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The Total and Real Cost of NHL Compliance Buy-outs

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07-06-2013, 12:44 PM
  #1
Fugu
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The Total and Real Cost of NHL Compliance Buy-outs

Inspired by this article in the National Post, I thought it would be an interesting exercise for BOH posters to track the total value of compliance contract buy-outs by NHL teams, and the cost:benefit to individual teams vs collective interests.

[There's a nice chart in the article of selected buy-out contracts and what each check's value would look like over the term-- and what you could buy with that kind of money.]

Eighteen Compliance Buy-outs have been used since the new CBA started. In rank order of most expensive to least (all figures US$), hat tip to CapGeek for tracking conveniently:

Lecavalier - $32,666,667
DiPietro - 24,000,000
Bryzgalov - 23,000,000
Grabovski - 14,333,333
Ballard - 5,600,000
Briere - 3,333,333
Redden - 3,333,333
Gomez - 3,000,000
Kaberle - 3,000,000
Olesz - 2,833,333
Montador - 2,733,333
Komisarek - 2,333,333
Schutlz, J - 2,000,000
Gilbert - 2,000,000
Colaiacovo - 1,900,000
Gill, H - 1,333,333
Hedberg - 933,333
Belanger - 833,333

TOTAL: $129,166,664


Clarifications/disclaimers and discussion points for BOH number crunchers:

*Players 26 and older are bought out at 2/3rds of the remaining contract value. Teams pay out the players over 2x the remaining term, and paychecks are issued 13 times per season.

*Individual teams must pay the players per the above formula so they are on the hook for that amount; collectively, the amount is charged against the the players' share of HRR, thus collectively owners/teams will still only spend 50% of audited HRR on player costs.

*Escrowed monies in favor of the teams is divided between among the teams equally (to verify). Escrowed monies in favor of the players is returned to the players on a pro rata basis.

*Players will receive $300 million in transition payments over three years (Make Whole Provision, aka Transition Payments, next post has CBA details)

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07-06-2013, 12:49 PM
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EXHIBIT 16-A
TRANSITION PAYMENTS
1. Transition Payments
(a) As part of this Agreement, no current SPC shall be reduced, re-written or rolled
back. Instead, all current Players' SPCs retain their current face value for the duration of their terms, subject to the operation of the escrow mechanism in the same manner as it worked under the Collective Bargaining Agreement expired September 15, 2012.
(i) As part of this Agreement, there shall be no "rollback" of any current SPC
based on an adjustment to the Maximum Player Salary and Bonuses permitted under Section 50.6(a).
(b) Separate and apart from the Players' Share, the League shall make payments
specified below to the Players. The payments shall be paid as directed by the NHLPA (and shall include related payroll, unemployment compensation, and social security taxes, as well as any other charges imposed by governmental mandate). Player reimbursement under this Exhibit shall be accrued and paid for by the NHL and Clubs outside the Players' Share and on a one-year deferred basis (in each of the 2013-14, 2014-15 and 2015-16 League Years), and shall not be subject to any escrow withholding or the escrow system more generally.

(c) The sources and manner for collecting the funds necessary for the payments
below shall be determined by the League in its sole discretion. Each payment shall be referred to as a "Transition Payment." All Transition Payments shall be considered wages, subject to payroll, unemployment compensation, and social security taxes, as well as any other charges imposed by governmental mandate.

