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Insurance Coverage for NHL contracts now just 5 yrs? - SHOALTS

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11-19-2012, 04:50 PM
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DL44
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Insurance Coverage for NHL contracts now just 5 yrs? - SHOALTS

NHL, union head back to the bargaining table with many issues to resolve

http://www.theglobeandmail.com/sport...medium=twitter

Just read this article, and this popped out at me:


Quote:
Another big problem is insurance. Teams have always insured contracts because players are entitled to the full value if they suffer a career-ending injury. But the enthusiasm of insurance companies to underwrite the policies declined as fast as the salaries grew. Insurers will only cover five years of a contract now, which means the Predators are on the hook for $42-million, say, if something happens to Weber in year five of the deal.
I was under the impression it was a 7 yr limit... anyone know when that changed?

I take it this would be the obvious underlying reason for the NHL to be fighting for a 5 yr max limit.





And for those wondering why the NHL thinks they need both a 5 yr limit AND 5% variance when they think just one of them is necessary to curtail front loaded/back diving contracts...

Kipper's contract exemplifies why... just a 6 yr term ($5,833,333 cap hit):
2008-09 $8,500,000
2009-10 $7,000,000
2010-11 $7,000,000
2011-12 $6,000,000
2012-13 $5,000,000
2013-14 $1,500,000

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11-19-2012, 05:01 PM
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Orrthebest
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So if he is correct it would be a tremendous benefit for the league to have that 5 year contract limit they are asking for.

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11-19-2012, 05:04 PM
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Crease
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Before reading that this morning I assumed the NHL was asking for 5 year limits so that they could "concede" 7 in return for something else.

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11-19-2012, 05:13 PM
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Quote:
Originally Posted by DL44 View Post
And for those wondering why the NHL thinks they need both a 5 yr limit AND 5% variance when they think just one of them is necessary to curtail front loaded/back diving contracts...

Kipper's contract exemplifies why... just a 6 yr term ($5,833,333 cap hit):
2008-09 $8,500,000
2009-10 $7,000,000
2010-11 $7,000,000
2011-12 $6,000,000
2012-13 $5,000,000
2013-14 $1,500,000
There's numerous examples of contracts like that that violate the sprite of the cap. However would you be opposed to someone who's 34 or 35 receiving the below contract?

Year 1: 8m
Year 2: 6m
Year 3: 4m
Year 4: 2m

Total 20m, 4 years, 5m cap hit. There's completely valid reasons why a contract like that above should be allowed. Both the team and the player would want to be able to have a contract like this, as it protects both sides as the player ages. Player gets paid heavily up front, team's risk is reduced as the player ages.

To prevent these the deals that everyone is *****ing about from happening (Parise, Suter, Weber, Kovy, Hossa, etc), you do not even really need to limit the variance (although it wouldn't be a bad thing to do so on contracts over - say 4-5 years).

Just change the rules so that every contract always counts against the cap - so the +35 rule expanded to cover every contract (and the cap hit counts towards the original signing team if the player doesn't play out the entire contract). Right now every one of those long term deals other than Prongers has an automatic out clause as they were signed before the player turned 35, and there's no penalty if the player doesn't fulfill the contract.

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11-19-2012, 05:40 PM
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Quote:
Originally Posted by Riptide View Post
There's numerous examples of contracts like that that violate the sprite of the cap. However would you be opposed to someone who's 34 or 35 receiving the below contract?

Year 1: 8m
Year 2: 6m
Year 3: 4m
Year 4: 2m

Total 20m, 4 years, 5m cap hit. There's completely valid reasons why a contract like that above should be allowed. Both the team and the player would want to be able to have a contract like this, as it protects both sides as the player ages. Player gets paid heavily up front, team's risk is reduced as the player ages.

Here's the thing tho... What's the reason to commit 4 yrs to a 34-35 yr old?? That's just poor business and risk management.
There is only ONE reason to do it... cap circumvention.

There are a handful of exceptions to the rule... but thats what they are - exceptions.

Quote:
To prevent these the deals that everyone is *****ing about from happening (Parise, Suter, Weber, Kovy, Hossa, etc), you do not even really need to limit the variance (although it wouldn't be a bad thing to do so on contracts over - say 4-5 years).

Just change the rules so that every contract always counts against the cap - so the +35 rule expanded to cover every contract (and the cap hit counts towards the original signing team if the player doesn't play out the entire contract). Right now every one of those long term deals other than Prongers has an automatic out clause as they were signed before the player turned 35, and there's no penalty if the player doesn't fulfill the contract.
I think thats also part of the NHL proposal. They've proposed 3 or 4 ways ways to kill the incentive for these contracts. Their hope i think being a couple of em will end up sticking.

