left (s vs g)

    [b]Hossa:[/b]
    87.36% paid (s – 49.37% cut)
    93.68% paid (g – 75.00% cut)
    38 years old(s) and 39 years old(g) at decrease.
    12.66% (l vs h)
    5 and 4 years left (s vs g)

    [b]Kovalchuk:[/b] [i]proposed[/i]
    93.14% paid (s – 46.15% cut)
    96.57% paid (g – 78.57% cut)
    36 years old(s) and 37 years old(g) at decrease.
    4.78% (l vs h)
    7 and 6 years left (s vs g)

    The figures that I thought were significant were the percentage values from highest to lowest years, years remaining after salary decrease and the percentage pay cuts these guys were taking. Most of these guys’ contracts (Luongo, Hossa and Kovi [i]excluded[/i]) expire at 40 or younger, and there are typically only 2 or 3 years remaining when the player takes a big paycut.

    Significant Paycuts are similar (45-50% range), Greatest were anywhere from 50-78%.

    From the numbers, Kovi takes the greatest single paycut at 78+%, and he’s got the most years left after that point. That could be huge (While Hossa’s paycut is similar, he has less years). The craziest number was seeing that Kovi’s low vs high pay amount was under 5%. None of the other players were below 10%.

    The other thing that could be a big tipping point for the NHL over the PA is the fact that the Kovalchuk deal is the [i]ONLY[/i] one where the player is taking less than $1 Million/year in any season. In fact, given how league minimums have risen in the current CBA ($25K increase every 2 years – 2009-10 is first year at $500K) and assuming a similar trend forward, when Kovi gets his first $550K year (2022-23 season), he should likely be making $100K less than the league minimum (“coincidentally” this occurs the season he turns 39). This fact alone could be enough to sewer this for the NHLPA.

    Ultimately, I think there are good enough numbers here to really toss the case out with a laugh. Even the precedent setting Hossa deal shouldn’t be enough to carry this one through.

  22. victoriaoilerfan says:

    I would like to throw this out for discusiion:
    We are all pretty much agreed that this front loading these long contracts are ridculous. Perhaps not illegal but unethical at the very least.
    But what about burying a contract such as Redden’s in the minors which the Rangers are apparently going to do? Managment bargained with Redden in good faith and gave him a contract which is an overpayment but still Mgmnt. signed on to it.
    Now it appears to get rid of the cap hit the Rangers are going to bury Redden in the minors.
    Frankly I find that just as bad as these long term contracts. They circumvent the cap and in the next CBA I hope they don’t allow that to happen as well.
    You make the decision to pay someone, you live with the consequences IMO.

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