Some thoughts on salary cap improvements for the next CBA

By , September 1, 2010 2:23 pm
The NHL / PA would be wise to plan ahead for the battle to come..

The NHL / PA would be wise to plan ahead for the battle to come..

So I’ve been mulling over some ideas on how to improve the NHL’s salary cap. I think we know the NHL’s cap has issues, and this is proven in contracts such as Kovalchuk’s, Luongo’s, Hossa’s and more. As well, I think the guaranteed contracts are a bit of an issue (but I have a pretty simple thought that still keeps the guaranteed funds).

Player cap calculation

Currently, a player’s salary cap is calculated in a fairly simple way. Add up all the salary values of the contract and divide by the number of years the contract is for, and you get your cap hit. Players signed to a contract that starts at age 35 and over have their cap hit stay on the team’s payroll (i.e. cap hit) no matter what (well with some very very unlikely exceptions).

As we’ve seen with Kovalchuk’s rejected contract as well as several other contracts, a team will often be sneaky about lowering the overall cap hit, by simply “front loading” a contract. In the worst sense of front loading a contract, this means that a team will put all the value in the earlier years of the contract, and extend the length of the contract past what the player would be expected to play, and pay the player very little in those years – giving him more incentive to retire. This lowers the overall cap hit of the contract in an unfair manner, as we all know.

So my solution for this (and feel free to tell me if I’m crazy here) is similar to one that I may have mentioned here in the past, I think. It’s to have an average cap hit calculation exist only for the period leading up to age 35. After age 35, your cap hit solely is based on your salary (this is the newer part).

So let’s take an extreme example, Kovalchuk’s initial, rejected contract:

KOVY’S AGE SEASON AHL SALARY NHL SALARY OLD CAP HIT
27 2010-2011 $6,000,000 $6,000,000 $6,000,000
28 2011-2012 $6,000,000 $6,000,000 $6,000,000
29 2012-2013 $11,500,000 $11,500,000 $6,000,000
30 2013-2014 $11,500,000 $11,500,000 $6,000,000
31 2014-2015 $11,500,000 $11,500,000 $6,000,000
32 2015-2016 $11,500,000 $11,500,000 $6,000,000
33 2016-2017 $11,500,000 $11,500,000 $6,000,000
34 2017-2018 $10,500,000 $10,500,000 $6,000,000
35 2018-2019 $8,500,000 $8,500,000 $6,000,000
36 2019-2020 $6,500,000 $6,500,000 $6,000,000
37 2020-2021 $3,500,000 $3,500,000 $6,000,000
38 2021-2022 $750,000 $750,000 $6,000,000
39 2022-2023 $550,000 $550,000 $6,000,000
40 2023-2024 $550,000 $550,000 $6,000,000
41 2024-2025 $550,000 $550,000 $6,000,000
42 2025-2026 $550,000 $550,000 $6,000,000
43 2026-2027 $550,000 $550,000 $6,000,000

Let’s pretend that this new contract actually got approved by the league under my suggested system. Under the old system, his overall cap hit for the entire contract would be $6M.

Under this new suggested system, he would have a cap hit of $10M up until age 34. At age 35, his cap hit would be $8.5M, at age 36 it would be $6.5M, at age 37 it would be $3.5M, at age 38 it would be $750K, and for the remainder of his contract, it would be $550K.

Age 35 as a cut off is purely based on the existing cutoff for other determining factors (i.e. 35+ rule for cap hit staying on payroll). This can definitely be bumped up to 36 or higher if it made more sense.

So, the questions with all these CBA changes are “would ownership do it?”, and “would the players do it?”, as they both have to be in agreement over something like this. That, I don’t know the answer to. I think it’s better for the game as it prevents (as far as I can figure) a team from circumventing the cap the way they have, assuming a player will play until 34 (which is a fairly likely scenario).

However, I still have a tough time believing that GMs or players would go for it, unfortunately. So while I think it’s a very good idea, I’m not sure they’d buy into it, and that’s really the key. It is better for the game, yes, but do GMs want to be stuck with heavier cap hits in the beginning of their deals? Not likely…. but do they want to see OTHER GMs stuck with heavier cap hits in the beggining of their deals? Definitely likely. So there is that motivation there.

As far as the players, I haven’t quite figured out how it impacts them. It might result in some more even funds in their 35+ years.. which might be some motivation. But the GMs would be a bit more hesitant to pay up in the early, pre-35 years. Basically from what I could tell, it would balance out the dollars over the entire term, but with a player not necessarily wanting to spend their late 30s/early 40s playing hockey, it might deter them to sign a contract into those years.

So, hey, it’s a thought and one that I think should be put on the table. I can’t see it going through, but you never know. What do you guys think about that?

