The Top Earners In The NHL And The Trickle Down Effect

Brent Morris
December 13 2012 10:23AM

 

Remember this?

 

We're at Day Number Who Cares of the NHL Lockout, slowly being driven mad by the back and forth of negotiations.

Luckily for us chattering class types the NHL and NHLPA have been deciding to leak the focus of the talks, which apparently now is contract limits. The NHL proposed limiting contracts to seven years for players who re-sign with the same team and five years for free agents. In his last press conference,  Bill Daly said that contract limits are 'the hill [the NHL] will die on' in this CBA negotiation.  

Donald Fehr argued in a memo to players that contract limits would effectively create a two-tiered system like the NBA - top players would get a higher percentage of the salary cap, leaving fewer dollars for the rest of the roster. Why are both sides arguing over this so fervently?

Not Their First Fight

Let's return to 2010 briefly - those days when Gangnam Style was just beautiful gibberish and talk of lockouts was nowhere near our consciousness.  The NHL struck down Ilya Kovalchuk's 17-year, $102-million contract on the grounds that it was cap circumvention. The PA and NHL went to arbitration regarding that deal and the PA lost - the contract was ruled void and Kovalchuk granted free agency again.  

The Devils tried again in late August, inking Kovalchuk to a 15-year, $100-million contract. This new contract was different than most long-tail deals, which extend out towards the boondocks of an NHL player's possible career sand include several marginal salaried seasons near the end. Ilya Kovalchuk's new deal, in contrast, had a valley - it went down to $1M per season in 2020-21 but went back up to $4M in 2024-25.  The NHL didn't like it, but it never rejected the contract. Instead, the lague negotiated with the PA about possible rules for long-tail deals and came up with these:

- For a player signed past the age of 40 on a 5+ year deal, his cap hit would only be calculated from years before his year 40 season.

- For all long-term (5+ year) deals where compensation in the three highest salary years is above 5.75M on average, a player aged 36-39 will have a minimum cap charge of $1M per regardless of his actual compensation in that year.

It seems clear that the Devils and the PA had the NHL by the short hairs here - the NHL, which had won a total victory with the first Kovalchuk contract rejection, now had to back down. It wanted to reject the contract but that rejection may not have held up in front of an arbitrator. As a result, they had to give a great deal to the PA just to get the limited concessions they ended up with. The league couldn't get contract limits and they couldn't stop very long contracts from being signed. All they could do was limit just how far they went. And so the deluge of long contracts continued.

Until now.

Limiting Risk

The NHL has been rather tight-lipped about its motivations during this lockout, but the logic behind limiting contract lengths is simple - by limiting lengths, NHL teams minimize risk. Rick DiPietro's 15 year contract went bad almost instantly after it was signed and now the Islanders have a $4.5M hit on their books until 2021. Furthermore, by allowing players who re-sign with their own team to get a longer contract, this gives players an incentive to stay on their current team. This, in theory,  reduces big-market teams power to lure would-be superstars away from smaller markets - if they can't load up the front years with money and they can't give a player more than 5 years, where's the incentive to sign there?  

I decided to take a look at the NHL's elite - the players with cap hits $5M and above in the 2012-13 season. According to NHLNumbers.com, there are 91 such players. I decided to cut their contracts into three groups:

  1. Players who would have been or were a UFA at the end of their previous contract
  2. Players who are UFA age currently but signed their current deal as an RFA
  3. Players who are not yet UFA age.  

The Facts

Here's an amazing fact to begin - every single contract at $5M or above includes at least 1 UFA year. This already puts the small market teams fears to bed somewhat - all players have been willing to sign contracts that keep them in a particular place a year longer than they have to be.

There were 55 contracts over $5M where the player signed it as a UFA or UFA-to-be and 35 of those (64%) were signed with the team the guy had played for*.  Since we know that the remaining players all signed as RFAs, and none of them were lured away on an offer sheet, it means that only 20 of the 91 biggest contracts in the NHL were signed by 'new' clubs.  

That's not very many at all. The next question becomes, what about that other group of players, the RFAs?  Perhaps they're trying to bolt early, get a start on UFA?  How many UFA years did they typically give up for the contracts which they are on? 

*Played for is the operative word - Kimmo Timonen signed a contract with the Flyers without going UFA, but he had not played for them.

