How does the league deal with guranteed contracts under a linkage system?

Discussion in 'Fugu's Business of Hockey Forum' started by nyrmessier011, Jun 25, 2005.

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  1. nyrmessier011

    nyrmessier011 Registered User

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    I've had this question in my head for quite some time and I can't seem to figure it out. Maybe it has been mentioned in the negotiations and I have missed it, but how does the league plan to deal with guaranteed money when the cap number may change from year to year. Under linkage the number will change from year to year, right? Or am I just out of my skull??...because I thought under linkage, the cap number can change each year based on 54%.

    Anyway, if the number does change each year, what happens when NYR for example, has guaranteed contracts worth $36 million for the 2006-07 season, but the cap lowers to $32 million based on 54%. Do they get penalized for being over the cap, or will this be an exception since at the time of guaranteeing contracts, they were under the cap for that year? Some years teams might be forced to be over the cap is what I'm saying. From that, one can now ask how can teams plan for future success when they don't know what the cap number will be each of the next 5 seasons.

    Maybe I'm mis-understanding what this linkage system actually is, but if I'm right, can someone explain to me how the hell the NHL plans to work under a hard cap WITH linkage AND guaranteed contracts?
     
  2. Icey

    Icey Registered User

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    I believe they escrow part of their salary until the end of the season and then it is determined how much revenues are. At that point they are paid their escrow +/- based on revenues.
     
  3. djhn579

    djhn579 Registered User

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    In a normal season, I would guess that at least 1/4 (~6 players) will be up for new contracts. If the revenue drops suddenly, I think that would mean that you have to sign those players to lower contracts to fit under the cap or find younger and/or cheaper players. Otherwise, you will have to ask players to renegotiate their contracts to decrease the cap hit, or trade with teams that have cap room.

    I don't see a 5% to 10% drop in revenue as being enough to cause too much of a problem.

    If there is a larger drop, and that causes a majority of the teams to be over the cap, the BOG may get with the NHLPA and look to modify the CBA to deal with this issue (if they are not already dealing with it...). One possibility would be to stipulate that the cap can't drop by more than 10% per year regardless of revenues. We will have to see what the final CBA looks like.
     
  4. NYR469

    NYR469 Registered User

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    but that would take away the guarantee part of a guaranteed contract...and there is no way that legally that should be allowed...

    if you sign a player to a contract to pay him $4 mil/year then you pay him $4 mil/year...

    the linkage effect on the cap shouldn't impact that already guaranteed contract, but rather should determine if the following season if you have $2 mil or $6 mil to spend on the free agent market...so the change impacts future contracts on free agents, it doesn't change already guaranteed $$.

    as for how to get around the problem of a drastic drop in revenue from 1 year to the next, imo the simplest way is to repeat the buyout window every summer. just like the rumors that teams will be able to buy out players this summer without getting hit on the cap and it is expected to be for a limited time. well why not make it so every year from the end of the finals to the start of free agency (july 1st) teams can buyout player at no penalty. each year before the end of the finals the league & nhlpa will determine the revenue for that season and based on that the cap for the following year and then the teams can use that buyout window to get under the new figure if needed.

    but i doubt you'll see drastic changes other then next year as revenues go down the crapper due to the lockout...but in normal years the change so drastic that the cap will go from $40 mil to $20 mil overnight...
     
  5. Epsilon

    Epsilon #basta

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    If it's collectively bargained it most certainly is allowed.
     
  6. GSC2k2*

    GSC2k2* Guest

    That is how a linkage system works. THe guarantee is subject to the linkage system. THat is why the escrow system is in place in Basketball and must be in place here in order for there to be true linkage.

    You could not do it otherwise and still maintain the affordability of the system.

    THe players benefit as well. If revenues go up, their "guaranteed" salary increases beyond the guaranteed amount.

    If you think somehow that makes guaranteed contracts unguaranteed, well, if that is what it takes to float your boat...

    It is ridiculous for a system to take effect later. THere is substantial turnover year to year, and player salaries fluctuate. Why should revenue fluctuations affect players who were not even in the league at that time?

    I laugh each time people talk about player buyouts. THe whole point has been to reduce player compensation to an affordable level, not to pay guys for doing nothing repeatedly.
     
  7. kdb209

    kdb209 Registered User

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    Contracts are only guaranteed as far as the CBA says they are. The Standard Player Contract states that all existing contracts are subject to modification by terms of the current and any future CBAs. That's why they can do things like the 24% rollback.

    If a team is over the cap (say due to a linkage drop in revenue or just sheer incompetent management) come the deadline for the upcoming season, they will be forced to either trade or buy out contracts. The current (expired) CBA allowed for teams to buy out the remaining years of a contract at 67% paid out over 2x the number of years remaining on the contract - another case of a "guaranteed" contract not being so.

    After this transition period, buyouts have to count against the cap every year or it's a huge loophole - sign a player to a two year back loaded deal and buy out the second year.

    The escrow system (if there is one) would work like this (based on the owners Feb 2 proposal):

    - Each team would withold a percentage (10-15%) of every players salary in an escrow acount.

    - At the end of the year, the total league revenues and player costs would be calculated.

    - If the total player costs were greater than 54% (or whatever threshold was negotiated) a portion of the escrow money would be kept by the owners to reduce the total player costs to 54%. The remainder would be returned to the players.

    - If the total player costs were less than 54%, the teams would have to make additional contributions to bring up their payments to 54%. The PA would be responsible for distributing the extra monies.

    Again, those "guaranteed" contracts are modified because of the CBA.
     
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