(d) With regard to the Transition Payments described below, the NHL and NHLPA
shall discuss in good faith on or about February 28, 2013 the estimates as to Initial and Final HRR, the Escrow Account and the financial performance of the League (as a whole) to that point in the 2012-13 League Year. Based upon those estimates, the parties shall consider alternative payment schedules with respect to the $300 million in Transition Payments and any payments that may be required to be made by the League at year-end on account of a Shortfall. Absent agreement between the parties by June 30, 2013, the NHL shall make Transition Payments in the following amounts at the following times:
(i) $100 million payable on the earlier of (i) the execution of the 2013/14
"Year-End HRR Resolution Letter" or (ii) October 21, 2014; and
(ii) $100 million payable on the earlier of (i) the execution of the 2014/15
"Year-End HRR Resolution Letter" or (ii) October 21, 2015; and
(iii) $100 million payable on the earlier of (i) the execution of the 2015/16
"Year-End HRR Resolution Letter" or (ii) October 21, 2016.
(iv) The NHLPA may vary the attribution of the Transition Payments to specific League Years (but not the payment) in its sole discretion. The Transition Payments shall be paid on a deferred basis (in each of Years 2, 3 and 4 as outlined above) with two (2) percent simple interest per annum for the season it is deferred to Players in amounts to be determined and as directed by the NHLPA, including by crediting all or a portion of a scheduled and due Transition Payment against an Overage for the most recently completed League Year. For example, the NHLPA may direct that all or a portion of the Transition Payment scheduled for October 2014 be credited against the Overage attributable to the 2013-14 League Year.
(e) No less than ten (10) days prior to the earlier of (i) the execution of the Year-End
HRR Resolution Letter for that League Year or (ii) the October 21st following the most recently-completed League Year, the NHLPA shall provide to the NHL a list specifying the Players receiving portions of the Transition Payment for that League Year, the amounts of such payments, and the year to which such payment is attributable. The NHL shall then distribute the Transition Payment to the Clubs (i.e., the Club for which that Player was playing in the League Year to which the payment is attributed) for distribution to the specified Players in the specified amounts.

(f) Each payment made to a Player from the Transition Payment shall be referred to
herein as a Player Payment. To the extent Clubs are unable to distribute one or more Player Payments, after reasonable efforts and attempts to locate such Player have been made, the Clubs shall return any and all undistributed Player Payments to the NHL. The NHL shall inform the NHLPA of all such undistributed Player Payments and the NHLPA shall provide to the NHL a list specifying the Players who shall receive proceeds of the undistributed Player Payments that have been returned to the NHL for that League Year, the amounts of such payments, and the year to which such payment is attributable. The NHL shall then distribute the Player Payment to the Clubs (i.e., the Club for which that Player was playing in the League Year to which the payment
is attributed) for distribution to the specified Players in the specified amounts.

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07-06-2013, 05:21 PM
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cost to the players of all this non-cap salary being paid out:

* i calculated players share based on 5% year over year growth from the 3.3B 2011-12 revenues. A guess, but a fairly conservative one IMO.

answer: not much, but noticeable in the first two years. Because the cap will be artificially low next season (based on 3.3B revenue, rather than a more likely growth to around 3.6B), the effects in the first year will not be noticed as players can expect to RECEIVE money from escrow. In the second year, however, the compliance buyouts will likely cost players ~1% of their salary via escrow.

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07-06-2013, 05:33 PM
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thank you for this!

I had been seriously pondering lately how many players were effectively playing with two contract paydays (buyouts). Now this is since the new CBA, wonder if it's possible to dig up ALL players right now who, between last and this CBA, are currently playing for one contract while having banked another contract through buyouts.

Almost 130 million for this CBA-that's two cap level teams worth of paid out money!


wow....

This certainly rears the ugly optics of the idea that owners who were crying poor during negotations sure had no problem paying out this money.

But it's not THEIR money is it? It comes out of the players escrow.....


Last edited by Tinalera: 07-06-2013 at 05:40 PM.
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07-06-2013, 05:57 PM
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The players are gonna get hosed on escrow for sure. Unless revenues goes to the roof the next few years will be painful.

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07-06-2013, 06:01 PM
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Tinalera
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Quote:
Originally Posted by madhi19 View Post
The players are gonna get hosed on escrow for sure. Unless revenues goes to the roof the next few years will be painful.
Honestly, I expect the NHL to have another "amazing" run after the 2013-14 season where the cap will not go down between now and the next CBA, the owners will again report year after year "fantastic growth", and then come CBA time will again cry poor.

