Critique my cap loop hole

Status
Not open for further replies.

me2

Go ahead foot
Jun 28, 2002
37,903
5,595
Make my day.
avsfolife said:
The thing you seem to forget is that a GM's main role is to generate a profit for the owner. They've already forked out a lot of $$$ in prior years, why wouldn't they just keep the player for the remaining of his contract at a reasonable low price?

If that was their thinking then why front load the actual cash paid out? Why not pay an even amount per year and bank the interest or better yet backload the contract and bank even more interest? The logic you are using that they should be making money makes frontloading and trading invalid.

Also, remember the league doesn't care about the 'cap value'. That's not the number it uses to calculate its league-wide payroll on a yearly basis ... So there isn't a single dollar paid in salaries that isn't/won't be accounted for ...

Yes it does care. Apart from acting to keep salaries within common sensible bounds it prevents rorting. I gave an example of rorting. Imagine Team X and Team Y siging players to 5+ year deals and exchanging entire rosters every year. Pretty soon they'd have the equivalent of $50+m worth of players on their teams and the cap hit would not reflect the true value of the players. How is that fair for other teams that draft and keep their own players? It isn't, it wouldn't and shouldn't be allowed.
 

me2

Go ahead foot
Jun 28, 2002
37,903
5,595
Make my day.
avsfolife said:
I don't think you understood what I meant in my post about no-trade clauses ...

Well either you are not being very clear or you think a traded players contract should have it no trade clause erased. I don't see why a traded player, who opted to waive his no trade clause once, should have it automatically erased. I doubt the NHLPA do either.

No, the league uses escrow to ensure the league-wide payroll for a particular year doesn't exceed a certain % of revenue.
So, as I've said in my other post, there won't be a single unaccounted dollar paid in salary.

But their will in salary cap $. If the cap $ can go missing then that allows rorting of the system. A big no-no.

Using 4M/year would actually cause players to receive less than what they would be entitled to at the end of certain year ...
[eg. 1M will go towards the total league payroll, but with a cap hit of 4M, team A isn't able to spend as much as it could on its other players.]

1. If the league is over the escrow its not going to matter anyway. The players just lose $3m less to escrow.

2. If the players are under escrow then they lose out. The players agreed to it in the CBA. This is still good for lots of players who now get full pay instead of losing money to escrow.

Right now, situation 1 looks far more likely than situation 2.

It should be noted that the most likely "Team As" are cash strapped clubs that couldn't afford to spend near the cap (Washington, Preds etc). In which case this is a moot argument over a few million dollars that would NOT have been spent anyway.
 

me2

Go ahead foot
Jun 28, 2002
37,903
5,595
Make my day.
Spongebob said:
Year 1: $4 million
Year 2: $3 million
Year 3: $2 million

Now the cap hit for this contract would be $3 million dollars. But in actual salary the team has exceeded the cap by $1 million. But since the cap number and not the actual salary paid is what is important then the team is allowed to offer him this contract. But by doing so the team has robbed themselves of $1 million of cap space in year 3 of the contract. So technically it all evens itself out.

This is part of the reasoning behind the Nash deal IMHO. Columbus pay lots of real $ late in the contract (when Nash should be proven star) and less real $ now. Had they opted for 3 year deal at $4-4.5m average, they could be stuck with $7-8m on the next deal. However because of the averaging that wear more cap hurt now (while they still young and cheap and can afford it) and less later (when other stars want big money). The logic is based on a sound gamble that Nash becomes a superstar even if the contract blows away past conventions on what to pay young stars.
 

Magick93

Registered User
Mar 4, 2004
198
5
It seems that basically, this thread is about whether a team can front load a contract such that the amount of cap space taken up is stable over time while the real cost varies. In essence, a prospective trading partner would get an asset for fewer real dollars but more cap space (which, presumably, they would have in excess).

A more direct way to accomplish this (if permissible under the new CBA) would be to give away a player.

A big market team could trade with a small-market team with a budget far below the cap & offer a player signed to a big contract as well as the money to pay the contract. This small market team could get a star player for nothing (except for a huge dent in its cap space, which it has in excess), & could give the rich team players/ picks that would have little impact on its cap.

Thoughts?
 

PeterSidorkiewicz

HFWF Tourney Undisputed Champion
Apr 30, 2004
32,442
9,701
Lansing, MI
Everyone seems to be arguing what the CBA entails once again, I couldn't have seen that one coming in my previous two posts. Let's all just WAIT till we have 100% confirmation of what the CBA entails, then you can actually try and be creative and find cap loop holes and discuss them, and it honestly would make the discussion of cap loopholes and finding them a THOUSAND times better. This is like trying to put a puzzle together with no picture on the box and half the pieces missing.
 

