Front Loaded Contracts

[Sansbacon]

Does anyone have a link with info on how these contracts affect the salary cap from year to year?

For example, Briere's contract being front loaded for 10 million in the first season. Now does that 10 million count for 1/5 of Phillys cap, or does the average of 6.5 only count?

Thanks.

Click to read more...

 

[bullocks]

average.

 

[Sansbacon]

Link?

I searched. (Obviously not well enough.)

 

[Ted Hoffman]

Do you understand how the cap number for a player is calculated?

 

[Sansbacon]

I'm arguing with a few kids whether or not a front loaded contract affects the teams entire cap space for each year. I'm saying it's the average, they are saying the opposite. I'm just trying to find a link to send them.

 

[JerseyMike]

I keep hearing how these front loaded contracts can help big market teams.....That's something I have yet to understand.

 

[Rich Nixon]

I keep hearing how these front loaded contracts can help big market teams.....That's something I have yet to understand.

Simple. The Flyers could have made the Briere deal pay $45 million in the first year and then $1 million per for the last 7. Same cap hit. But not many teams in the league could afford to do that.

 

[SJeasy]

Frontloading actually gives the player a bit more than average value of the contract. The bigger payments "earn more interest" over time than a contract that is paid evenly over a duration of several years. Briere mentioned it in his TSN interview and apparently it is referred to as AAV (actual average value) by players and agents. It is an advantage to teams that are more liquid.

 

[Levizk]

Simple. The Flyers could have made the Briere deal pay $45 million in the first year and then $1 million per for the last 7. Same cap hit. But not many teams in the league could afford to do that.

Not true there's a limit on how much a player's pay can decrease each season, I think it's 50% maximum or something like that. The principle that a team can have like a 90 million dollar salary for a year while still being in the cap range is the general idea though.

 

[The HW]

Is there any risk to a player (like Briere) who is in Year 1 of a heavily-frontloaded deal if they get their escrow money clawed back?

Maybe I'm not asking this clearly... but is the escrow money they have to set aside also based on an average cap hit or do front-loaded contracts skew these payments? Thanks.

 

[Jaded-Fan]

The only real advantage that I can see is that is a player is making relatively little (say $3.5 million) at the end of their 8 year deal, but is still a large cap hit (say $7 million to keep to the 50% rule) the player may be easier to unload to a sucky team who has a good deal of cap space. Say $7 mil. schmo + a 1st and 2nd rd. pick for $500,000 schmo and a 7th rd. pick. You have that kind of option in theory. But the cap hit itself remains the same throughout the contract. Hopefully, IB will answer if this is true, as he knows the cap inside and out.

 

[Ted Hoffman]

I'm arguing with a few kids whether or not a front loaded contract affects the teams entire cap space for each year. I'm saying it's the average, they are saying the opposite. I'm just trying to find a link to send them.

Tell them to go read Article 50.5(d)(ii) in the CBA. The proper name for the cap number is "Averaged Amount" - hence, it would be an average of the salaries over the life of the contract.

Jaded-Fan is correct about a possible advantage ... though we'll see how many teams need to pick up a huge salary to be cap compliant in a few years.

 

[Fugu]

Here's another one to ponder. Let's use Briere as the example.

Cap hit: $6.5 MM
Term: 8 yrs
Breakdown per year: $10, 8, 8, 7, 7, 7, 3, and 2

The Flyers will have a cap hit of $6.5 MM for the next 8 yrs.... OR...until they trade Briere..... OR...... until they buy him out.

If they buy him out after 6 yrs, the buyout clause says that the cap hit will be the 2/3rds the residual amount of the contract spread out over 2x the residual term. That would mean $5 MM x 2/3 divided by 4 yrs, or not even $1 MM per year? If his play is slipping, why wouldn't they buy him out take and take a much smaller cap hit?

What did I miss?

 

[The HW]

Briere has a no-movement clause, so he'd have to agree to being waived and bought out.

 

[stazza18]

Briere has a no-movement clause, so he'd have to agree to being waived and bought out.

He can be bought out at any time. He can't be waived. I'm sure IB has the clause.

 

[Fugu]

Briere has a no-movement clause, so he'd have to agree to being waived and bought out.

