Critique my cap loop hole

Discussion in 'The Business of Hockey' started by oil slick, Aug 30, 2005.

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  1. oil slick

    oil slick Registered User

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    This is probably wrong or has been posted elsewhere... but anyways.

    What is to stop the following scenario -

    Say Redden becomes UFA and demands 4.5 million per year - so to sign a 5 year deal, he'll accept 22.5 million. Why doesn't Philly, NY, Toronto, Detroit or one of the other big market teams do the following.

    Sign Redden to the following deal:

    Year 1:7.8 million
    Year 2:7.8 million
    Year 3:7.8 million
    Year 4:800k
    Year 5:800k

    So the cap hit each year will be 5 million if I understand correctly. NY holds on to Redden for 3 years. They don't care about salary - only about cap hit, so paying 7.8 million doesn't worry them too much since he only costs them 5 million in cap space, which is roughly what he's worth. Then at the end of three years they have this trading chip that is worth a lot.

    At the end of three years, they trade Redden to some small market team that doesn't care about the cap... only about the actual cost of a player. For instance Edmonton could care less about whether Redden costs 5 million or 800k in cap space, but to get Redden for two years at 800k actual costs would be worth 1st rounders to them. Some real small market teams might even like the extra cap hit, since they can make the salary floor more easily.

    NY wins because they get Redden for roughly the cap space, and get a fantastic bargaining chip for small market teams at the end of three years.

    Redden wins because he gets 5 million a year instead of 4.5, and the salary is front loaded so he gets the money quicker.

    The small market team wins since they add Redden for peanuts in actual costs.


    Good idea? Huge flaw? Out to lunch?

    There is a similar potential loophole for small market teams signing players to backloaded contracts and trading them to large market teams.
     
  2. shadoz19

    shadoz19 Registered User

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    I think there is a rule to prevent this. Something that says the amount can very only so much every year. Does anyone have any more info on this?
     
  3. BrickRed

    BrickRed Registered User

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    didn't someone post that the salaries can only go up, not down in a tiered contract?
     
  4. Tap on the Ankle

    Tap on the Ankle expert analysis

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    Didn't Gonchar get $7m-$7m-$7m-$2m-$2m for his 5-year contract? Or am I just imagining things?
     
  5. oil slick

    oil slick Registered User

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    Not too sure I believe that... Forsberg is getting 5.7 this year, 5 next IIRC.
     
  6. Tap on the Ankle

    Tap on the Ankle expert analysis

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    Also, any player/agent that's going to sign a contract structured like that is probably going to know what the plan is, and request a no-trade clause. Even if they waive it for certain teams, it still limits your trading partners, which would limit the return you might get. Also, $5m is still a lot of cap space. I'm not sure many teams would be willing to give up that much more value for a player that's going to cost $5m on their cap. Even then, would there be any owners out there who would be willing to spend all that money in the first 3 years of the deal just for a chance that the player might return something a little better in a trade?

    I'm sure it's possible for this to happen, but it will be extremely rare.
     
  7. oil slick

    oil slick Registered User

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    If it is legal, I think you overstate the problems...

    a)I'm sure Redden would know the plan, but in the mini scenario, he gets an extra 2.5 million out of the deal... and if I've seen anything from the latest round of free agency it is that for quite a few players, money talks... they've signed in some pretty random places because of cash.

    b)5 million is not that much cap space... you are getting a player that is roughly worth that amount (maybe a little less.. in the toy scenario you are getting a 4.5 million dollar player for 5 million in cap space).

    c)I think teams like NY and the Leafs would gladly pony up the extra money... the risk is really pretty minimal. If no small market team wants him, just keep him and you end up getting someone for 25 million when it should only cost 22.5... 500 k a year is chump change for a team like NY.


    But then again maybe you're right...
     
  8. arrbez

    arrbez bad chi

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    i heard that the difference in salary between 1 year and the next can't be more or less than double. so if he made $7 million one year, he couldn't make less than #3.5 the next. not sure where I heard that though
     
  9. jamiebez

    jamiebez Registered User

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    I actually posted that on the Sens board. And yes, I was imagining things.... :) NHLPA's site has him at $3.5 for this upcoming season. My bad.
     
  10. tom_servo

    tom_servo Registered User

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    Gonchar's contract peaks in the middle, although I don't have the exact numbers handy.
     
  11. Dr Love

    Dr Love Registered User

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    You're assuming that a team that has a very low salary would be willing to part with what you want--multiple 1sts it seems--for him, which is unrealistic. Only a team that feels the player in question can take them over the hump would part with such a fee for a player under contract for 2 more seasons. And a team that has the kind of abundance of cap space to take on 5 million so easily almost certainly won't be that kind of team. And furthermore, you're banking on one of those teams being there 3 or 4 years down the road, which is risk so huge that you should get fired for taking it.
     
  12. oil slick

    oil slick Registered User

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    Maybe multiple firsts is a stretch... but from an Oilers perspective, I would definately trade a good young player for him. Right now we are virtually at the limit of funds and our #2 will be Semenov or Smith. I would easily part with someone like Torres to get Redden for two years for 800k/year.