I put this out there, after this year there will NOT be another year the cap goes down until next agreement.

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07-06-2013, 06:22 PM
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@danishh.

Can we use the PA's projection at plug in 7% and 10% growth for the next full season (when they have all those outdoor games)?

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07-06-2013, 06:39 PM
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Quote:
Originally Posted by Fugu View Post
@danishh.

Can we use the PA's projection at plug in 7% and 10% growth for the next full season (when they have all those outdoor games)?
1. we should probably keep that in a cap thread (that bowman 75m cap thread seems appropriate)

2. It's really hard to do at the moment because the only numbers we can base our estimates on are either 3.3B 2011-12 revenue or ~2.4B revenue (does anyone know if we got a final number on this?) from the 2013 shortened season. I used 2011-12 above and assumed that growth last season was again 5%.

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07-08-2013, 10:33 AM
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Sweet post. So from my understanding teams just get 2 buyouts and that's it? If they used both last year then they're done, you don't get two an off season or one more an offseason? My friends and I were discussing it last night about teams that still might need another.

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07-08-2013, 11:40 AM
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Quote:
Originally Posted by ZapRowsdower13 View Post
Sweet post. So from my understanding teams just get 2 buyouts and that's it? If they used both last year then they're done, you don't get two an off season or one more an offseason? My friends and I were discussing it last night about teams that still might need another.

Correct. There are two types of buy-outs, Compliance and Ordinary.

The former is limited to two per team, and can be used this season or next. There is no cap hit to the team for the buy-out payment to the player, but the money does count against the players' share of HRR (50%).

Teams can still buy out contracts similarly to the terms under the last CBA during two periods in the off-season, however those amounts are applied to their cap hit (2/3rd remaining value over 2x the remaining term).

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07-08-2013, 12:09 PM
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Quote:
Originally Posted by Tinalera View Post


This certainly rears the ugly optics of the idea that owners who were crying poor during negotations sure had no problem paying out this money.
Buyout payments count against the player share of HRR. Collectively, teams pay the exact same amount of money to the players with or without these buyouts.

So really, I don't know what point you're trying to make.

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07-08-2013, 12:15 PM
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Buyout payments count against the player share of HRR. Collectively, teams pay the exact same amount of money to the players with or without these buyouts.

So really, I don't know what point you're trying to make.

That individual owners still have to pay 2/3rds of the remainder, which to them is real money. Some may not get any of that back depending on how the revenue transfer and sharing balances work out.

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07-08-2013, 12:22 PM
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Teams can still buy out contracts similarly to the terms under the last CBA during two periods in the off-season, however those amounts are applied to their cap hit (2/3rd remaining value over 2x the remaining term).
The actual dollars paid is 2/3rds the remaining value (1/3 if < 26 yo) paid over 2x the remaining term.

The cap hits for Ordinary Course Buy-Outs are a bit more complicated (and unchanged from the last CBA). The formula has the effect of paying back dollar-for-dollar any cap advantage accrued (due to front loading a contract) prior to the Buy-Out.

During the remaining term of the SPC, you take the original cap hit and deduct the "Buy-Out Savings", the difference between the players original salary and the actual Buy-Out payment paid. During the period after the SPC's original term, the cap hit is just the actual Buy-Out payment paid.

Or you just use the convenient Cap Geek Buy-Out calculator .

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07-08-2013, 12:55 PM
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The actual dollars paid is 2/3rds the remaining value (1/3 if < 26 yo) paid over 2x the remaining term.

The cap hits for Ordinary Course Buy-Outs are a bit more complicated (and unchanged from the last CBA). The formula has the effect of paying back dollar-for-dollar any cap advantage accrued (due to front loading a contract) prior to the Buy-Out.