The next idea has to do with “guaranteed player contracts”.

Due for a change to guaranteed player contracts?

Now I for one believe that GMs SHOULD have some accountability when it comes to signing contracts, but there are times where even their foresight, as well as the market demand makes it very difficult to know what to pay a player. It’s a tough job that I wouldn’t want to do. So my next suggestion has to do with guaranteed player contracts and buyouts.

“Guaranteed player contracts” are something that the NHL was the first to cut its teeth on. The NHL’s CBA currently ensures that a player gets at least a percentage of the funds written out in the contract. Pretty much the only way that a player won’t get his entire money owed is through a buyout, which still provides a pretty damn nice chunk of change and could even result in the player getting more money (i.e. if they’re bought out and another team signs them after). So really when a player signs a contract, he is almost guaranteed to get what he was promised to him. I won’t go into the complicated rules of buyouts, you can research that on your own.

I have no problems with trying to keep GMs accountable, but I think with the current set up, the player doesn’t hold enough accountability. A player can perform their best at the tail end of their contract, in hopes of a raise, and then go into more of a coast mode once the season starts. Certain players have been known to perform bigger in contract years. I don’t think it’s an epidemic or anything, but I’d like to see the NHL re-consider guaranteed player contracts a bit.

In the NFL, the standard contract is not a guaranteed contract (they do have a method of providing salary up front for guaranteed salary). A player can be cut from a team, releasing the team of a possible bad contract. This ensures player accountability. In that league, you have to bus your ass all season or you could be gone. I really like that from the player’s accountability perspective.. however, I’m not big on general managers being able to get out of every contract in such an easy way.

So what’s the answer here? I unfortunately don’t have any solid answer on what to do. I’ve got one suggestion that Steve-O refuted because he doesn’t feel there is enough accountability from the GMs, but to “spitball” ideas, I’ll throw it out there.

Contract buyouts currently allow a team to pay out a portion of a players salary, and the cap hit is restructured and spread out over twice the contract length. Again, I don’t want to get into the intricacies of buyouts, but to sum up, it is the most convenient (but still very unconvenient) way for a GM to end a bad contract where a player didn’t perform to expectations. The average cap hit is lowered significantly for the player, they don’t have to pay them their full salary, but the cap hit is spread over 2x the normal term.

What I’m suggesting might be open for discussion / fine tuning is maintaining those guaranteed players funds (to keep the players “on board” with the idea) and lowering the cap hit the team suffers from a buyout. Suggestions are to lower it to ZERO cap hit, to even the same sort of cap hit there is now for a buyout, but for a shorter term (perhaps just the normal term). It lowers GM accountability, but still holds them accountable to an extent (in that they will have to pay the salaries still and perhaps have some cap hit), and it holds the players a bit more accountable (as there would be an increased motivation from GMs now to buy out a bad player contract).

Now the downside to this idea, as Steve-O has pointed out, is that there are going to be teams out there like the Leafs and the Rangers that can afford buyouts more readily (and removes that parity the league once had). To that, all I can really say is that perhaps for buyouts the league should penalize teams, a la Luxury Tax of other leagues, and have that money be spread out to struggling teams (note: this means the teams that are losing revenue, not the teams that are in last place but still earning revenue). This would in turn also result in the GMs/owners having to dole out more cash, however. But perhaps that again results in more accountability.

“Well, teams in the bottom are just going to sit on the luxury cash, aren’t they? It decreases incentive for them to be competitive, doesn’t it?” Well, perhaps the NHL needs to figure something out there to prevent a team from bottom feeding and living on life support. That problem exists regardless, if you ask me. And perhaps there is a way to threaten these teams into competing properly, especially if they’ve been given extra cash via other teams’ buyouts (“compete or we’ll sell/move your team”).

So as before, the question… will the players buy into this? Yes, I think they will. It might be a little harder of a sell though given that there is increased risk of them being dropped by a team, but they still have their guaranteed contracts, which is something that they know the owners would love to do away with… this is a little thing called compromising. Will the owners/GMs buy into this? I think they would, as they now have a method of relieving cap from contracts that not only they signed in good faith with a player (and said player fell short of expectations), but contracts that previous GMs have left as their legacy (a la Horcoff contract by Lowe onto Tambellini, if you would).

I don’t think my idea here is the perfect idea… I think it works a bit better than the existing one though, but as I mentioned before, I’m trying to spitball some ideas in the comments that would help make things a bit better. I believe the NFL is scheduled for an update to their CBA right quick, so perhaps there are some things around their methods for guaranteed contracts that the NHL can learn from too.

Anyways, food for thought. /endrant

P.S., TLDR

20 Responses to “Some thoughts on salary cap improvements for the next CBA”

  1. Racki says:

    I haven’t rambled like this in a while… new post.

