Is this a flaw in the CBA that will help rich teams?

[Shainsaw]

Please keep in mind that I am playing with the numbers a bit to make a point.

Player X is a highly sought after UFA. Other teams are bidding 7mil over 4 years for this player. The cap hit for this player would normally be 7 mil.

A rich team such as the Red Wings really wants this player but cannot have the high cap hit. Player X’s agent and the team prearrange a 10 year contact as follows:
Year 1 9 mil
Year 2 9 mil
Year 3 8 mil
Year 4 8 mil
Year 5 2 mil
Year 6 2 mil
Year 7 2 mil
Year 8 1 mil
Year 9 1 mil
Year 10 1 mil

The cap hit is the total contract divided by the number of years. The cap hit becomes 4.3 mil. The team makes a deal with the player that his contract will be bought out after 4 years. I believe to pay out buyouts the NHL team has to pay 2/3 of the remaining contract over double the time of the remaining contract.

Because of the CBA the player ends up getting the following salary with these cap hits.
Year 1 9 mil Cap Hit 4.3
Year 2 9 mil Cap Hit 4.3
Year 3 8 mil Cap Hit 4.3
Year 4 8 mil Cap Hit 4.3
Year 5 .499mil Cap Hit .499mil
Year 6 .499mil Cap Hit .499mil
Year 7 .499mil Cap Hit .499mil
Year 8 .499mil Cap Hit .499mil
Year 9 .499mil Cap Hit .499mil
Year 10 .499mil Cap Hit .499mil
Year 11 .499mil Cap Hit .499mil
Year 12 .499mil Cap Hit .499mil
Year 13 .499mil Cap Hit .499mil
Year 14 .499mil Cap Hit .499mil
Year 15 .499mil Cap Hit .499mil
Year 16 .499mil Cap Hit .499mil

The player ends up getting paid 34 mil over 4 years and can go play anywhere else after being bought out. He also gets a nice little savings plan for the next 12 years.

The team gets a cap hit of 4.3 for the four years they had this player even though he made an average of 8.5 mil a year. They then have to carry a cap hit of only .499 mil over the next 12 years. Money is not an issue to this team, but the cap hit is.

Have I screwed up somewhere, i don't know the CBA as well as alot of you.

Click to read more...

 

[boredmale]

Year 1 9 mil
Year 2 9 mil
Year 3 8 mil
Year 4 8 mil
Year 5 2 mil
Year 6 2 mil
Year 7 2 mil
Year 8 1 mil
Year 9 1 mil
Year 10 1 mil

Player plays 4 season for Team X, team buys out Player after 4 years.

caphits would be


5 2.8M
6 2.8M
7 2.8M
8 3.8M
9 3.8M
10 3.8M
11-16 0.5M

I know this because Yashin's contract in the last 2 years he makes less then the first 4 and we really get hit those 2 years hard.

 

[Brent Burns Beard]

Player plays 4 season for Team X, team buys out Player after 4 years.

caphits would be


5 2.8M
6 2.8M
7 2.8M
8 3.8M
9 3.8M
10 3.8M
11-16 0.5M

I know this because Yashin's contract in the last 2 years he makes less then the first 4 and we really get hit those 2 years hard.

so how does the formula work to come up with your #'s?

 

[boredmale]

so how does the formula work to come up with your #'s?

http://www.geocities.com/rmccleary97/cap_faq1.htm#buyouts

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 savings”.
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.

basically
Step 1: 2 M (seasons 5-7)
Step 2: 4.3M
Step 3: 6 M
Step 4: 0.5M
Step 5: Step 1 - Step 4 = 2M - 0.5M = 1.5M
Step 6: Step 2 - Step 5 = 4.3M - 1.5M = 2.8M

Step 1: 1M (season 8-10)
Step 2: 4.3M
Step 3: 6M
Step 4: 0.5M
Step 5: 1M - 0.5M = 0.5M
Step 6: 4.3M - 0.5M = 3.8M

 

[kdb209]

Ditto what they said about the buyout cap hits.

In addition, the salary structure of that proposed contract is illegal - it violates the 100% rule (CBA Article 50.7). With a $9M/yr salary in years 1 & 2, the maximum year-to-year deacrease in salary would be $4.5M. This contract violates that between years 4 & 5.

50.7 "100 Percent Rule" for Multi-Year SPCs. The difference between the stated
Player Salary and Bonuses in the first two League Years of an SPC cannot exceed the
amount of the lower of the two League Years. Thereafter, in all subsequent League
Years of the SPC, (i) any increase in Player Salary and Bonuses from one League Year to
another may not exceed the amount of the lower of the first two League Years of the SPC
(or, if such amounts are the same, that same amount); and (ii) any decrease in Player
Salary and Bonuses from one League Year to another may not exceed 50 percent of the
Player Salary and Bonuses of the lower of the first two League Years of the SPC (or, if
such amounts are the same, 50 percent of that same amount).

