Question regarding Buyouts, 35, and Cap hits..

Discussion in 'Fugu's Business of Hockey Forum' started by Drury_Sakic, Jul 2, 2006.

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  1. Drury_Sakic

    Drury_Sakic Registered User

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    Posted this in the Avs board as it relates to the Avs directly, but indirectly.. A question....

    http://www.denverpost.com/avalanche/ci_4003935

    "because any player who is 35 or older when his contract is bought out has his full salary count against the salary cap.

    Turgeon and Brisebois are older than 35, and May will be 35 in November. " As per Avs GM FG.


    So... if I read this right.. their salary would count 100% towards the cap this year even if they were bought out at less than their actuall contract amounts?

    ???


    If true..... What the Hell did Dallas just do with Guerin?

    Or is this Avs managment ****ing up again?

    :help:


    I thought that the cap hit was based on the buyout ratio.
     
  2. jkrdevil

    jkrdevil UnRegistered User

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    IT has to do with their age when they sign the contract. If they were younger than 35 then the team wouldn't take the full cap hit if they buy them out. In Guerins case he was younger than 35 when he digned his contract, that and it was signed during the old CBA.
     
  3. kdb209

    kdb209 Registered User

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    I think Giguere or the Denver Post writer are a bit off here. By my reading of the CBA, players bought out are not subject to the 35+ yo rule (the Mogilney/Malakhov rule).

    The rule is that players who sign a multi year contract when they 35 yo or older have their entire averaged salary count gainst the cap in the second (or later) year of the contract, even if they are not on the active roster. This was designed to prevent cap circumvention by having an aging vet sign a long term deal that both the team and player don't expect the player to play out.

    It is covered in two sections of the CBA (50.2(c)(iv) and 50.5(d)(i)(B)(5):

    Given that the cap hit for Ordinary Course Buyouts is explicitly called out immediately preceeding the 35+ clauses - and it is very unlikely that the intent was to double dip in that case - and that the Ordinary Course Buyout terminates the SPC, so that a player would not be "in the second or later year of a multi-year SPC which was signed when the Player was age 35 or older", my interpretation is that a bought out player would not be subject to the Mogilney rule.

    A player subject to the Mogilney/Malakhov rule will either count against the cap under the Ordinary Course Buyout clauses or under the "in the second or later year of a multi-year SPC which was signed when the Player was age 35 or older" clauses, but not both.

    Given that the writer is blatently wrong on May (not 35 yo untill November, so obviously didn't sign a multi years SPC when he was 35+ yo) and Brisebois (didn't turn 35 until last January 27, so was not 35+ when he signed his current deal), I'm guessing either Giguere and/or the Post beat writer are confused or mis-informed, or Giguere is twisting the facts to make excuses (not expecting the writer to actually check the facts). Of the three, only Turgeon would be subject to the Mogilney rule - he signed a 2 yr deal last August, when he was 35yo (by the definitions in the CBA - "35 or older as of June 30 of the League Year in which the SPC is to be effective").
     
  4. No One

    No One Registered User

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    "was age 35 or older (as of June 30 of the League Year in which the SPC is to be effective),"



    Example:

    League Year - July 1, 2006 - June 30, 2007
    Player A - Date of Birth Feb. 1, 1972
    Player A signs a 2 year Contract with team B at 34 years of age on July 1, 2006. Therefore, Player A would be 35 BY June 30 of the League Year in which the contract became effective...

    Therefore this cluase applies to players 34 and older, right?
     
    Last edited: Jul 5, 2006
  5. No One

    No One Registered User

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    That is exactly how I read those sections, as well.
     
  6. kdb209

    kdb209 Registered User

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    My bad - I first read it as 35 as of June 30 in the calendar year the SPC is signed, not League Year (which is July 1 - June 30).

    So you are correct, it makes it effectively 34 yo - any player who turns 35 during the first season of the SPC.

    Under that criteria, both May and Brisebois do qualify, so maybe Giguere and the post writer were not blowing smoke.

    It would be good to find a definitive answer to this grey area.
     
  7. Irish Blues

    Irish Blues Present once again

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    If that's the case, I think more than one team is going to howl about that interpretation. Remember when we had the discussion about unclear wording in the version that was released before the official one came out?

    But I don't think that's the case. Travis Green signed with Boston in August 2005 and was 35 as of June 30, 2006 when the Bruins bought out the final year of his contract, but by all reports he doesn't count the full $675K for '06-07. Same for Turner Stevenson and his $1.254M cap hit - he was 34 when he signed but is 35 as of June 30, 2006 and reportedly he only counts $418,000 for the Flyers the next 2 years.