  2. Steve-O says:

    I’m wondering if its feasible to copy our communicator discussion from this morning here…

  3. Racki says:

    You mean the one where you argued something completely different than the topic, then realized you were arguing something else, and then contradicted your own argument mid way through? Sure.. replace our names though :P

  4. NorwegianOiler says:

    Well, I think the cap hit idea is quite interesting. It certainly takes the edge off front loaded contracts.

    I don’t think I like the more ‘forgiving’ version of the buyout idea, however. Despite the idea that some players may do better (somehow) in ‘contract years’ it is still entirely up to a GM if he wants to ‘fall for it’ so to speak. I have no problem with the current setup where players are assured their salaries. There are 30 GMs that collectively decide if someone is worth this salary or that, and ultimately that is the skill of the trade, knowing when to go all in and when to fold. Living with those decisions should remain mandatory, however painful a contract can be…

  5. Racki says:

    Admittedly, my suggestion to change to buyouts is heavily motivated by Khabibulin’s desire to party like a rockstar while he’s recovering from back problems. That was more of a side though.. but I really do endorse the first part of the post to change the cap hit calculation.

  6. zackman35 says:

    Good post Racki, I scanned through most of it… well until about the NFL portion. I have a suggestion or two, although I didn’t really put too much thought into them and its quite similar to yours (I think). Why not just have the cap hit the same as the given salary. Of course you still have entry level contracts and what not but it may free up a few things.

    Ie. Sign a player at 4.000 mill. for a three year deal. Each year he gets 4.000 mill.

    2010/2011: 4.000 Mil
    2011/2012: 4.000 Mil
    2012/2013: 4.000 Mil

    So even though the total value of the contract is 12.000 mill. you wouldn’t be able to sign him to something like…

    2010/2011: 6.000 Mil
    2011/2012: 4.000 Mil
    2012/2013: 2.000 Mil

    *If you’d like to sign a player like this, you’d have to sign him to every year and of course you’re only allowed one contract at a time.

    You’d have to be a lot more careful when signing the contracts because if you sign a player and they “shit the bed” you’d have a bad contract on your hands for a season or two. The GMs may consider smaller length contracts. From the agents perspective, if longer contracts are harder to come by they may take a little less pay for an extended contract. And yeah, that’s all I can really think of right now.

  7. Racki says:

    That is another alternative that people are tossing around.. it’s already out there, so I figured I’d suggest another alternative. There are downsides to the even cap structure, such as it makes it harder to trade players in the tail end of their careers, and the other being what you noted (it might deter teams from wanting to sign players long term, and I don’t see a long term deal as such a bad thing). It’s hard to justify too that an older player would be worth the same sort of cap hit in his older years as his younger years. So yah, my suggestion above is just another way of doing things.. there’s good and bad in both, I’m sure.

  8. Racki says:

    gr8one: http://www.youtube.com/watch?v=cUlmZ2PdxiE

    I’m just going to take this youtube link to imply that my post is as awesome as Led Zeppelin. :P

  9. Mr.Majestyk says:

    If I understand Zackman’s suggestion a player’s cap hit would be whatever he would earn in that given year. That would seem to simplify things.

  10. gr8one says:

    lol…of course.

    Sorry but when you said you hadn’t “rambled like this in awhile” that song instantly stuck in my head, so I figured I should pass it along. ;)

    But really, I just skimmed it all so far…and gotta say great post.

  11. Mr.Majestyk says:

    Such a Lord of the Rings song.

  12. Racki says:

    Mr.Majestyk: If I understand Zackman’s suggestion a player’s cap hit would be whatever he would earn in that given year.That would seem to simplify things.

    Hmm, Zack, clarify… :P

    I gathered it as meaning that it would be equal salary spread out the entire term because of his second example not being a valid scenario and saying that the first example of even salaries was.

    But that also is another possibility too though, having cap hit equal to salary. I’m sure there’s an issue in there somewhere with that set up.. but to be honest, I can’t think of it! (i.e. so maybe there isn’t?)

  13. Mr.Majestyk says:

    This season Souray’s cap hit would be lower, so he might be easier to trade.

  14. Racki says:

    A tip of the hat to RossCreek at OilersNation for noticing this Larry Brooks post on the NY Post:

    The NHL has given the NHLPA an ultimatum regarding the contested front-loaded contract of not only the Devils’ Ilya Kovalchuk, but Vanocuver’s Roberto Luongo and Chicago’s Marian Hossa, as well, The Post has learned.
    A well placed source reports that the league has informed the Players’ Assn. that the league will grandfather the recently submitted Kovalchuk 15-year, $100M contract, Luongo’s 12-year, $64M deal that is entering its second season and Hossa’s 12-year, $63.3M deal that also is entering its second season into the CBA under the following conditions:

    1. That the cap hit on future multi-year contracts will not count any seasons that end with the player over 40 years of age. The cap hit would be calculated on the average of the salary up through age 40 only.
    2. That the cap hit on future contracts longer than five years will be calculated under a formula granting additional weight to the five years with the highest salary.