 

[william_adams]

what about if a player who is 34 signs a 10 year contract where the player is paid a total of 30mm bucks: 11mm, 11mm, then 1mm for each of the remaining 8 years. If the player retires, is "sent to the minors" or is bot out, the team is on the hook for little or no money after the first two years. During those first 2 years, the player gets higher than the ceiling...

 

[Walzy]

what about if a player who is 34 signs a 10 year contract where the player is paid a total of 30mm bucks: 11mm, 11mm, then 1mm for each of the remaining 8 years.

just read the post before yours and it should be clear

 

[Wetcoaster]

Please keep in mind that I am playing with the numbers a bit to make a point.

Player X is a highly sought after UFA. Other teams are bidding 7mil over 4 years for this player. The cap hit for this player would normally be 7 mil.

A rich team such as the Red Wings really wants this player but cannot have the high cap hit. Player X’s agent and the team prearrange a 10 year contact as follows:
Year 1 9 mil
Year 2 9 mil
Year 3 8 mil
Year 4 8 mil
Year 5 2 mil
Year 6 2 mil
Year 7 2 mil
Year 8 1 mil
Year 9 1 mil
Year 10 1 mil

The cap hit is the total contract divided by the number of years. The cap hit becomes 4.3 mil. The team makes a deal with the player that his contract will be bought out after 4 years. I believe to pay out buyouts the NHL team has to pay 2/3 of the remaining contract over double the time of the remaining contract.

Because of the CBA the player ends up getting the following salary with these cap hits.
Year 1 9 mil Cap Hit 4.3
Year 2 9 mil Cap Hit 4.3
Year 3 8 mil Cap Hit 4.3
Year 4 8 mil Cap Hit 4.3
Year 5 .499mil Cap Hit .499mil
Year 6 .499mil Cap Hit .499mil
Year 7 .499mil Cap Hit .499mil
Year 8 .499mil Cap Hit .499mil
Year 9 .499mil Cap Hit .499mil
Year 10 .499mil Cap Hit .499mil
Year 11 .499mil Cap Hit .499mil
Year 12 .499mil Cap Hit .499mil
Year 13 .499mil Cap Hit .499mil
Year 14 .499mil Cap Hit .499mil
Year 15 .499mil Cap Hit .499mil
Year 16 .499mil Cap Hit .499mil

The player ends up getting paid 34 mil over 4 years and can go play anywhere else after being bought out. He also gets a nice little savings plan for the next 12 years.

The team gets a cap hit of 4.3 for the four years they had this player even though he made an average of 8.5 mil a year. They then have to carry a cap hit of only .499 mil over the next 12 years. Money is not an issue to this team, but the cap hit is.

Have I screwed up somewhere, i don't know the CBA as well as alot of you.

Two flaws.

It is difficult to predict that far into the future.

Secondly if there was such an agreement regarding a buy out (actual or that could be inferred) then it could be treated as cap circumvention by the league and subject to penalties to the Club and the player and agent involved. Such an agreement would have to be reported before the contract was registered or that would also be a circumvention.

ARTICLE 26
NO CIRCUMVENTION
Preamble. It is the parties' intention that there be full, accurate and timely disclosure and reporting of all revenues and financial information as required by Article 50, as well as of any and all agreements involving payments to Players, and that such disclosures and agreements be consistent with this Agreement, including but not limited to the provisions of Article 50. This Article 26 is designed to prohibit and prevent conduct that Circumvents the terms of this Agreement, while not deterring or prohibiting conduct permitted by this Agreement, the latter conduct not being a Circumvention.

26.2 Undisclosed Terms and Revenues.
A Club (directly or indirectly through a "Club Actor," i.e., any owner, shareholder, Club Affiliated Entity, the NHL or third party acting at the behest of a Club) and a Player (directly or indirectly through a "Player Actor," i.e., his Certified Agent or any other individual, any entity, or the NHLPA, acting on behalf of the Player) may not, at any time, enter into undisclosed agreements of any kind, express or implied, oral or written, or promises, undertakings, representations, commitments, inducements, assurances of intent, or understandings of any kind involving consideration of any kind to be paid, furnished or made available or guaranteed to the Player, or Player Actor, by the Club or Club Actor either prior to, during, or after the term of the Player's SPC.

26.3 Circumventions.
(a) No Club or Club Actor, directly or indirectly, may: (i) enter into any agreements, promises, undertakings, representations, commitments, inducements, assurances of intent, or understandings of any kind, whether express, implied, oral or written, including without limitation, any SPC, Qualifying Offer, Offer Sheet or other transaction, or (ii) take or fail to take any action whatsoever, if either (i) or (ii) is intended to or has the effect of defeating or Circumventing the provisions of this Agreement or the intention of the parties as reflected by the provisions of this Agreement, including without limitation, provisions with respect to the financial and other reporting obligations of the Clubs and the League, Team Payroll Range, Player Compensation Cost Redistribution System, the Entry Level System and/or Free Agency.