Irrelevant to the thought exercise in process. Just go with it as I was only using Briere's numbers as an example.

And I don't think an NMC would cover a buy out, but I'll wait for one of our legal dudes to pop in and clear it up.

 

[SJeasy]

Originally Posted by CBA Article 11.8
11.8 Individually Negotiated Limitations on Player Movement.

(a) The SPC of any Player who is a Group 3 Unrestricted Free Agent under
Article 10.1(a) may contain a no-Trade or a no-move clause. SPCs containing a no-Trade
or a no-move clause may be entered into prior to the time that the Player is a Group 3
Unrestricted Free Agent so long as the SPC containing the no-Trade or no-move clause
extends through and does not become effective until the time that the Player qualifies for
Group 3 Unrestricted Free Agency. If the Player is Traded or claimed on Waivers prior
to the no-Trade or no-move clause taking effect, the clause does not bind the acquiring
Club. An acquiring Club may agree to continue to be bound by the no-Trade or no-move
clause, which agreement shall be evidenced in writing to the Player, Central Registry and
the NHLPA, in accordance with Exhibit 3 hereof.

(b) A no-move clause may prevent the involuntary relocation of a Player,
whether by Trade, Loan or Waiver claim. A no-move clause, however, may not restrict
the Club's buy-out and termination rights as set forth in this Agreement. Prior to
exercising its Ordinary Course Buy-Out rights pursuant to Paragraph 13 of the SPC
hereof, the Club shall, in writing in accordance with the notice provisions in Exhibit 3
hereof, provide the Player with the option of electing to be placed on Waivers. The
Player will have twenty-four (24) hours from the time he receives such notice to accept or
reject that option at his sole discretion, and shall so inform the Club in writing, in
accordance with the notice provisions in Exhibit 3 hereof, within such twenty-four (24)
hour period. If the Player does not timely accept or reject that option, it will be deemed
rejected.

Say thanks to KDB.

 

[kdb209]

Here's another one to ponder. Let's use Briere as the example.

Cap hit: $6.5 MM
Term: 8 yrs
Breakdown per year: $10, 8, 8, 7, 7, 7, 3, and 2

The Flyers will have a cap hit of $6.5 MM for the next 8 yrs.... OR...until they trade Briere..... OR...... until they buy him out.

If they buy him out after 6 yrs, the buyout clause says that the cap hit will be the 2/3rds the residual amount of the contract spread out over 2x the residual term. That would mean $5 MM x 2/3 divided by 4 yrs, or not even $1 MM per year? If his play is slipping, why wouldn't they buy him out take and take a much smaller cap hit?

What did I miss?

I already covered this in the Briere thread on the main Free Agent forum. The actual dollars of the buyout are small and simple ($833K/yr for 4 years), but the cap hit is not ( $4.33M, $5.33M, $833K, $833K).

but the cap hit will be higher - $4.33M, $5.33M, $833K, $833K.

I'm sorry but this looks just absolutely incorrect.

Cutting and Pasting from IB's CBA FAQ (since it's easier to read than the CBA):

CONTRACT BUYOUTS

Teams were given a one-time chance to buy-out players for 2/3rds of the remaining value of the contract between July 23 and July 29, 2005 without the buy-out counting against the salary cap. In future years, teams may still buy-out player contracts for a portion of the remaining value of the contract paid over twice the remaining length of the contract. If the player is
-- Under the age of 26 at the time of termination, the buyout amount is 1/3rd the remaining value
-- 26 or older at the time of termination, the buyout amount is 2/3rd the remaining value.

This is set forth in 13(d) of the Standard Player Contract (Exhibit 1 in the CBA). The remainder of this explanation applies to buyouts that took place after July 29, 2005, and assumes the player was not 35 or older when signing his SPC (in which case a buyout does not reduce the cap hit).

When a player is bought out, the team still takes a cap hit for the player over twice the remaining length of the contract. The amount of the cap hit (by year) is determined as follows:

1. Take the actual salary due for each remaining year.
2. Take the Averaged Player Salary (cap hit) for the current contract
3. Calculate the buy-out amount (as described above)
4. Spread the buy-out amount evenly over twice the remaining years of the contract
5. Take the number in #1 and subtract the number in #4. This is the “buyout savingsâ€.
6. Take the cap hit from #2 and subtract the buyout savings from #5. This is the cap hit of the buyout for the remaining years.