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11-19-2012, 05:51 PM
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Quote:
Originally Posted by Crease View Post
Before reading that this morning I assumed the NHL was asking for 5 year limits so that they could "concede" 7 in return for something else.
Yeah, would be be a pretty big deal if the league has a new insurance plan only covering 5 years where the previous deal covered 7. I can see where those insurance premiums must have increased a good amount over the last CBA--according to reports teams had to pay an insurance premium based on their top 5 salaries.


Last edited by mouser: 11-19-2012 at 11:11 PM. Reason: typo
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11-19-2012, 05:58 PM
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I think the main reason for the 5 year limit is because when it is paired up with the 2 year entry level contract and the 8 year UFA time it gives teams tremendous leverage over the players in contract negotiations.

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11-19-2012, 06:00 PM
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With legal challenges outside the world of sports (and the seeming growing natural disasters they have to pay out on), insurance companies all over are increasing the cost of premiums, eliminating coverage, not just here.

So, not surprising that the blanket insurance companies for the NHL wants to further limit their exposure and liability.

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11-19-2012, 06:00 PM
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Quote:
Originally Posted by mouser View Post
Yeah, would be be a pretty big deal if the league has a new insurance plan only covering 5 years where the previous deal covered 7. I can see where those insurance premiums must have increased a good amount over the last CBA--according to reports teams had to pay an insurance premium based on the salaries of their top 5 salaries.
On the flip side... wouldn't it be safe to expect Insurance companies to once again increase their coverage to 7 years if a max contract limits were to be set at 7?

i.e. there would be such a smaller number of players (hypothetically) signing 6-7 yr contracts that it should theoretically decrease their risk level enough to be able to expand coverage..

or maybe the opposite occurs... setting a contract max of 7 creates a target that every significant player and agent shoots for, increasing the ratio of players in the league with >5 yr contracts from its current ratio...

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11-19-2012, 06:02 PM
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Quote:
Originally Posted by DL44 View Post
On the flip side... wouldn't it be safe to expect Insurance companies to once again increase their coverage once again to 7 years if a max contract limits were to be set at 7?
Probably at a cost the NHL BOG isn't interested in sustaining.

Insurance companies are having to pay out a lot more (see my post above).

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11-19-2012, 06:21 PM
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It's very possible the carriers are tigtening up their guidelines for these.

The insurance market as a whole is tightening up.

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11-19-2012, 06:52 PM
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Quote:
Originally Posted by DL44 View Post
On the flip side... wouldn't it be safe to expect Insurance companies to once again increase their coverage to 7 years if a max contract limits were to be set at 7?

i.e. there would be such a smaller number of players (hypothetically) signing 6-7 yr contracts that it should theoretically decrease their risk level enough to be able to expand coverage..

or maybe the opposite occurs... setting a contract max of 7 creates a target that every significant player and agent shoots for, increasing the ratio of players in the league with >5 yr contracts from its current ratio...

Quite possible. I think the insurance companies are just responding to risk. If the top salaries have grown in value, plus virtually all the top salaried guys being 7 yrs (the max term for insurance). Since the value has grown, the premiums increase as well.

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11-19-2012, 07:01 PM
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This is why I'm somewhat supportive of the term limits to contracts, whereas I've been critical of many of the other NHL's demands. It does create an unfair playing field. The Philadelhia Flyers could afford to absorb $50m on a contract gone bad - it would hurt, sure, but the franchise would be fine. But $50m might put the Nashville Predators into bankruptcy.

So it's an unfair advantage for rich teams. It adds too much risk.

I do think the NHL could give more than a 15% variance though, and the other changes to contracts they want are totally unnecessary.

I also think that protecting long term contracts should be low in the NHLPA's list.. only a select few are ever going to get those offers, and those type of players are all going to be extraordinarily rich anyhow. They should be focussed on the majority of NHLPA members whose careers aren't even 5 years long.

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11-20-2012, 07:23 AM
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2 years first RFA contract
5 years total/10% variance
UFA after 7 years

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11-20-2012, 07:33 AM
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This is a really nice precedence for contract limits. Go with the 5 years insured, or if the player wants, leave them with no safety net for years 5+?

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11-20-2012, 07:44 AM
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If the NHLPA is opposed to term limits, it may make more sense to offer a structure whereby years 6+ are not guaranteed or partially guaranteed in the event of injury. Then let players decide for themselves if they want to lock into a long term contract.