(i) Any act by a Club Actor that, if committed by the Club would constitute a Circumvention, shall be imputed to the Club and shall be deemed to be a Circumvention by the Club.

(b) No Player or Player Actor, directly or indirectly, may: (i) enter into any agreements, promises, undertakings, representations, commitments, inducements, assurances of intent, or understandings of any kind, whether express, implied, oral or
written, including without limitation, any SPC, Qualifying Offer, Offer Sheet or other
transaction, or (ii) take or fail to take any action whatsoever, if the Player knows or
reasonably should have known (measured by the objective standard of he "reasonable Player under the circumstances") that either (i) or (ii) is intended to and has the effect of defeating or Circumventing the provisions of this Agreement or the intention of the parties as reflected by the provisions of this Agreement, including without limitation, provisions with respect to the Team Payroll Range, the Entry Level System and/or Free Agency.

(c) Such knowledge or knowledge imputed under Section 26.3(c)(i) of a Player applies to all references to Players set forth in Sections 26.1, 26.3 and 26.5, i.e., a Player has not engaged in a Circumvention unless the Player knew or reasonably should have known that the conduct at issue was intended to have and did have the effect of defeating or Circumventing the provisions of this Agreement or the intention of the parties as reflected by the provisions of this Agreement, including without limitation, provisions with respect to the Team Payroll Range, the Entry Level System, and/or Free Agency.

(i) Any act by a Player Actor that, if committed by the Player would constitute a Circumvention, shall be imputed to the Player and shall be deemed to be a Circumvention by the Player.
....
26.7 Disclosure of Agreements.
(a) It is the affirmative obligation of each Club, Club Actor and the NHL upon learning of any Circumvention or fact that would reasonably appear to indicate the occurrence of a Circumvention, promptly to disclose in writing such Circumvention(s),
and/or fact(s) to the Commissioner of the NHL.

(b) It is the affirmative obligation of each Certified Agent and the NHLPA upon learning of any Circumvention or fact that would reasonably appear to indicate the occurrence of a Circumvention, promptly to disclose in writing such Circumvention(s)
and/or fact(s) to the Executive Director of the NHLPA.

(c) The failure to promptly disclose as required in (a) and (b) above shall be deemed a Circumvention.

The penalties can be draconian if it is determined there has been a circumvention.

The Club and the player can both be fined up to $5 million and $1 million/25% of salary respectively, the participating agent could be bared from representing NHL players, the Club could lose draft choices as many for and aslong as the Commissioner determines in his absolute discretion), games be declared forfeit, void the SPC, and "suspend any Club employee, Player, or Certified Agent involved in such a violation for a period of time determined in the sole discretion of the Commissioner, the System Arbitrator, or the NHLPA, respectively."

In these circumstances such an arrangement as you have proposed in not likely to occur.

 

[Resolute]

what about if a player who is 34 signs a 10 year contract where the player is paid a total of 30mm bucks: 11mm, 11mm, then 1mm for each of the remaining 8 years. If the player retires, is "sent to the minors" or is bot out, the team is on the hook for little or no money after the first two years. During those first 2 years, the player gets higher than the ceiling...

The celing is a hard cap, not averaged over the length of the contract. The NHL would reject any contract that attempts to pay a player greater than the max.

 

[Ted Hoffman]

The penalties can be draconian if it is determined there has been a circumvention.

The other thing of note: any fine assessed under Article 26 is also applied to the team's cap - so a $2 million fine counts as $2 million in dead cap space.

Considering in the last year of the CBA the cap will be an extremely hard cap in that the 7.5% bonus provision will not be in effect, that could wreak havoc on a team's ability to put together a roster.

 

[Fugu]

Please keep in mind that I am playing with the numbers a bit to make a point.

Player X is a highly sought after UFA. Other teams are bidding 7mil over 4 years for this player. The cap hit for this player would normally be 7 mil.

A rich team such as the Red Wings really wants this player but cannot have the high cap hit.

Typical Oiler fan. All the league's woes are due to the Wings (who btw aren't the richest of the rich by far).

 

[Fugu]

The other thing of note: any fine assessed under Article 26 is also applied to the team's cap - so a $2 million fine counts as $2 million in dead cap space.

Considering in the last year of the CBA the cap will be an extremely hard cap in that the 7.5% bonus provision will not be in effect, that could wreak havoc on a team's ability to put together a roster.

Doesn't this presume that a similar system will be in place after the current CBA expires? One would hope that the NHL and NHLPA would have a new CBA in place before the expiry of the existing agreement, however if history is any kind of example, then you can't really plan on it.