GSC2k2*

Guest
PeterSidorkiewicz said:
Everyone seems to be arguing what the CBA entails once again, I couldn't have seen that one coming in my previous two posts. Let's all just WAIT till we have 100% confirmation of what the CBA entails, then you can actually try and be creative and find cap loop holes and discuss them, and it honestly would make the discussion of cap loopholes and finding them a THOUSAND times better. This is like trying to put a puzzle together with no picture on the box and half the pieces missing.
Exactly why are you trying to stifle people's speculation (whether informed or uninformed, idle or not idle)?

You made your point. No one can say for sure, having not read the document. That being said, people's speculation can be informed by the public comments of those hwo HAVE read the document. That can form the basis for interesting discussions, IMO. On the other hand, if you do not find them interesting ... well, I don't really have to finish that thought, do I?

Are you trying to prevent some imagined harm here? What is the worry?
 

GSC2k2*

Guest
me2 said:
Because that is in the teams best interests not the players. Teams like to budget, its easier to budget into the future. Generally players contracts increase as players get better or more valuable (ie improving young players or players giving up UFA years). Teams rarely want to give up money in advance if they don't have. It has happened but usually only big efforts are to hurt other teams (Sakic offer sheet, Sergei Federov offersheet). Now and again a team might try and budget by paying some extra as a signing bonus, but it isn't that common. Under the cap averaging system teams are still free to pay more up front than at the back if they want to work their finances, the cap averaging, takes care of making it fair for the other teams in terms of talent distribution.
Man, are you ever way off on this post.

Firstly,it is not easier to budget into the future. If you have ever done any budgeting at all in business, you know that the further out into the future you go the greater uncertainty there is and the HARDER it is to accurately budget.

Secondly, it is also very much in the player's interest to demand increasing salaries in the circumstance where the player is not yet a UFA at the end of the deal. The increased salary at the end increases his qualifying offer.

Granted, however, that for players who will be UFA's at the end of their contract, that is not much of a consideration.
 

PeterSidorkiewicz

HFWF Tourney Undisputed Champion
Apr 30, 2004
32,442
9,701
Lansing, MI
gscarpenter2002 said:
Exactly why are you trying to stifle people's speculation (whether informed or uninformed, idle or not idle)?

You made your point. No one can say for sure, having not read the document. That being said, people's speculation can be informed by the public comments of those hwo HAVE read the document. That can form the basis for interesting discussions, IMO. On the other hand, if you do not find them interesting ... well, I don't really have to finish that thought, do I?

Are you trying to prevent some imagined harm here? What is the worry?

Im not stifling speculation, im just merely pointing out that it IS speculation. That and im getting impatient and want to read the CBA, or at least attempt to read it.
And it's not that I find the discussion not interesting, all I am saying is I find it kind of weird to critique something when you don't have any rules to critique it by. But Im being very redundant now so its time to stop posting on this thread. Have a very swell discussion :)
 

BigE

Registered User
Mar 12, 2004
4,476
0
New York, NY
oil slick said:
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.

A player's salary is averaged out over the number of years and that compensation figure counts against any team's cap over the life of the contract.
 

oil slick

Registered User
Feb 6, 2004
7,593
0
BigE said:
A player's salary is averaged out over the number of years and that compensation figure counts against any team's cap over the life of the contract.

I think everyone realizes that. That was kind of the rationale behind the proposal.
 

kdb209

Registered User
Jan 26, 2005
14,870
6
avsfolife said:
If you believe the cap hit = average salary/entire contract, then it shouldn't matter whether the player has played 20 games or 82 or is in year 1 or 2 of his contract as his cap value will be the same. Unless we're talking about players signed with two-way contracts (not sure how that will work, actually).

That would be true if the NHL cap were like the NBA or NFL cap and based on the sum of annualized salaries at any point in the season, but it's not. The NHL cap is based on a formula of salaries paid (and future salary commitments), If a player only plays 20 games for a team (either as a call up or a partial season due to trade), he is only paid 1/4 of his salary by that team, so his cap hit would only be 1/4 of his annual cap amount (avg annual salary).
 

avsfolife

Registered User
Aug 5, 2005
77
0
me2 said:
Yes it does care. Apart from acting to keep salaries within common sensible bounds it prevents rorting. I gave an example of rorting. Imagine Team X and Team Y siging players to 5+ year deals and exchanging entire rosters every year. Pretty soon they'd have the equivalent of $50+m worth of players on their teams and the cap hit would not reflect the true value of the players. How is that fair for other teams that draft and keep their own players? It isn't, it wouldn't and shouldn't be allowed.
It doesn't care. Front loading a contract decreases that player's value over the years. The team may be able to spend more on other players, but in the end everything is being evened out. The player's maximum salary cap also ensures a player's value doesn't escalate over a certain amount, and the league gets a specific % of revenue every year, so it shouldn't matter much to them.

