On Cheat Code Contracts - A Thought Exercise

Chase W.
January 05 2013 12:06PM

 


 "Are you rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrready?" -Michael Buffer

 

After months of posturing through ‘take-it-or-leave-it’ negotiating, absurd press conferences, a search for a podium, rumors of NHLPA decertification, a good ol’ Canadian boy losing his mind, the filing of a lawsuit, and a bunch of other nonsense I’ve tried my damndest not to pay attention to, the aura of a 2013 NHL season seems closer than ever. While each side tries to squeak out everything they can bargain at the last minute, it seems that the DeLorean will indeed reach 88 mph before the point of no return. In proffering such optimism, I would like to speak briefly on one of issues that is going to change (I’ll say that again: change) the NHL under the new collective bargaining agreement; that is, the structure of player contracts, and specifically, the proposed maximum player term lengths.

Famously deemed by Bill Daly as one of the apparent 'hills the owners will die on' only a few months after we saw the likes of Zach Parise, Ryan Suter, Sidney Crosby, Jonathan Quick, Jordan Staal, Shea Weber, Tyler Myers, Scott Hartnell, Wayne Simmonds, etc. sign either a multi-year UFA agreement or ink long-term extensions, it’s looking like UFA contracts will be limited to a six-year maximum while players re-signing with their current clubs will be afforded an extra year.

Gone will be the nature and spirit of old CBA contracts with “cheat code” years added to reduce a player’s cap hit, and here (until at least the next lockout) will be a maximum on how many years a player can sign for. With this in mind, an important question to ask is: who is going to benefit from term limits and who is going to lose upon their elimination?

Before we attempt to tackle this question, I would like to quote a passage from an article written by Brent Morris and run here on December 6. Wondering what avenues will be opened for the fans to return to the game they love, Brent spoke to why he loves professional sports and what brought him back to hockey after the 2005 lockout:

I realize part of my love of professional sports comes from the player transaction. The idea that anyone in the league could theoretically be on your favorite team tomorrow, and someone on your team can go elsewhere. The moment when you hear about a trade or free agency signing - 'Huh, I'd never considered him before.'  What will things be like when that guy is here? What will it be like when so-and-so leaves in free agency?  The glee when your club lands the guy everyone wanted, the gnashing of teeth when they overpaid him. College sports don't really have this angle, and I feel like that's part of why I was never interested in them - who wants to follow a sport where you lose your best players every year and you can't trade for better ones?  Where's the angle?

Part of what brought me back after the 2005 lockout was the flurry of player movements. Marian Hossa and Dany Heatley were traded for one another. Scott Niedermayer and Chris Pronger changed teams. Paul Kariya went to Nashville. A lot of prominent NHLers were bought out via the NHL's amnesty program and ended up in strange uniforms. 

The above paragraphs, especially as it relates to player transaction, are some of my favorite prose in quite some time; I suppose it’s because Brent and I are cut from the same mold. Put simply, it has become inherent within my nature as a sports fan to believe my favorite franchises can be run more optimally. Perhaps this is a byproduct of growing up in the Philadelphia market, or just watching Bobby Clarke’s brain cease to function before my very eyes.

Either way, Brent’s statement that “player movement isn’t going away” at the end of his piece means that we’ll have plenty of moves to praise and curse before long. However, with the changed structure of player contracts, the basis for why we praise or curse these moves, i.e., a player’s value to their team relative to their contract length and salary cap number, will no longer stem from the way we’ve seen NHL contracts develop since 2005.

In a salary cap system, there are obviously only so many ways a team can optimally allot their available funds to build a winning team. This is why we saw teams begin adding these extra years at the end of deals that players obviously had no intention of playing. A player’s cap hit was calculated by dividing the contract’s total value by its length, and fake years at the end of a deal allowed the GM to save space against the cap.

Another reason behind their emergence, a point made to me in talking with Eric T., was that GMs generally have short careers. They care about winning now, and about the first three years of a long-term contract much more than the final three. Why fret over a few fake years at the end of a 12-year contract? If you still have your job nine seasons later, you must be doing something right.

