Question on the cap in regards to long term deals

Discussion in 'Hockey Talk' started by Shakes, Jul 7, 2011.

  1. Shakes

    Shakes
    Expand Collapse
    MVP

    Joined:
    Jul 6, 2001
    Messages:
    3,350
    Likes Received:
    0
    Burke has made it clear that he is not interested in long term deals that in his opinion circumvent the cap.

    In my opinion this hurts the Leafs chances of landing big ticket UFA's like Richards for example. This is just the most recent example. But I believe it will also hurt them more then you would think in the next few years as well.

    My question is.......

    How valuable is a player with a cap hit of say 7 mill going to be to a team that might only have to pay him 2 mill in "real" money later on? Even it is just to be a back up goalie or a 4th liner. There is plenty of teams in the NHL that are struggling to get to the cap floor. Would it not make sense for those financially strapped teams to trade for player X whose cap hit might be substancially higher then actual money being paid? Would this work? I know that just as an example if Guguire was currently on a long term deal where he was getting paid 1-2 mill per season but his cap hit was say 5 million this would be a huge bonus to teams that are struggling to get to the cap floor.

    If what Im saying is correct above then it will be interesting to see what will happen to players on these long term deals as they wind down to the last few years a 9 year deal.....Is the NHL PA going to accept this as it breaks the spirit of the cap floor which Im assuming was there add on to the current agreement.
     
  2. Connecticut

    Connecticut
    Expand Collapse
    1st Round Pick

    Joined:
    Jul 5, 2001
    Messages:
    586
    Likes Received:
    0
    I don't have an answer to your question, but I have one of my own:

    As far as I understand, bonuses count against the cap, even if they're not met. What's to stop a team from giving a player a bunch of unattainable bonuses? Random example: Florida signs Jovanovski for 3 million plus, 5 million if he scores 60 goals. Bam! 8 million against the cap, but it only costs you 3.

    Just wondering...
     
  3. m_peroni

    m_peroni
    Expand Collapse
    Hall of Fame

    Joined:
    Jun 22, 2002
    Messages:
    5,332
    Likes Received:
    0
    I'm not sure i'm understanding what you are saying.

    So you are saying that the Islanders can sign Leclaire to five years at an average salary of $1.5M, but have the option to have the cap hit be like...$3M?
     
  4. Die-hard1

    Die-hard1
    Expand Collapse
    6th Round Pick

    Joined:
    Apr 8, 2011
    Messages:
    159
    Likes Received:
    0
    My rudimentary understanding is yes, these deals will be valuable to the lower end teams. A team like the Leafs, Nucks or Habs - the top 3 revenue teams in the league - could sign Brad Richards for $12.8 million a season for the first year of a 10 year deal, dropping down to $1 million for the last couple of seasons.

    A team like Nashville, Phoenix or Florida, or one of the other low revenue producers, could trade for him in year 7 and get a much larger cap hit than the dollars they have to pay.

    I think it will be something we'll see in the future - Columbus for example lost $25 million last year, and now they've added $15 million to this year's payroll - can they sustain $40 million in losses if the team isn't good enough for fans to come back in a big way? I don't think so, so they would be happy to get a longer term deal at fewer dollars than the actual cap hit.

    We'll see what happens - I think the owners are going to try and close the long-term deal loophole in the new CBA negotiations.
     
  5. Shakes

    Shakes
    Expand Collapse
    MVP

    Joined:
    Jul 6, 2001
    Messages:
    3,350
    Likes Received:
    0
    I believe that bonus's count against the cap for that year but there is some sort of time fram for the books to balance.

    But that is a great idea.
     
  6. rikster

    rikster
    Expand Collapse
    2nd Team All-Star

    Joined:
    Jul 5, 2001
    Messages:
    1,919
    Likes Received:
    0
    Hi Shakes,

    We talk allot about salary cap floors and ceilings, but not so much about cash flows...

    Cash flows pay the bills and the problem some NHL teams face is no different than you and I when we spend more than we earn...