Besides, we don't even know the extent of which a player's salary can be decreased the following year ...
 

avsfolife

Registered User
Aug 5, 2005
77
0
kdb209 said:
That would be true if the NHL cap were like the NBA or NFL cap and based on the sum of annualized salaries at any point in the season, but it's not. The NHL cap is based on a formula of salaries paid (and future salary commitments), If a player only plays 20 games for a team (either as a call up or a partial season due to trade), he is only paid 1/4 of his salary by that team, so his cap hit would only be 1/4 of his annual cap amount (avg annual salary).
Is that how trades will be handled?
Only 1/4 of the player's cap value counts towards the cap for the new team the year of the trade?
 

avsfolife

Registered User
Aug 5, 2005
77
0
me2 said:
Well either you are not being very clear or you think a traded players contract should have it no trade clause erased. I don't see why a traded player, who opted to waive his no trade clause once, should have it automatically erased. I doubt the NHLPA do either.
Why wouldn't they? I would think a no-trade clause is team specific. Just because a player doesn't want to be traded from, say Colorado, doesn't mean he wouldn't want to be traded from Florida ...

Again, though, we won't know for sure, until we see the new CBA ...


But their will in salary cap $. If the cap $ can go missing then that allows rorting of the system. A big no-no.
To me, allowing the cap value to be recalculated for a trade is fairer to the new team and it also allows for a better approximation of the actual cash flow going towards the league-wide payroll ...

1. If the league is over the escrow its not going to matter anyway. The players just lose $3m less to escrow.

2. If the players are under escrow then they lose out. The players agreed to it in the CBA. This is still good for lots of players who now get full pay instead of losing money to escrow.

Right now, situation 1 looks far more likely than situation 2.

It should be noted that the most likely "Team As" are cash strapped clubs that couldn't afford to spend near the cap (Washington, Preds etc). In which case this is a moot argument over a few million dollars that would NOT have been spent anyway.
As a player, I'd rather lose out a fluctuating portion of my income to escrow, than lose out on the money that I could have signed for ...
 

Captain Ron

Registered User
Jun 9, 2003
17,409
0
Gardnerville, NV
Visit site
avsfolife said:
Is that how trades will be handled?
Only 1/4 of the player's cap value counts towards the cap for the new team the year of the trade?

Yes the way the salary cap was set up is only the portion the team actually pays will go towards the cap. So if 42 games into the season you acquire a player that normally makes $4 million/year. Then only $2 million will go against your cap.
 

Captain Ron

Registered User
Jun 9, 2003
17,409
0
Gardnerville, NV
Visit site
avsfolife said:
Why wouldn't they? I would think a no-trade clause is team specific. Just because a player doesn't want to be traded from, say Colorado, doesn't mean he wouldn't want to be traded from Florida ...

Why would a player care where he is traded from? He is more concerned about where he is traded to. Players have "no trade" clauses in their contracts because their are certain teams they would prefer not to play for (like a team that is a perennial cellar dwellar). Or maybe they do not want to live in a certain area (like Columbus or Ottawa).

When a player waives his NTC to go to a team does not mean that all of the sudden he is willing to go to those places now. That is why the NTC would still exist in the contract.
 

me2

Go ahead foot
Jun 28, 2002
37,903
5,595
Make my day.
gscarpenter2002 said:
Man, are you ever way off on this post.

Firstly,it is not easier to budget into the future. If you have ever done any budgeting at all in business, you know that the further out into the future you go the greater uncertainty there is and the HARDER it is to accurately budget.

Teams can and do budget into the future based on ticket revenue etc. They can set their expected budgets for player salaries based on extrapolations. If they didn't we'd only ever see one year deals. Why would Tampa give out 4 or 5 year deals?

I understand the uncertainty of the future argument just fine. Let me ask you this, if you have $20m and you have to pay out $20m over 5 years, you could pay it out $4m per year and do something else with the remaning money in the mean time (invest it) or you could pay out all $20m up front and be free of the uncertainty.

How many good managers would pay out the $20m upfront in one go? Most would invest it and payout as the needed. Paying out now might be easier but wouldn't always be smarter.

Now, if you don't have all of the $20m available in this years budget it is going to be easier to budget for $4m a year for 5 years into the future. It is all realitive.