 

[Ted Hoffman]

Doesn't this presume that a similar system will be in place after the current CBA expires? One would hope that the NHL and NHLPA would have a new CBA in place before the expiry of the existing agreement, however if history is any kind of example, then you can't really plan on it.

If a new CBA is in place, then it might amend this; if not ... - and that's not just for teams trying to wedge everything in under the cap.

 

[Wetcoaster]

Doesn't this presume that a similar system will be in place after the current CBA expires? One would hope that the NHL and NHLPA would have a new CBA in place before the expiry of the existing agreement, however if history is any kind of example, then you can't really plan on it.

General labour law rule is that previous CBA continues in force to the extent possible (disregarding expiry dates, etc.) as long as the business continues to operate without job action.

 

[friction]

Also, decreasing contracts can only do so by an amount 50% of the maximum year.

so if it's 9mil in 1, 2 and 3, the least that year 4 can be is 4.5, and then it can be league minimum.

Just some trivia.

 

[TheDanceOfMaternity]

Oh, god! Honestly how many players are going to make arrangements with their teams to have their contracts bought out several years in advance? It's just not going to happen. Even in baseball there are very few of these situations.

The only flaw in the CBA that helps the rich teams is the rising salary cap.

 

[Ted Hoffman]

Oh, god! Honestly how many players are going to make arrangements with their teams to have their contracts bought out several years in advance? It's just not going to happen. Even in baseball there are very few of these situations.

The only flaw in the CBA that helps the rich teams is the rising salary cap.

For the 42nd time ... the salary cap system was not designed to enable all teams to spend to the cap - it was designed to help get all teams to the midpoint via revenue sharing.

 

[kdb209]

Also, decreasing contracts can only do so by an amount 50% of the maximum year.

so if it's 9mil in 1, 2 and 3, the least that year 4 can be is 4.5, and then it can be league minimum.

Just some trivia.

Not quite true - unless the maximum year is the firts two.

See the 100% Rule post I made above. The maximum year-to-year decrease in salary is 50% of the lower of the year 1 or year 2 salary.

 

[FissionFire]

For the 42nd time ... the salary cap system was not designed to enable all teams to spend to the cap - it was designed to help get all teams to the midpoint via revenue sharing.

Exactly. The entire lockout and current CBA was about establishing a type of revenue sharing for certain teams in smaller and non-traditional markets (teams in larger cities are not eligible). Based on that, the CBA has been a complete success.

 

[Enstrom39]

I have to say that I've been pleasantly surprised that few loopholes have been created regarding the salary cap so far. Considering how quickly this agreement was written it has proven rather robust.

The only real loophole that I can recall is the DiPietro style long contracts where a team can send down a player and absorb off-the-cap losses if a long term deal doesn't work out.

 

[Wetcoaster]

I have to say that I've been pleasantly surprised that few loopholes have been created regarding the salary cap so far. Considering how quickly this agreement was written it has proven rather robust.

The only real loophole that I can recall is the DiPietro style long contracts where a team can send down a player and absorb off-the-cap losses if a long term deal doesn't work out.

The NHL and NHLPA had the experiences of the NBA and NFL to look at in drafting the cap provisions and defining HRR. Much of the language was cribbed from those CBA's. In law we call it "using precedents".

 

[Trizent]

Also, decreasing contracts can only do so by an amount 50% of the maximum year.

so if it's 9mil in 1, 2 and 3, the least that year 4 can be is 4.5, and then it can be league minimum.

Just some trivia.

That is my understanding. In a multi-year contract, the lowest year salary can't be less than 50% than any other year in the contract.

 

[kdb209]

That is my understanding. In a multi-year contract, the lowest year salary can't be less than 50% than any other year in the contract.

Not true - just look at Article 50.7, "The 100% Rule", that I posted earlier in this thread.

There are no limits on the minimum or maximum salary over the life of the contract (other than the league minimum and the max salary - 20% of cap at the time the contract is signed).

There are limits on the year-to-year increases or decreases in salary:

- Year-to-year salaries can increase by no more than the lower of the salaries in year 1 or year 2.

- Year-to-year salaries can decrease by no more than 50% of the lower of the salaries in year 1 or year2.

50.7 "100 Percent Rule" for Multi-Year SPCs. The difference between the stated
Player Salary and Bonuses in the first two League Years of an SPC cannot exceed the
amount of the lower of the two League Years. Thereafter, in all subsequent League
Years of the SPC, (i) any increase in Player Salary and Bonuses from one League Year to
another may not exceed the amount of the lower of the first two League Years of the SPC
(or, if such amounts are the same, that same amount); and (ii) any decrease in Player
Salary and Bonuses from one League Year to another may not exceed 50 percent of the
Player Salary and Bonuses of the lower of the first two League Years of the SPC (or, if
such amounts are the same, 50 percent of that same amount).