    I liked the idea of a franchise player exemption contract during the last CBA negotiations because at the end of the day I think its in the leagues best interest to have marquee players in big market locations and I see these very large front loaded contracts as a form of a franchise player exemption contract....

    A front end loaded contract to a Brad Richards or Roberto Luongo is not something many/most teams can afford to do because their cash flows aren't sufficient to cover the cost in the initial years when most of the total cost of the deal is paid out...

    For a revenue challenged franchise whose cash flows don't justify spending to the floor taking on one of these contracts later in the term of the deal allows them to count the cap hit with little impact on their actual cash flow...

    As an example, Luongo was paid $10 million of his contract in the first year, has a cap hit of $5.3 per season and in the last years of the deal the actual money paid to him is $1 million per season which would make him a very attractive starting or back up goaltender in a few years to a team like the Panthers who need to get to the floor....

    I thought Burke's comments showed little empathy for the small market teams whose cash flows don't justify spending to the floor, but are required to do so under the current CBA...

    When I mentioned the Tampa situation with Stamkos, the challenge they face is not just the salary cap implications, but more importantly the actual cash flow..

    Let's say they get every body signed for just under the salary cap ceiling, but front end load the Stamkos contract similar to the Luongo deal....

    Their actual cash flow would be in excess of $70 million this season and they don't have revenues sufficient to meet their payroll....

    For the Leafs organization, it's likely their greatest asset and for organizations like Florida and Phoenix its a life line which Burke wants to take away....Why?

    Leafs build their winner and when they are ready to move the player a team like the Coyotes picks up the contract and gets the cap hit they require without having to spend much money....

    Take care...
     
  7. Die-hard1

    Die-hard1
    Expand Collapse
    6th Round Pick

    Joined:
    Apr 8, 2011
    Messages:
    159
    Likes Received:
    0
    The only contracts eligible for bonuses are entry-level deals, or over age 35 deals. The rest of them don't allow bonuses, that's how you can't get inflated numbers like CC is asking.
     
  8. m_peroni

    m_peroni
    Expand Collapse
    Hall of Fame

    Joined:
    Jun 22, 2002
    Messages:
    5,332
    Likes Received:
    0
    I'm still not understanding lol.

    Say the Rangers traded Drury to Phoenix. Though he'd be paid, i think $3M, or whatever the actualy salary is, the cap traded to Phoenix would still be $7M.

    Unless you are saying this:

    If Drury was paid $8.2M in his first year of a $7M per season average cap hit, the team acquiring him on his last season can choose to increase the cap hit of Drury to a maximum of $8.2M since that was his highest paid year.

    If that is what you are saying, then it's actually not such a bad idea, but it would excuse teams to put a lesser product on the ice and circumvent the CBA cap rules in this case as well. So, i think the flaws are too negative.

    Also, just because you add $15M, doesn't mean you lose $15M either. If these $15M gets them in the playoffs then i am sure the losses are less than $25M from last season.

    Look, this is the way i see it. The NHL needs to compete in every market where they have a team. If the cap floor is too low, you will see lower market teams never....ever making greater efforts to improve the product on the ice. If an owner is serious about having an NHL team, then he better pay up. So, if the cap floor forces some of these owners, who are more like billionaires, if not have hundreds of millions of dollars, and $25M in losses is a small fraction of their pocket money, then i say GOOD.

    Look at the Panthers. They had to spend $20M this off-season. If they didn't have to, then i would actually give Veiner the benefit of the doubt in wanting to improve the team as he is a big hockey fan, but maybe he would have rather spent $12M, or $15M at most. Boom, ten new players added.

    I also think that these lower market teams can actually thrive from the bigger market teams that need to dump salary for cap purposes, and the assets to give up are probably not much. So, in a way...i like the current system. I like that the NHL economy dictates the cap floor and cap ceiling. I like that teams have to be smarter and management has to show more skill in their decision making. I like it that now all teams must have better drafts. I like that small market teams are forced to spend.