EDIT: I see a similar suggestion right above me.

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11-20-2012, 07:47 AM
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If this is actually true then it makes the NHL's position on the issue very reasonable and probably something the players should concede on.

Quote:
Originally Posted by DL44 View Post
Here's the thing tho... What's the reason to commit 4 yrs to a 34-35 yr old?? That's just poor business and risk management.
There is only ONE reason to do it... cap circumvention.
But a 34-35 year old can be very reasonably expected to play until they are 38-40 these days, so that's not cap circumvention in any sense in which the term has been used by the NHL or NHLPA. If your personal idea of "cap circumvention" is "having a lower cap hit than dollars paid at any point" then the NHL has made it pretty clear they are perfectly fine with that, or they would have asked for "year-to-year actual dollars paid = cap hit" to begin with.

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11-20-2012, 07:55 AM
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Quote:
Originally Posted by DL44 View Post
Here's the thing tho... What's the reason to commit 4 yrs to a 34-35 yr old?? That's just poor business and risk management.
There is only ONE reason to do it... cap circumvention.
Well, cap circumvention is a big one, because if they player retires it's less to pay out. Also makes the player more tradeable due to lowered salary. And of course, it's an incentive to the player for a couple other reasons: Getting the money sooner is more guaranteed money and more interest, so the contract is more lucrative and the player is more interested in signing.

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11-20-2012, 08:10 AM
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Quote:
Originally Posted by Crease View Post
If the NHLPA is opposed to term limits, it may make more sense to offer a structure whereby years 6+ are not guaranteed or partially guaranteed in the event of injury. Then let players decide for themselves if they want to lock into a long term contract.

EDIT: I see a similar suggestion right above me.
That could be a doable compromise. Relatively speaking, the issue won't affect most players because many of them don't sign 5+ year contracts.

I wonder if guys like Savard and Pronger are the reason that the league is looking into this.

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11-20-2012, 10:13 AM
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LadyStanley
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Quote:
Originally Posted by octopi View Post
Well, cap circumvention is a big one, because if they player retires it's less to pay out. Also makes the player more tradeable due to lowered salary. And of course, it's an incentive to the player for a couple other reasons: Getting the money sooner is more guaranteed money and more interest, so the contract is more lucrative and the player is more interested in signing.
But under the 2005 CBA, if a player retired @ age 35+, the full cap hit goes against the cap, regardless.

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11-20-2012, 11:15 AM
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Quote:
Originally Posted by LadyStanley View Post
But under the 2005 CBA, if a player retired @ age 35+, the full cap hit goes against the cap, regardless.
Only if that multi-year SPC was signed after the player reached 35+ yo (technically, which went into affect when the player was 35+ yo). It did not apply to "retirement" contracts signed by players 34 yo or younger.

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11-20-2012, 01:34 PM
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Quote:
Originally Posted by octopi View Post
Well, cap circumvention is a big one, because if they player retires it's less to pay out. Also makes the player more tradeable due to lowered salary. And of course, it's an incentive to the player for a couple other reasons: Getting the money sooner is more guaranteed money and more interest, so the contract is more lucrative and the player is more interested in signing.
Aside the interest portion, the pros you listed are about the ability to cut ties with the player easier.Basically about protecting the club for the risk such a contract has...

ie. back to my main point - it's just not good business sense or risk management to sign a 34-35 yr old to a 4 yr contract.



Quote:
Originally Posted by Epsilon View Post
But a 34-35 year old can be very reasonably expected to play until they are 38-40 these days, so that's not cap circumvention in any sense in which the term has been used by the NHL or NHLPA. If your personal idea of "cap circumvention" is "having a lower cap hit than dollars paid at any point" then the NHL has made it pretty clear they are perfectly fine with that, or they would have asked for "year-to-year actual dollars paid = cap hit" to begin with.
It was the example he gave that was obvious cap circumvention...

8, 6, 4, and 2...
How can you value a player at 8 and 6 mil in yrs 1 and 2 and then 4 and 2 in yrs 3 and 4... i was stating there is one one reason for that...


I wouldn't say the NHL is ok with those contracts... they did put in limits on variance in the last CBA - it was just poorly thought out and someone failed to ask... how would they take advantage of this?

The intention of allowing the variance was to account for the contract structures that were being given out at the time to the developing kids that escalated... and the vets that conservatively decreased... nothing like what GMs and agents started exploiting..


Last edited by DL44: 11-20-2012 at 01:45 PM.
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