Secondly, it is also very much in the player's interest to demand increasing salaries in the circumstance where the player is not yet a UFA at the end of the deal. The increased salary at the end increases his qualifying offer.

The QO argument is overrated. Players can and do hold out for big raises, QO being low or not. They can also use arbitration, which makes getting that big raise over the QO that much easier. Teams now have arbitration rights, so having a big last year in the salary offers a player little or no protection if since the team just takes the player to arbitration and knocks the salary down from the high QO to a reasonable salary anyway.

Granted, however, that for players who will be UFA's at the end of their contract, that is not much of a consideration.

With UFA age coming down to 27, that is even more true.
 

Captain Ron

Registered User
Jun 9, 2003
17,409
0
Gardnerville, NV
Visit site
avsfolife said:
To me, allowing the cap value to be recalculated for a trade is fairer to the new team and it also allows for a better approximation of the actual cash flow going towards the league-wide payroll ...

You see that is the biggest problem with your argument. When contracts are signed neither party involved is concerned with whether or not the contract will be fair for a future team that may be interested in a trade.

Also I have established that when a contract is front-loaded the league in essence is granting that team permission to go over the cap with that player. For the first couple of seasons at least. Think of it as a loan. The league will let you go over the cap now but you will have to give up some cap room back later in the contract. Now even if you trade the players contract the "cap debt" owed to the league would basically still exist. The "cap debt" that would be linked to that player would stay with him until the debt was repayed.

So any team that would like to acquire this player in the future would be aware of his cap debt and would either have to accept it or just not acquire the player.

Make sense?
 

me2

Go ahead foot
Jun 28, 2002
37,903
5,595
Make my day.
avsfolife said:
Is that how trades will be handled?
Only 1/4 of the player's cap value counts towards the cap for the new team the year of the trade?

Yes. As best as can be worked out: 3/4 for his old team(s) and 1/4 for his new team assuming he spent the whole year in the NHL.

average cap value player * percentage of the season on that NHL team = Cap for for year for that team.
 

me2

Go ahead foot
Jun 28, 2002
37,903
5,595
Make my day.
avsfolife said:
Why wouldn't they? I would think a no-trade clause is team specific. Just because a player doesn't want to be traded from, say Colorado, doesn't mean he wouldn't want to be traded from Florida ...

That is fine, it is his no trade clause he can choose to waive it in Florida if he wants out.

To me, allowing the cap value to be recalculated for a trade is fairer to the new team and it also allows for a better approximation of the actual cash flow going towards the league-wide payroll ...

The player in question does not have to decrease in skill decreased in skill, and may have even improved, how is fair that the new gets a better player at lower cap hit?

ie Sign a 25 year old Dman to 5 year deal, front loaded 7.5->1.5 (average 4.5). By age 29 he is entering his prime as a Dman and has improved every year but his team is rebuilding and wants to trade him because he said he'll leave as a UFA.

Do you think $1.5m adequately reflects that player's value? I don't.

As for old players with declining skills offering front loaded contracts then dumping them at the end would just encourage rich teams to rort the cap system for all its worth. Wealthy teams should not get an unfair advantage based on wealth and the ability to overpay via front loaded contracts. That is why they average, so the rich team gets stuck with geriatric because nobody else really wants to take on the cap hit.
 

avsfolife

Registered User
Aug 5, 2005
77
0
Spongebob said:
You see that is the biggest problem with your argument. When contracts are signed neither party involved is concerned with whether or not the contract will be fair for a future team that may be interested in a trade.

Also I have established that when a contract is front-loaded the league in essence is granting that team permission to go over the cap with that player. For the first couple of seasons at least. Think of it as a loan. The league will let you go over the cap now but you will have to give up some cap room back later in the contract. Now even if you trade the players contract the "cap debt" owed to the league would basically still exist. The "cap debt" that would be linked to that player would stay with him until the debt was repayed.

So any team that would like to acquire this player in the future would be aware of his cap debt and would either have to accept it or just not acquire the player.

Make sense?
Yes, it makes sense and I get what you're saying.
However, you have failed to explain to me why the league would be so concerned with this "cap debt", since the most important cap is the 54% linked to revenue and that number cannot be exceeded ...

If team A is allowed a "loan" (ie. real salary paid > average cap value for the year), when should it make sense for the acquiring team to repay that loan?
 

avsfolife

Registered User
Aug 5, 2005
77
0
me2 said:
The player in question does not have to decrease in skill decreased in skill, and may have even improved, how is fair that the new gets a better player at lower cap hit?

ie Sign a 25 year old Dman to 5 year deal, front loaded 7.5->1.5 (average 4.5). By age 29 he is entering his prime as a Dman and has improved every year but his team is rebuilding and wants to trade him because he said he'll leave as a UFA.