    That's not to say the reports on those two buyouts are incorrect, but I think if the interpretation given above was in fact accurate, someone covering the Flyers would know and their fans would be going nuts about it right now.
     
  8. No One

    No One Registered User

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    Are we sure that when you buy out a contract using paragraph 13 provisions of the SPC, that is counts 100% as it relates to the cap?

    I have read section 50.2 and 50.9, and I can see where it would appear that the contrats can be bought out, subject to the P.13 and the Ordinary Course buyouts.

    The CBA is less than definitive on this, unless I just haven't looked at it enough. (and if I look at it much more, my wife just might kill me.).
     
  9. Hasbro

    Hasbro Can He Skate?! Sponsor

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    Does anyone know the rationale for the over 35 rules? I don't see much point to it and it basicaly turns the NHL into Logan's Run for players.
     
  10. Seph

    Seph Registered User

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    The NHL worried that a team would frontload a contract for older players that were nearing retirement since the cap hit is averaged out over the full length of the contract.

    For example, say you sign a player to a 5m contract spread out over 5 years. That's a cap hit of 1m/year. But let's say you structure that salary so that it pays 3.2m in the first year, and 450K in the final 4 years. If you also have a gentleman's agreement that the player will retire after the first year or the player knew he only had one year left in the tank and told the GM that upfront. The GM gets a 3.2m player for a cap hit of 1m.

    Even if the GM were to buy the player out after the first year, the yearly cap hit on buying out such a contract would be about 150k/year, and even though it would be for 8 years in that scenario, 150k is still less than it would cost to buy out a $1m player (should be 333k)
     
  11. Hasbro

    Hasbro Can He Skate?! Sponsor

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    I get that, but I was under the impression you couldn't reduce salary on later years of a contract which would seem to take care of that problem.
     
  12. Drury_Sakic

    Drury_Sakic Registered User

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    I think it also was an attempt by the league to avoid a few things that the NFL has had trouble with.

    The NFL has become a place in which vet players are easy to toss aside if their talent falls off quickly. Not so in the NHL. You must be more careful with regards to vets and are punished if you are not. It also prevents any way I can see of somehow defering/delaying paying a player.. or paying them less early and more later.


    In regards to salary levels per year... I believe the CBA limits how much you can increase/decrease between each year in a contract. There is some sort of % system.
     
  13. Irish Blues

    Irish Blues Present once again

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    No more than a 100% increase, no more than a 50% decrease ... but if it's 3+ years, (loosely) the maximum increase is the lesser of the amount of the first two years.

    Example: 1st year is $1.5M. 2nd year cannot be more than $3M, not less than 750K.
    Example: 1st year is $1.5M, 2nd year is $2M. 3rd year cannot be more than $3.5M, not less than $1M.
     
  14. NewGuy

    NewGuy Registered User

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    The version of the CBA available on the NHLPA website contains a different wording than the one listed above which is present in the early draft version of the CBA.

    Early draft version:

    "was age 35 or older (as of June 30 of the League Year in which the SPC is to be effective)"

    NHLPA version:

    "was age 35 or older (as of June 30 prior to the League Year in which the SPC is to be effective)"

    Someone else can double check, but the NHLPA version of the CBA seems to support the popularly held view of the 35 and older clauses.
     
  15. No One

    No One Registered User

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    :eek:

    yep.. (and I have the NHLPA release) DOH!!! But I see nothing that prohibits buying out of 35 y.o. + contracts and/or language that indicates that buying out said contract results in a 100% cap hit.
     
  16. No One

    No One Registered User

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    I apologize for bumping this, but I figured it may be better here.



    Yes, the contract falls under the 35+ clause. Assume the 2nd year or later in a multi year SPC. Again, assume the player refuses to retire as well, since that would make it easy.

    The team assigns the player to the minors, and the player fails to report. The team then takes the necessary steps to void the contract per paragraph 14(b) of the SPC.

    Would the salary count under 50.5.d.i.5, even though there is no valid SPC? I know 50.5.d.i.5 says "regardless of whether or where", but it also says "in which the SPC is to be effective". In this case, there would be NO effective SPC. If it said in which the SPC WAS to be effective, I wouldn't be asking this.


    Would a team not do this under penalty of circumvention and just take their medicine?
     
