Club option, buyout and Sundin question.

Discussion in 'The Business of Hockey' started by Fugu, Jan 25, 2007.

  1. Fugu

    Fugu Administrator

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    I've seen too many interpretations of the issues surrounding Mats Sundin's contract. If this has been explained somewhere, please point me to it and the mods can delete this post. Thanks.

    The Leafs have a club option on Sundin's contract, which if taken would result in one more year at a salary of $5.3 million, but due to cap averaging, the cap hit to the Leafs would be $6.3 million. Furthermore, if the Leafs do not take the option, they must pay Sundin some amount to buy him out. I think the figure is $1 million, but that's not really relevant here. As far as I can tell, if the Leafs due indeed pay Sundin out, this is viewed as a buyout and thus would prevent the Leafs from signing Sundin to a new deal. Is this correct?

    The other issue is this. If Sundin is traded, is the new team inheriting this same 'buy out' clause? Does it make more sense for the Leafs to activate the the option, trade Sundin, leaving the new team with a cap hit of the $5.3 million?

    Thanks for your help.
     
  2. kdb209

    kdb209 Global Moderator

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    No - it is not a buyout. It is a bonus payment, in lieu of excercising the option - similar to the bonuses that the Avs paid to Blake and Sakic this year for not picking up their options. These types of options are no longer allowed under the new CBA, but existing ones were grandfathered in and covered in the transition rules of Exhibit 16 of the CBA.

    Vested Option Years (options that require no additional conditions, such as minimum games played, etc) are included in the salary averaging for cap hits. Non vested Option Years are not accounted for untill they become vested. Sundin's '07-'08 option is included in his current cap hit calculation.

    Bonus payments in lieu of excercising an option are paid during the (not picked up) option year and count against the cap - the Av's paid each player a $2.28M bonus for not exercising their '06-'07 options. Note, that Sakic later resigned with the Avs for significantly less than the declined option, so nothing would prevent the Leafs from declining the option, paying the bonus, and then resigning Mats (ala Sakic).

    BTW, w.r.t. actual buyouts - there are no restrictions on a team buying out a players SPC and then resigning him. That restriction only existed for Complience Buyouts right after the lockout - those Complience Buyouts did not count against the cap, and a team was not allowed to resign the player. For Ordinary Course Buyouts, the buyout payments do count against the cap and there are no restrictions on resigning the player.

    The only interesting wrinkle that I've heard about in the Sundin case concerned the possibility of him signing a contract extension during this season- and whether that would be allowed. I haven't followed all the details, so this is based on second hand reports and CBA speculation. In order for the Leafs to sign him to an extension, they would have to officially decline his '07-'08 option before he could sign a new SPC. This gives a couple of salary cap implications that could put the Leafs over the cap this season:

    - Would the $1M bonus for declining the option become due this season and count against this seasons cap.

    - Declining the $5.32M option year would remove it from Sundin's Averaged Salary calculation, resulting in an increase in Sundin's cap hit for this season. The $5.32M option year is currently pulling down the average of his contract. His current averaged cap hit (including the option) is $6.333M. His Actual Player Salary for this season is $6.84M.

    There is also a guestion of: are their any date restrictions in Sundin's SPC about when the Leafs can pick up / decline the option. If the Leafs cannot officially decline the option during this season (ie if they have to wait untill some date during the offseason), then they cannot sign him to an extension, since he would then technically be signed to two seperate valid SPCs covering the same league year - which would not be allowed by the league.

    If Sundin's option is declined, his cap hit for '07-'08 would NOT be the $5.3M option salary, it would be the $1M bonus plus the averaged salary from his new SPC. It really doesn't matter if Sundin is traded - his SPC and all of it's conditions, options, and associated cap hits get traded with it. Whatever team officially declines the option is responsible for the $1M bonus (and it's cap hit). Whatever team then signs him to a new deal is responsible for the cap hit of that new SPC.
     
    Last edited: Jan 25, 2007
  3. Fugu

    Fugu Guest

    Ah, now it's crystal clear!

    Seriously, thanks for your help.
     
  4. Irish Blues

    Irish Blues Worth waiting for :)

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    Let's say Sundin's option for '07-08 is declined. Then the cap hit for the payment due to him as a result of the option being declined would be incurred in '07-08, assuming that the payment was to be made in the '07-08 league year. If it's deferred, then it's a different story - one which I'm not going to go into because even though I have no idea what those terms are, I seriously doubt that's the case.

    If a team is going to decline the option, it won't happen until after the end of the season - otherwise the cap hit would adjust as kdb mentioned and would be retroactive to the start of the season. No one is going to bump up his cap number by $500,000 by doing this.

    For the last part about him possibly having dual contracts in effect: as kdb alluded to, Central Registry would never accept the new contract if the option had been declined, so that scenario would never take place. It's entirely possible that the Leafs only have a short period of time in which they could decline the option, but if that were indeed the case I would imagine that someone in the Toronto media would have reported it by now.
     

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