    With RFA age being lowered, you only get a few years of a player in there primes as an RFA, and even then you pay quite a bit.

    OK - didn't understand this quote... you're saying that there may not be teams that would pay a lot for a player like Redden 3 years from now? Are you expecting there to be no cash strapped teams?

    Anyways, I don't really see the risk... even worse case you have to keep him for the final two years and pay amortized 5 million/year over the term as apposed to 4.5/year over the term... it's barely a negative.
     
  13. Captain Ron

    Captain Ron Registered User

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    I am not sure of the exact differential figures. But it is something along these lines.

    One of the reasons it was established this way would be to prevent teams like Washington from signing a guy to a contract like this.


    Year 1: $500k
    Year 2: $500k
    Year 3: $4 million
    Year 4: $4 million

    You see in a contract like this a team like Washington could help their team get over the cap floor because the player's cap hit is $2.25 million. While keeping their currunt season's payroll low ($450k). Then in year 3 they could trade the player to a team that go pay more current salary ($4 million). But take a lower cap hit ($2.25).

    This would be a way around the cap and I am sure the league has addressed it.
     
  14. Dr Love

    Dr Love Registered User

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    What I am saying is that you are banking on a team with a very low payroll to be willing to aquire Redden for the price you are willing to sell him at, one that isn't low; and you're banking on that happening three years down the road. An awfully huge risk. Oh, and you're banking on Redden being good enough that the team in question will be willing to take his cap hit. Not as big of a risk, but it's another factor.
     
  15. oil slick

    oil slick Registered User

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    That's exactly what I meant when I said there was a reverse for small market teams in the first post.

    If this loophole has been closed, I would imagine the one I posted was closed as well.
     
  16. oil slick

    oil slick Registered User

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    Well I don't really see how this is any more of a risk than giving any players 5 year contracts, and there have been a lot of those flying around. In this case NY is on the hook for 25 million over 5 years... is it that much worse than being on the hook for 22.5 million?

    And honestly a 4.5 million dollar a year player would have to fall a long way to not be worth much to the Oilers. Even a 3/4 dman making 800k would be very appealing to the Oilers.

    EDIT: I guess it comes down to thinking about NY payroll before the CBA. They didn't throw money away, but it's clear they were willing to spend alot to get a marginally better team. Just a minor way to allow them to do this.
     
  17. Dr Love

    Dr Love Registered User

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    Your intention of the 5 year contract is to trade the player after 3 years. So there's more risk.

    Well if you looked at it from beyond an Oilers POV perhaps you'd see that you're assuming that, in three years, a team with over 5 million in cap space feels that it would be worth the cap hit and the assets given up to aquire Redden with two years on his contract; and that is a big assumption.
     
  18. davemess

    davemess Registered User

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    Details of Gonchars contract.

    $3.5 million the first year
    $4.5 million the second
    $5.5 million the third
    $6 million the fourth
    $5.5 million the fifth


    Which makes sense for the Pens as they get him fairly cheap for 2 years while in the old arena..... and more expensive for the last years when they are in either a new building in Pittsburgh or a new City.
     
  19. SJeasy

    SJeasy Registered User

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    Additionally, from a financial perspective, taking an additional cap hit (not real dollars) may force a low budget team to forego revenue sharing even though real dollar salary was below the midpoint.
     
  20. oil slick

    oil slick Registered User

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    Seems like there's just more flexibility to me. ie. We'll sign Redden to 5 years... after 3 years we may be offered a great opportunity for a trade.

    I guess we'll have to agree to disagree on this one. I just see the NHL as having teams well below the cap for the forseeable future. :dunno:
     
  21. oil slick

    oil slick Registered User

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    Good call - maybe a consideration.
     
  22. Dr Love

    Dr Love Registered User

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    Whether or not there are teams well below the cap doesn't matter. What matters is there being teams well below the cap actually wanting to take on Redden, his cap hit, and give up something substantial for it three years from now, something no one can say with any certainty.
     
  23. oil slick

    oil slick Registered User

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    Well if there are teams well below the cap, then Reddens cap hit is irrelevent. I was just thinking the other day that as far as the Oilers are concerned, it is largely irrelevent whether the cap is 39 million, 50 million or 100 million, the Oiler budget is 32-34 million and that's all she really wrote. And the Oilers are big spenders compared to some!

    Again - maybe noone would want Redden at 800k - but I don't see how it's that much more of a risk than most signings.

    What you say is true of course, no one can say for certain whether this would pan out... but the majority of moves made have some inherent risk. One of the best acquisitions was the signing of Foppa, but to me there are huge risks... maybe he'll get a concussion a week before the playoffs... it certainly is a possibility. But Clarke quite rightly said although there is this possibility, it's still worth it.
     
  24. fan mao rong

    fan mao rong Registered User

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    I believe that the salaries are averaged over the life of the contract, and the cap numbers are equally charged over that period.
     
  25. kdb209

    kdb209 Global Moderator

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    Greg Jaimeson and Doug Wilson (I forget which one) stated that multi year contracts could only increase or decrease by a max of $1.5M year-to-year.
     
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