    Last edited: Jul 6, 2008
  17. cupcrazyman

    cupcrazyman Chex Lemeneux

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    http://www.nhlscap.com/cap_faq.htm

    CONTRACT BUYOUTS

    Teams were given a one-time chance to buy-out players for 2/3rds of the remaining value of the contract between July 23 and July 29, 2005 without the buy-out counting against the salary cap. In future years, teams may still buy-out player contracts for a portion of the remaining value of the contract paid over twice the remaining length of the contract. If the player is
    -- Under the age of 26 at the time of termination, the buyout amount is 1/3rd the remaining value
    -- 26 or older at the time of termination, the buyout amount is 2/3rd the remaining value.

    This is set forth in 13(d) of the Standard Player Contract (Exhibit 1 in the CBA). The remainder of this explanation applies to buyouts that took place after July 29, 2005, and assumes the player was not 35 or older when signing his SPC (in which case a buyout does not reduce the cap hit).

    When a player is bought out, the team still takes a cap hit for the player over twice the remaining length of the contract. The amount of the cap hit (by year) is determined as follows:

    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.

    NOTE: This calculation has to be done for each year - meaning that the cap hit on a buyout will not necessarily be the same for all years (see examples below). It can even be negative (meaning the team gets a credit). However, it’s critical to have the correct information for #1 and #2 to get the correct cap hit. The cap hit on a buyout is only the same for all affected years if the remaining yearly salary is the same for all years. If it varies, then the cap hit on a buyout will vary.
     
  18. Irish Blues

    Irish Blues Present once again

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    What my write-up on buyouts has to do with No One's comment, I have no idea.

    My guess is that the team is still docked for the cap hit - but I'll add this to the list of questions I'm submitting to the league to make sure we get the correct interpretation.
     
  19. No One

    No One Registered User

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    That is what I think as well, since my scenario would provide a way for teams to get out from under some of the 35+ contracts.

    Did you get a final answer about buyouts of those 35+ contrast and how they count?

    In your FAQ at nhlscap, you parenthetically state "in which case a buyout does not reduce the cap hit".. however, in this thread (which is linked in the Semi Complete CBA FAQ at the top of this forum) there isn't an answer.


    Thanks..

    btw.. congrats on the hockeybuzz deal!!!!
     
  20. mouser

    mouser Business of Hockey

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    Minor detail: The copy of the CBA on the NHL site has the same wording:

     
    Last edited: Jul 7, 2008
  21. Irish Blues

    Irish Blues Present once again

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    Players 35 and older who are bought out still count against the cap as if they were still under contract - the cap calculations for a buyout do not apply to them.
     
  22. danishh

    danishh Registered User

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    it didnt two years ago, when that comment was made...

    IB, was this something you cleared up with the nhl? I thought the concensus had been that there was nothing preventing teams from buying them out like everyone else? or in this case, does the buyout just give salary relief, not cap relief?
     
  23. No One

    No One Registered User

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    Thank you again.

    So the benefits of buying out a guy with a 35+ contract are a) paying only 2/3 of the value over 2x years, b) getting the NHL contract back, and c) not having the stiff in the lineup.
     
  24. Irish Blues

    Irish Blues Present once again

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    Yes, I asked the NHL this exact question. I'd say I have a copy of the e-mail to back me up, but Verizon screwed up the e-mail account I was using at the time and decided anything older than 15 days could be purged even if I put it into a "save for reference" folder that was supposed to be a "DON'T EVER DELETE" folder.

    And yes ... that's the benefit of buying out a "35 or older" player. It's happened three times - Shawn McEachern [BOS], Tie Domi [TOR] and Dallas Drake [STL].
     
  25. coolguy21415

    coolguy21415 Registered User

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    I think it's interesting they decided to actually specify (somewhat vaguely) this rule, instead of letting it fall into general "no circumvention" clause of the CBA. I guess it would be difficult to prove any gentleman's agreement on retirement, but likewise it could be hard to prove other stuff that might fall under the no circumvention clause.

    I actually like the wording, because it allows for the "handshake" contract, where by a player can sign with a team and "retire as a Canadien" or some other team. It's my understanding that a player who signed a one-year deal and immediately retired wouldn't subject the team to a cap hit.

    For instance, if Sundin does decide to go play somewhere else for the next season or two, he'd be able to "retire as a Maple Leaf", even if only ceremonially.

    Is my interpretation incorrect?
     

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