    Hockey fans all around the NHL map deserve that their teams put as good a product on the ice as much as they can. If the team fails, then tough luck. Bad management. It's business, and in business there are tons of bad managements that lead to failure.

    This is what kind of worried me about the Winnipeg group. Immediately they said "we will build through youth". Well...like i said, what is it then? Edmonton v2.0?

    Anyway, i like teams that spend to try and win. Why? At least the effort is there to do it. They may be making wrong decisions when results show, but at first the effort counts and that is why Florida fans are smiling this summer. The ownership wants to win, and the GM is doing what he can to accomplish that by not being scared to make moves that are bold or skeptical...or risky.

    So...ok, i'm done rambling :)
     
  9. m_peroni

    m_peroni
    Expand Collapse
    Hall of Fame

    Joined:
    Jun 22, 2002
    Messages:
    5,332
    Likes Received:
    0
    I think the bonus is counted the next year. If i recall when Prospal signed with the Rangers, his bonuses counted the year after, i think.
     
  10. m_peroni

    m_peroni
    Expand Collapse
    Hall of Fame

    Joined:
    Jun 22, 2002
    Messages:
    5,332
    Likes Received:
    0
    Cash flow is rare in the NHL in terms of what a player can bring. I mean, it's not like David Beckham going to Real Madrid a few years back, or when the Yankees got A-Rod. The sport has to be very big, and the athlete a very popular name around the world in order for cash flow to have significance from your point.

    Stamkos won't bring as much cash flow to Tampa as he would to say Montreal, Toronto, NY, but no where near as significant a cash flow that another athlete in another sport would bring to be very recognizable.

    Few teams have issues in reaching the cap floor. Three years ago the Panthers were only a couple of million short of the cap ceiling, and Veiner and group in South Florida are way up there in financial security that spending $20M to reach the cap floor, and spend more later on, won't be an issue. They are running on pretty much a $(10M) operating income, which is not tragic for a well to do millionaire with minority partners being nationally recognized, like Huizenga.

    Tampa Bay is very similar to Florida, but better operating income this year, and the team's value is increasing. Stamkos is also a financial asset to the Lightning. It increases their team's value and attracts sponsors as well. So, the cash flow will be there for the team, but not to the point that it would bring in a lot of money. I doubt any NHL player would be able to do that nowadays. Not even Crosby. Gretzky did it, but different times.
     
  11. Die-hard1

    Die-hard1
    Expand Collapse
    6th Round Pick

    Joined:
    Apr 8, 2011
    Messages:
    159
    Likes Received:
    0
    The team used to have the option of deferring a bonus until the following year only if they were over the cap. This year it doesn't work that way though, because it's the last year of the CBA all bonuses are counted against this year's cap.
     
  12. Die-hard1

    Die-hard1
    Expand Collapse
    6th Round Pick

    Joined:
    Apr 8, 2011
    Messages:
    159
    Likes Received:
    0
    If a contract if front loaded - let's take Brad Richards for example, who gets $25 million his first 2 years of a 9 year contract - then the Rangers are paying him $12.5 in year 1, then $12.5 in year 2.

    After that though, his salary goes down significantly, to the point that he is only owed $33.5 million over the next 7 years of the deal. I can't recall exactly how he's being paid, but if the Rangers traded him after 2 seasons then the team getting him only owes him an average of $4.75 million a season or so, but his cap hit is $6.5 million. That way they can actually spend to the cap floor from a cap perspective, but in terms of real dollars they are spending, they are actually spending less than that.

    I'm all for all teams being able to compete - the problem is if Florida, Columbus, Phoenix or whoever keeps losing $15 to $20 million a season the owner is going to decide to drop the team, exactly what happened in Phoenix. Even a billionaire doesn't want to lose $200 million over 10 years of operation, there's a limit to what they will pay.

    The lower revenue teams cannot afford to operate at $48 million, where the cap floor is now. The higher revenue teams are happy to pay $64 million, where the ceiling is - unfortunately the lower revenue teams are almost always the ones who the CBA is looking after, so I see the cap dropping and the floor dropping even more in the next CBA. It's too bad, but I definitely think there will be a 3rd lockout in the last 20 years after this season.
     