During the remaining term of the SPC, you take the original cap hit and deduct the "Buy-Out Savings", the difference between the players original salary and the actual Buy-Out payment paid. During the period after the SPC's original term, the cap hit is just the actual Buy-Out payment paid.

Or you just use the convenient Cap Geek Buy-Out calculator .



Thanks, forgot to consider all the cap massaging loophole blocking...

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07-08-2013, 06:35 PM
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Quote:
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Correct. There are two types of buy-outs, Compliance and Ordinary.

The former is limited to two per team, and can be used this season or next. There is no cap hit to the team for the buy-out payment to the player, but the money does count against the players' share of HRR (50%).

Teams can still buy out contracts similarly to the terms under the last CBA during two periods in the off-season, however those amounts are applied to their cap hit (2/3rd remaining value over 2x the remaining term).
It's a real head scratcher to me that the players association proposed compliance buy-outs and then agreed to have them come out of the players share of HRR. This means that every penny of them comes off of the salary cap.

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07-08-2013, 06:48 PM
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Quote:
Originally Posted by TaketheCannoli View Post
It's a real head scratcher to me that the players association proposed compliance buy-outs and then agreed to have them come out of the players share of HRR. This means that every penny of them comes off of the salary cap.

Yes, that one was very surprising to me as well. They have the Make Whole provision that's supposed to make up for some of the 'loss' they'd take due to the reduction on the share of HRR, but I would have thought that a buy-out not counting against the cap also wouldn't count against their share.

Edit: May be they're much more confident of the projected HRR, so with an artificially low cap, they'll collectively reap a much larger amount than the capped level would allow. Maybe?

Good to see you're still around, btw.

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07-08-2013, 07:27 PM
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Misprint on Grabovski - 14 not 24 mil... tripped me out!

But otherwise... these are mindboggling numbers to me. This is money owners have to basically light fire to, watch burn up and vanish into thin air... amazing. sick money.

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07-08-2013, 07:41 PM
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Misprint on Grabovski - 14 not 24 mil... tripped me out!

But otherwise... these are mindboggling numbers to me. This is money owners have to basically light fire to, watch burn up and vanish into thin air... amazing. sick money.

Thanks, DL. You're not around here as much since the lockout ended.

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07-12-2013, 02:42 AM
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It's a real head scratcher to me that the players association proposed compliance buy-outs and then agreed to have them come out of the players share of HRR. This means that every penny of them comes off of the salary cap.
Well it is going into players' pockets, so why not come out of the players' share?

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07-12-2013, 11:23 AM
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Well it is going into players' pockets, so why not come out of the players' share?
Players are still getting the money, but it weights the balance towards the 'star' players who have the big money deals that end up being a burden. They get the money from their big contracts, plus they probably are going to get another contract at a smaller, but still pretty comfortable value. They get paid twice, and that drives down the percentage of the player share available for the average and lower end guys who make up the bulk of the NHLPA.

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07-12-2013, 12:31 PM
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Fugu
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Damn. I could have had added $77 MM to the amount for Kovalchuk if this retirement option didn't exist.

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07-12-2013, 05:23 PM
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Originally Posted by DL44 View Post
Misprint on Grabovski - 14 not 24 mil... tripped me out!

But otherwise... these are mindboggling numbers to me. This is money owners have to basically light fire to, watch burn up and vanish into thin air... amazing. sick money.
Thing is, the owners collectively pay the same amount no matter what. That's why there is escrow. In the long run the owners pay out 50% of HRR every year no matter what. The compliance buyouts mean they pay the other players less money so it all evens out.

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07-12-2013, 05:48 PM
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Originally Posted by NeutralZone View Post
Thing is, the owners collectively pay the same amount no matter what. That's why there is escrow. In the long run the owners pay out 50% of HRR every year no matter what. The compliance buyouts mean they pay the other players less money so it all evens out.
And the teams that signed those dubious deals and chose to use their Compliance Buy-Outs on them are the ones actually paying those amounts - every other team is reaping benefits through increased escrow.

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