The number in 6 is not necessarily the same for all years; it can even be negative (meaning the team gets a credit). However, it’s critical to have the correct information for #1 and #2 to get the correct cap hit.

If Briere is due $3M + $2M over the last two years, the buyout dollars are $3.3M over 4 years ($833K/yr). The buyout savings in the last two years are $2.167M ($3M-$833K) and $1.167M ($2M-$833K). Since Briere's avgeraged cap hit was $6.5M, this gives cap hits of $4.33M and $5.33M during the last two years of his deal. During the buyout years which extend beyond the term of the original contract the cap hit is just the actual dollars paid ($833K/yr).

 

[Ted Hoffman]

Cap hit: $6.5 MM
Term: 8 yrs
Breakdown per year: $10, 8, 8, 7, 7, 7, 3, and 2

I did a little research ... it starts at $10 million and drops by $1 million every year until the end of the contract.

I'll let you crunch the numbers again.

 

[puck57]

If I was a gm, I would not go more than 3 or 4 years with about 95% of players- except of course obviously Crosby or Oveckin or maybe Malkin. To me it is way too much of a gamble with the cap to be stuck with an 8 or 10 year contract and then if you try to unload the contract after say 5 years or something- you could really be stuck.

 

[Fugu]

Here's another one to ponder. Let's use Briere as the example.

Cap hit: $6.5 MM
Term: 8 yrs
Breakdown per year: $10, 8, 8, 7, 7, 7, 3, and 2

The Flyers will have a cap hit of $6.5 MM for the next 8 yrs.... OR...until they trade Briere..... OR...... until they buy him out.

If they buy him out after 6 yrs, the buyout clause says that the cap hit will be the 2/3rds the residual amount of the contract spread out over 2x the residual term. That would mean $5 MM x 2/3 divided by 4 yrs, or not even $1 MM per year? If his play is slipping, why wouldn't they buy him out take and take a much smaller cap hit?

What did I miss?

So what is the disadvantage to front-loading?

 

[Fugu]

I did a little research ... it starts at $10 million and drops by $1 million every year until the end of the contract.

I'll let you crunch the numbers again.

Also thanks, kdb. Whoever came up with that formula is a sadistic narcissist.

I generally avoid the General Discussion board. My head starts hurting after 2 or 3 posts, and then I get really grumpy.

 

[Fugu]

And IB? No, I am not going to read the entire CBA until I'm paid to do it. (Since I don't see that happening, I guess I'll have to find some other reading material for my next plane ride.)

 

[Valhoun*]

The only real advantage that I can see is that is a player is making relatively little (say $3.5 million) at the end of their 8 year deal, but is still a large cap hit (say $7 million to keep to the 50% rule) the player may be easier to unload to a sucky team who has a good deal of cap space. Say $7 mil. schmo + a 1st and 2nd rd. pick for $500,000 schmo and a 7th rd. pick. You have that kind of option in theory. But the cap hit itself remains the same throughout the contract. Hopefully, IB will answer if this is true, as he knows the cap inside and out.

That is the advantage. There will always be plenty of teams with self-imposed salary caps that are much lower than the real cap. With front loaded contracts it makes it much easier to dump players on teams like this since the actual value of the contract that must be paid by the new team is virtually nothing despite the cap hit being much higher.

Also, NMCs most certainly do not restrict teams from buying out salaries.

Also, No trade clauses in general don't seem to stop teams from trading players. They just stop teams from trading players to really horrid teams.

 

[puck57]

That is the advantage. There will always be plenty of teams with self-imposed salary caps that are much lower than the real cap. With front loaded contracts it makes it much easier to dump players on teams like this since the actual value of the contract that must be paid by the new team is virtually nothing despite the cap hit being much higher.

Also, NMCs most certainly do not restrict teams from buying out salaries.

Also, No trade clauses in general don't seem to stop teams from trading players. They just stop teams from trading players to really horrid teams.

Yea, but the team getting the player still has to take the cap hit which restricts the new team from other options and trades or am I missing something. I realize the money would be less to have to pay out but you still have the cap hit. In the pre-lockout league I could see this logic but not now with the cap.