    The league has given the PA, which is being directed by Donald Fehr, until Friday at 5 pm to accept these conditions. If the PA refuses, or if negotiations fail to yeild a common ground, the league has informed the PA that:
    1. It will reject the Kovalchuk contract.
    2. It will move to immediately devoid the Luongo contract.
    3. It will move to immediately open proceedings for a formal investigation into the Hossa contract.
    The NHL owns sweeping punitive powers against teams and players judged guilty of circumvention under Article 26 of the CBA.

    This is huge. The NHL is playing hardball here, using Kovalchuk’s contract as a bargaining chip. Interesting. I really like their suggestion for restructuring the cap, especially the part about 5 year+ contracts, although I’m not entirely clear what they mean by the underlined in “granting additional weight to the five years with the highest salary.”

    What exactly is “additional weight”? I mean.. what sort of formula are they working with here to calculate that additional weight.

    At any rate, this is a pretty big development in the cap debate.

  15. zackman35 says:

    Racki:
    Hmm, Zack, clarify…
    I gathered it as meaning that it would be equal salary spread out the entire term because of his second example not being a valid scenario and saying that the first example of even salaries was.
    But that also is another possibility too though, having cap hit equal to salary. I’m sure there’s an issue in there somewhere with that set up.. but to be honest, I can’t think of it! (i.e. so maybe there isn’t?)

    Sorry Mr.Majestyk and Racki for the confusion, I’ll clarify soon but before I forget there is a problem with those types of contracts. If you have your cap hit equal to the salary and sign some players, this will allow your team to become quite stacked eventually given the right contracts.

    Ie. Signing Crosby/Malkin/Fluery for a six year deal, all the same contract, and lets say the front end of that contract is weighed down or whatever its called (can’t think of it). *This is an Example.

    Year 1: 7.000 Mil
    Year 2: 7.000 Mil
    Year 3: 7.000 Mil
    Year 4: 7.000 Mil
    Year 5: 7.000 Mil
    Year 6: 1.000 Mil

    The contract is quite lucrative, a six year deal worth 36.000 Mil, but what I get from what you two are saying then that would mean (If their Cap hit is equal to their salary) then on that least year those “Franchise” players will come to a total cap hit of 3.000 Mil. Not that they would probably sign that low but even still that’s a loop hole I can think of.

    What I was meaning is that your contract has to be equal to what you sign it with (so in turn it would also count as your salary). So if you sign a player for five years at 4.000 mil, then year one through five would count as 4.000 mil towards the cap and it would also be their salary.

    So if they signed Kovalchuck for 15 years at 8.000 mil then year one through 15 he would earn 8.000 mil and it would count toward the cap as 8.000 mil.

    I hope this makes things a little more clear, if not I’ll make a chart. =p

    I think this kind of method can really open things up if worked correctly. And its extremely simple as well.

  16. Racki says:

    Yah OK, that’s what I thought you meant…

    So basically to put it another way, if you sign a player for X dollars over Y years, their cap hit and salary are both calculated by X / Y. For every year of the deal, the cap hit and salary remain the same. Ya, others have suggested that… very simplistic, but still effective. See my comments above ;)

  17. chucker says:

    I don’t see any choice for the PA to agree to this. Also, I’m presuming that there is a proposed formula for the weight of the top earning years that was given to the PA.

    On the other hand, I really hope the PA can’t agree and these contracts are voided. I would loooooooooooove to see all the panic and noise that would come out of Vancouver.

    Having said that, I don’t see how the PA will not agree.

  18. Ktown says:

    http://tsn.ca/nhl/story/?id=332542

    Looks like the league and PA agreed on something. I’m assuming it’s the language of the “nonexistant ultimatum”.

    So, Kovy’s new contract will be approved, Luongo, Savard, Hossa, avoid investigation into their contracts, and no more contracts like this will be allowed again.

    Just one thing – what does that do in terms of fairness to teams that never did this, and no longer have the services of their ‘superstar’ players because they couldn’t fit them under the cap?

  19. chucker says:

    Yeah, I agree Ktown. It’s basically grandfathering cap cheating. It’s not fair to any of the other teams at all, but I’m thinking they didn’t want to scare up a hornet’s nest in the PA and also agents with legal actions. Both sides blinked I’m guessing. I don’t like it at all.

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