On average, RFAs signed for $5M+ gave up 4.08 years of unrestricted free agency. Now that includes things like Shea Weber's 12 years, but still - these players are on their contracts for a long time. They're willing to give up the right to be free agents to stay on their contract.  Why must the NHL restrict teams even further from competing with one another in free agency by giving this power to a player's current team? Does the NHL foresee some sort of NBA reality where big stars force trades to big markets? The NBA works that way because top players are massively valuable - that's just not so in the NHL. Top players have lots of value in hockey, but in the NBA, signing a Hall-of-Fame level player to a max contract is a bargain. In the NHL it would be an enormous salary cap anchor.

The Incentives

So what could be driving the NHL's rhetoric that this is 'the hill they will die on?' Elliotte Friedman suggested in his latest 30 Thoughts column that franchise values are affected by extant money on the books, and while this isn't a statement I can prove or disprove, it's easy to see that's why the NHL is so terrified of long-term contracts becoming the norm, even if the 'front-loading' aspect of them is removed. Teams competing for stars could offer more years to compete for his services.

What's that? Zach Parise wants 9 years? Give him 10.

Again, the auction-like atmosphere of the free agency becomes a competition for the big-market teams, who can afford to tie up a bunch of money later on, and franchises whose owners aren't thinking about selling. Give every player extra years in exchange for reduced cap hits and let the next GM wriggle his way out of the problem. In addition, GM's aren't worried about kicking the can down the road in terms of dollars and risk - if they don't win now, they won't be around to face the consequences of a bad deal 5, 10 years in the future anyways. $5 million dollars to a 40 year old player in 2020 is fuzzy and theoretical, while the need to compete and win now is much more real.

Checking Donald Fehr's claim is more difficult - I believe Jared Lundsford will have more on the distribution of money in the NBA versus the NHL soon - but it is currently true that these 91 players take up approximately 30% of the total cap room in the NHL, cap room being defined via the midpoint.  

We can also estimate, based on the number of players used in the NHL last season, that these players account for only 10.2% of the membership of the NHLPA and will account for 31.4% of total salaries spent, but that is more dubious - players come and go off rosters all the time. Will NHL teams have to increase the amount they pay (via cap hit) top players?  Almost certainly, but how that will affect the market is unclear  The most surprising finding is that these 91 players are only paid about $23 million more in real dollars than their cap hits, or 4.1% - suggesting the front-loading bogeyman may just be a canard.

It will be an interesting issue in the months ahead, once this labor boondoggle is (finally) sorted out.

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#1 Herbie
December 14 2012, 08:00AM
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I'm totally ok with the top players taking a much bigger share of the salary and cap pool. They're the guys that bring the fans to the arena and get the sponsors lined up. The 2nd liners are important too and need to be paid well.

The 3rd and 4th liners really should just be happy they can play a sport for a living and still make $1m for it, but why should teams have to pay multi millions for these plugs? Nobody pays to see Upshall play in Florida right, but that stiff makes $3.5m a year. Ridiculous.

All this is is Fehr keeping the guys who really are suffering due to this lockout in line by trying to convince them he really cares about their welfare as well. The stars buy his story that their huge contracts should be made whole, and the roster fillers buy his story that he doesn't want them to become 2nd class citizens, which they really are and should be paid accordingly.

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#2 Niko
December 14 2012, 08:42AM
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I think the thinking on the PA's part is that the pie the player's are sharing is smaller, but the top players' slices aren't going to be any smaller, and the bottom players' slices can't get any smaller, so the guys in the middle end up getting a lot less pie.\

What I think will actually happen is that the top players will sign with the teams that can afford to pay them top dollar, the second tier players will sign with the low budget teams for decent money (and those teams will be forced to play boring, defense first hockey), and a lot of older, journeyman veterans will be replaced by cheap youth.

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#3 Oiler Al
December 16 2012, 07:55PM
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The owners , GM,s and agents have made these player contracts into spurious deals, to only suit themselves.

Make the max-term 6 years... Each segment of the term is one year, and for the sake of Cap space, all segments are of equal value.[ owners/players can agree on payments,deferred etc. ] If you want to pay player X $10 mill., the cap hit is $10 mil per year for 6 years.= $ 60 million contract. Signing Bonuses, applicable to entry contracts and vets over 35 yrs. of age.only.Bonus monies count against the cap in the year they are paid, but limited to ,2 years.

Most importantly, GM's and ownrs STOP, paying these slugs $3 and $4 million dollars. You have guys riding the pines making $1.5 mill. per year. There's thouands of those guys around..that can be had for half million bucks.

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