How does a buyout work ?

Discussion in 'The Business of Hockey' started by MAF, Jul 30, 2005.

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  1. MAF

    MAF Registered User

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    Sorry for the question, but in Europe we have a completely different system considering trades, contracts etc. So it's sometimes hard to understand how it works overseas.

    Assume, we have a player who earns $6.000.000 (new CBA) per year and has 3 years left on his contract. Now the team wants to buyout the player.

    How much do they have to pay ?
    Who gets the money ?
    How much does it still count against the cap ?
    Can the player do anything against the buyout ?
     
  2. Bubba Thudd

    Bubba Thudd Just Relax

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    My understanding is:
    They pay 2/3. That's 4 mil each year, so 12 mil
    The player gets a fat stack of cash
    Initially, it didn't count against the cap. I think that grace period is either over, or very close to over.
    I don't know how much say a player has. I guess it would depend on what it says in his contract.
     
  3. hockeytown9321

    hockeytown9321 Registered User

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    Players have no say.

    I beleive teams have a choice whether they want to pay the entire buyout upfront or spread it out over the lenght of the contract.

    Any buyouts from now on count against the cap.
     
  4. pei fan

    pei fan Registered User

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    My question is why wouldn't a team try and trade a player instead and
    make a deal to pay a part of the players salary?It could work out for both
    teams-seems like a better system for the owners.
     
  5. GSC2k2*

    GSC2k2* Guest

    To amend hockeytown slightly, the option is right away or over twice the remaining length of the contract. In your example, it would be $12 million over six years.

    It brings to mind an interesting point. In the old system, a team would always choose the second option, but in a capped world (after these buyouts which do not count), buyouts do count against the cap. Teams now must assess whether (to use your example) they would want to write off the buyout in one year (essentially burning off that year, since there is 12 mil in dead cap space) or spread the hit out. A potential dilemma for a team.
     
  6. sparr0w

    sparr0w Registered User

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    And to amend your post slightly, the decision for one lump sum or paid out over twice the length of the contract lies with the player not the team. Or at least it did under the old CBA.

    Section 13. e. of the Standard Player Contract.
     
  7. GSC2k2*

    GSC2k2* Guest

    Noted and agreed. I am assuming al this will stay the same, as it was never to my knowledge a matter of contention, and it seemed to work as both sides wanted already.

    Under that provision, if the buyout is in a lump sum, the buyout is for less than 2/3. It is for the NPV amount, using the prime rate as the discount rate.

    I would add a further amendment to the above. If a player is 26 or less, the buyout is only 1/3 instead of 2/3.
     
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