Ever the wizard, Ken Holland seemed to figure this out when he signed Henrik Zetterberg to a contract extension beginning in 2009-2010. Thanks our team overview, here’s the breakdown of how that deal goes:

Year

Age

Salary ($)

2009-2010

29

7,400,000

2010-2011

30

7,750,000

2011-2012

31

7,750,000

2012-2013

32

7,750,000

2013-2014

33

7,750,000

2014-2015

34

7,500,000

2015-2016

35

7,500,000

2016-2017

36

7,500,000

2017-2018

37

7,000,000

2018-2019

38

3,350,000

2019-2020

39

1,000,000

2020-2021

40

1,000,000

Total Cap Hit: $6,083,333

Setting the model for many deals we’ve seen since, Zetterberg “earns” only $1,000,000 in the contract’s final two years. The meat of the agreement is 10-years/$71M, or a $7.1M cap hit without the two cheat code years, and a $7.5167M cap hit without the age 38 season that reduces his previous year’s salary by 52%. By structuring the deal this way, Holland gets an elite player and saves his team between $1.1 and $1.5M that can be spent elsewhere.

Now, let’s say the proposed 7-year contract limit was in effect when Zetterberg re-signed. The longest Detroit could have locked him up was through his age 35 season, through 2016-2017. Even though the amount a player’s salary can vary from year-to-year is still being negotiated, Zetterberg’s contract probably would have looked very similar to the one we see if the final five years are chopped from his current deal.

In fact, under the new rules, Zetterberg could have very well ended up with more than the $53.15M he will have made after the spring of 2016. Reason being, as Eric also pointed out to me, the old system created a paradox where these extra years thrown on the end of contracts benefit the player in addition to the GM. The risk of injury (see: Pronger, Chris) or underperformance shifts from the player to the team, and the player is willing to give up money in the long-term for this luxury.

Under the new system, Zetterberg gives up a hair less than $20M ($18M of non-cheat code) guaranteed money when the final five years are removed from his current contract. If you’re his agent, are you still going to push for $53M in those first seven years? The answer is obviously no, and it’s going to lead to third contracts in the mold of Zetterberg’s earning players more money over shorter periods.

As a result, the teams spending to the cap ceiling each year will no longer be able to get the most productive years of their stars and free-agent signings at discounted prices. The variance limits on salary should also prevent Pronger-like cheat codes for valuable 30-something players counting less against the cap. Third contracts will increase upwards of 1-2 lesser players’ equivalent salary, meaning that GMs will have to get more creative in deciding where to allot the extra cash and who to keep on the roster.

On the flip side, teams in the middle of the pack and below like Nashville probably couldn’t afford Ryan Suter at 13-years/$98M. Under new rules, it’s hard to see him making more than the $71M he’s owed through the first seven years of his deal, and they’ve made the commitment (for now) to pay Shea Weber more than that during the matched contract only Paul Holmgren could imagine. If similar contracts end up in the neighborhood of 7/$65, 6/$56, etc., teams in the bottom third of salary payroll may end up being able to land more premier players.

We’ve already seen Carolina commit $60M to Jordan Staal this offseason, and I expect similar trends to continue under the new CBA. Even though that was a 10-year deal, under new rules they’d give him 7/$56 in a heartbeat. Perhaps the same goes for teams like Anaheim or Dallas who don’t have to put up $70+ million for a top-tier player anymore.

Big-spending teams are going to have to use their money more carefully since better players will cost more of it, and small-spending teams are going to have the chance to reduce their unused cash. I think this will be good for the league in general, and GMs like Paul Holmgren will need to figure out pretty quick that locking in players after career-high shooting percentages shouldn’t be the norm if they want to have a job when those deals expire.

At the end of the day, this new style of contracts leads to a changed perception of who a GM should sign and why they should sign them. With premier players costing more against the cap, having them will create opportunity costs elsewhere. Signing Scott Gomez and watching him fall off a cliff after three years will hurt even more, and it will drive mad those like Brent and I. Without their adapting quickly, the bigger teams will suffer, smaller teams will benefit, and many GMs will entertain.

Here’s to that happening sooner rather than later.

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Chase is a fan of the Philadelphia Flyers and also contributes to Driving Play, the blog with three first lines. You can find many of his hockey-related tweets by following @DrivingPlay. FACT: Simon Gagne is the greatest hockey player of all time.
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