That's what got Vanek $6.5m and Pommer $5.6m; their body of work, not the potential of decline. Most any of the $6mx6 contracts that get tossed around end up being bad contracts. The road goes both ways. Wild paid for Spurgeon, Brodin, Scandella, and Coyle on potential not just their body of work. Your $1m UFA plug is Ryan White.
$2.5-$3m/yr contracts (non-bridge) are 25-30p players in the prime of their careers. Panik has worse stats across the board, outside of his 1 year being on Toews everyday wing, it was also only a 2 year contract that covered at least one RFA season (not sure if it was 2 or not).
I think Foligno's contract is ~$300k too much and a year too long, but at least it's not the $3.5mx5 that Clutterbuck just got.
Guys like Vanek and Pominville, or Lucic and Eriksson, belong to a very different group of players. And yes, it's very common to sign these kind of players to contracts that take them to "declining years" where they end up hurting you. But that's part of the deal: the idea is that you'll improve your team for next couple of years significantly in a way you otherwise couldn't, in hopes of winning something soon-ish, and then take the penalty later. Of course, many GMs fail at this too.
Yeah, Coyle was paid for potential. But he had 1½ NHL seasons under his belt, not 5. Same thing for Brodin. Both were coming off ELCs and showed obvious potential. That's perfectly acceptable. It's the same thing that happened with Matheson. While acceptable, this strategy is overall very risky because you never quite know where the player will end up and you have to weight that to the dollars and term you give. Personally I'd be wary of using this because the requirement for this risk to be worth it is to get a significant discount a couple years down the road. Is that happening with Coyle and Brodin? To some extent yeah, especially with Coyle. Those risks were somewhat successful.
Other option is to go the Spurgeon and Scandella (and soon Dumba) route and give a "show me what you got" bridge deal followed by a long term extension. This is far safer, though with a smaller reward. I wouldn't really categorize these extensions as "paying for potential" anymore though. I think they both should've been signed for less money.
But at least those are the kind of players you don't feel terrible for giving slightly more money than you'd like to. Foligno is not in that group of players. He's simply not the kind of player you make these concessions for. He should've been paid at most 2M for 3 years. Maybe 2.3M for 2 years. Those would've been a fair market value deals. Ryan White is the replacement-plug if you are a bad GM. A good GM will find the likes of Winnik, Cullen, Upshall, Brodziak, Stempniak, Stafford, Kunitz, Hartnell etc. to fill up the bottom end of the roster. You never ever give a 26 year old career 23 point scorer 12M to do that.