  13. rikster

    rikster
    Expand Collapse
    2nd Team All-Star

    Joined:
    Jul 5, 2001
    Messages:
    1,919
    Likes Received:
    0
    Sorry, he wouldn't because this is a gate driven league and the cost of attending a game in Tampa is cheaper than in Toronto....

    Tampa cannot afford its payroll from its operating income so it needs to go outside to cover the debt...The most obvious example of this is in Phoenix where the city of Glendale is writing cheques for $25 million to cover some of the losses the team suffered last season and will do so again ...

    The Bolts carry an additional $15 million or so in payroll cost for their minor league players and additional payroll cost for their management team and their scouts and their administration staff...

    Add it all together and it's likely just one side or the other of $100 million per year...

    Because this is an inflationary system, there will always come a time when the value the player gives the organization is less than the cost to keep the player and that is when serious decisions need to be made...

    You reference European football...Some of the most well known and successful teams are bankrupt because the cost to field their team is greater than the value they give the organization...

    I saw this situation becoming a real problem as soon as the details of the new CBA were announced provided the leagues revenues continued to grow because their is such a disparity in gate revenues from team to team...The faster league revenues grow, the greater the challenge for the bottom revenue teams as they are forced to write bigger and bigger losses just to stay in the league and as we saw with the Atlanta franchise, their owners decided they didn't want to write any more checks to cover the teams losses....

    Take care....
     
  14. m_peroni

    m_peroni
    Expand Collapse
    Hall of Fame

    Joined:
    Jun 22, 2002
    Messages:
    5,332
    Likes Received:
    0
    That already happens. If the Rangers were to trade Richards at any time during his contract, the team acquiring would gain a $6.5M cap hit regardless of his actual salary.
     
  15. Die-hard1

    Die-hard1
    Expand Collapse
    6th Round Pick

    Joined:
    Apr 8, 2011
    Messages:
    159
    Likes Received:
    0
    Of course it already happens - the question was how valuable these contracts will be in the future.
     
  16. m_peroni

    m_peroni
    Expand Collapse
    Hall of Fame

    Joined:
    Jun 22, 2002
    Messages:
    5,332
    Likes Received:
    0
    I am not sure if it is a gate driven league. I mean, the Rangers are always near sellout, if not always sellout, and their gate receipts barely make up the player expenses. The Red Wings, in 2009, garnered $46M in gate receipts and paid $61M in player expenses.

    I think for the Canadian market, it has more to do with gate receipts than it does with certain US markets. So, for Toronto, gate receipts are, i think, the highest in the league, over $90M.

    Phoenix has had a failed ownership group and their operating income was $(20M). Atlanta's problem had more to do with a weak ownership group, no one that really took a leadership role and no takers in Atlanta, since it's not really a dependable sports town.
     
  17. Shakes

    Shakes
    Expand Collapse
    MVP

    Joined:
    Jul 6, 2001
    Messages:
    3,350
    Likes Received:
    0
    We have just seen how valuable getting rid of dead money is with the Lombardi and Franson deal so I would suggest that they would be at least equal in value to something similar to that.

    Very few teams with big budgets do not spend to the cap. Those that have cap space and money will be the big winners on some good deals. Not very many of them but just enough to say wow that sucked for Team X.
     
  18. Die-hard1

    Die-hard1
    Expand Collapse
    6th Round Pick

    Joined:
    Apr 8, 2011
    Messages:
    159
    Likes Received:
    0
    I think it's simply that the American markets just lose more money than the Canadian ones.

    There's a reason that the 6 Canadian teams (prior to Winnipeg - so it would be higher now) bring in 42% of the league's revenue and have the 6 highest ticket prices in the league - they actually make money. More than half the American teams are in the red.

    It's a league that survives on the Canadian ticket buyer - revenue sharing keeps the Nashville's, Florida's, and Tampa Bay's in the league - and the vast majority of that revenue sharing is from the Canadian teams.
     

Share This Page