Do you think $1.5m adequately reflects that player's value? I don't.
This is why you won't see a player agree to have front loaded contracts that will have him make an unreasonably low salary at the end of his contract ...

As for old players with declining skills offering front loaded contracts then dumping them at the end would just encourage rich teams to rort the cap system for all its worth. Wealthy teams should not get an unfair advantage based on wealth and the ability to overpay via front loaded contracts. That is why they average, so the rich team gets stuck with geriatric because nobody else really wants to take on the cap hit.
We've already determined that there were factors (non cap-related) that made front loaded contracts unattractive to both players and owners ...
Therefore, you wouldn't see too many of those, so it shouldn't matter much ...
 

Captain Ron

Registered User
Jun 9, 2003
17,409
0
Gardnerville, NV
Visit site
avsfolife said:
Yes, it makes sense and I get what you're saying.
However, you have failed to explain to me why the league would be so concerned with this "cap debt", since the most important cap is the 54% linked to revenue and that number cannot be exceeded ...

Because the salary cap is "suppose" to level the playing field for all teams. Front-loading contracts would be a tactic used mainly by large market teams as a way to try and circumvent the cap. At least in the short-term. Perhaps in the long-term if they "partnered" with another large market GM.

If the "cap debt" that became linked to a players contract is removed when traded then the large market teams would have a good strategy in place to be able to go over the cap by a considerable amount. Look at this scenario.....


The Detroit Red Wings sign Pavel Datsyuk to this contract.......

Year 1: $7 million
Year 2: $6 million
Year 3: $5 million
Year 4: $4 million
Year 5: $3 million

Total contract = $25 million or a $5 million/year cap hit. In the first year Detroit would have the potential to go over the cap by $2 million. They could go over by $1 million in year 2 and by year 3 it is even money. Once they got to year 4 they would lose cap space by keeping Datsyuk on their roster.

So lets say they trade him at the start of year 4. Now by front loading the contract the Red Wings have "artificially" inflated their cap $3 million (over a 3 year period). Now Datsyuk is worth more in a trade than on your roster (at least under your scenario).

Detroit could trade Datsyuk to let's say Ottawa. Now Ottawa has obtained a player who should be a $5 million/year cap hit for only $3.5 million/year. In the first year with his new team Datsyuk has allowed Ottawa to "artificially" go over the cap by $500k. Then in the last year of his contract Ottawa could lose $500k by keeping him on the roster or trade him again (perhaps even back to Detroit). Now Datsyuk is a player who should be a $3.5 million/year cap hit that can be had for only $3 million.

Now to make the situation even more outrageous let's say that the player that Detroit got in return for Datsyuk was Heatley. Who has the exact same type of contract. So now the large-market teams can start a (You scratch my back and I will scratch yours) situation where they can constantly front-load contracts with out the fear of ever losing cap space in the latter years of the contract.

Then imagine that the large-market teams signed all of their players to contracts that are constructed in a similar fashion. Then as long as the large-market teams were in good standing with their brethren they could easily get around the cap and could potentially go over the salary cap by $10 million or more almost every season.

Does that sound fair to you?


avsfolife said:
If team A is allowed a "loan" (ie. real salary paid > average cap value for the year), when should it make sense for the acquiring team to repay that loan?

That would be the punishment that the team that initially signed the contract would have to accept. Because it would lower the trade value of the player who had the "cap debt" attached to his contract. When a team wanted to acquire the player (Datsyuk for example) they would see that his cap hit was greater than his actual salary and would give less in a trade or want draft picks in addition to Datsyuk for agreeing to take on "dead cap space".

It is somewhat similar to the payroll dumping trades that you have seen this season. In order for Detroit to convince a team to inherit a contract with "dead cap space" they may have to trade Datsyuk for "future considerations" or for nothing more than a mid-round pick. Cap space will have a value unto itself in the new capped league.
 
Last edited:

braincramp

Registered User
Mar 10, 2004
1,594
0
avsfolife said:
However, you have failed to explain to me why the league would be so concerned with this "cap debt", since the most important cap is the 54% linked to revenue and that number cannot be exceeded ...

If team A is allowed a "loan" (ie. real salary paid > average cap value for the year), when should it make sense for the acquiring team to repay that loan?
There is another reason for the cap. It's not merely to keep salaries affordable, but also to maintain equity among teams. Any front-loading scheme which allows teams to, in fact, pay more to a player than the average annual cap hit they are charged for him will reduce the equity the salary cap seeks to obtain.
 
Status
Not open for further replies.

Ad

Upcoming events

Ad

Ad

-->