Thread: Speculation: Luongo: The Neverending Story
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01-05-2013, 05:41 PM
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Yes, I can give you my opinion as to why Gillis offered Lou a 13 year contract at age 30.
Not blessed with the gift of 20-20 hindsight, Gillis took a gamble just like every GM does in handing out a long term, guaranteed contract structured to be cap friendly using the then permissible back-diving mechansm based upon a number of hockey-related and financial predictions, assumptions and techniques.

On the hockey side, my guess is that Gillian believed that Lou would be a durable franchise goalie through age 38 or so. On the financial side, that equated to paying Lou the equivalent of $8 million per season, representing a $500,000 raise over the $7.5 million he was paid in the last year of his then existing contract, which equates to $64 million. It was then "present valued" and restructured from an 8 to a 13 year contract to reduce it s cap hit to $5.3 million over 13 years. I do not know the assumed interest rate used to present value the contract, but assume that it was around 5% using both an increased front end of $10,000,000 the first year of the contract and an additional 5 year term.

Does that answer your question?

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