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The structuring of player contracts

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Old
09-17-2013, 12:18 PM
  #1
Riptide
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The structuring of player contracts

First I want to say this. This is a discussion about how and why certain contracts are structured the way they are. I don't care about how bad/good a contract is overall (value), if the player is worth it, or any of that nonsense. There's other places to discuss it.

Now I was reading Siegel's TSN article on the Clarkson signing, and before I made it to the 3rd paragraph, I had pulled up Clarkson's contract in Capgeek (I still haven't made it past the 3rd paragraph).

Usually when one looks at a contract they usually make some sort of sense. Yes its' very varied from team to team, and player to player depending on each situation and the team in question. But they still usually make sense, or at least allow someone to make some deductions regarding things.

There's basically 3 different types of contracts in regards to how they're structured. When each year is the same and salary matches the caphit, when it goes low to high, and when it goes high to low. The 4th kind would be some of the ones in the old CBA that start low, peak in the middle, and end low - such as Kovy, Carter, Richards. But with the 7/8 year limit, I don't think we'll see many of these anymore.

And each in their own turn usually make sense. Reimers contract went high to low. One could argue that it protected the Leafs against him falling off his early success, and if they decided to buy him out down the road, he'd already been paid the majority of the contract, thus lessening the buyout. Same goes for someone like Ehrhoff and Lecavalier.

Other contracts like Hodgsons (6/25.5m) and Seguins (6/34.5m) run low to high. We frequently see this with younger players, where the team is banking on the player improving and in the latter years living up to (or exceeding) the contract (JVR is a classic example).

Then there's GMs that hand out straight value (contract = cap hit). Unlike the other two, these are either good or bad contracts based on how the player is performing (as all contracts), but there's no advantage based on how they're structured unless the player performs or over performs. For those reasons I'll ignore these.

On a contract that increases in salary, there's both pros & cons to it. If the player plays to the value of the contract, then it's a great contract. This allows for the team to have a lower cap hit, and hopefully only pay the player based on what they think/hope his performance will be, as the player develops over the years. It also allows the team to potentially move the player early (and hopefully before they've paid out a lot) if someone else thinks they can get the player to live up to the contract. And it helps budget teams, as while we think cap hit, teams also have to think salary/costs.

On a contract that decreases in salary, again there's pro's and cons depending on the player and the team. But these generally make a lot of sense to older established players. Player gets paid, team is protected against the player falling off their game in the latter years, with a reduced buyout cost, or higher cap hit, but lower salary (which could be appealing to budget teams). It also gives the team more flexibility down the road.

But both of those one can look at, and go that makes sense for that team/player. Both have appeal depending on the team, situation, and future flexibility regarding buying the player out, trading the player, or the player retiring after receiving the bulk of the contract.

However then there's Clarkson's contract. Which falls into neither category. Starts low at 4.5m, goes to 7m, then ends at 3.25m*. However there's signing bonuses every damn year. This doesn't protect the Leafs anywhere unless he over performs for the duration of the entire contract. I would have expected to see it starting high, and ending low. And with most of the bonus money paid out up front. Toronto now cannot trade this contract without retaining salary, or unless Clarkson over performs or lives up to the value. Does one really think a 29 yr old will peak in yr 4 & 5 when he's paid the highest?

I mean I see why Clarkson wanted it... he gets a Christmas present every July. But as to why Toronto (or anyone else) would agree to that I'm at a complete loss. I regard Nonis as a competent GM... but this doesn't make a lot of sense.

SeasonSalaryS.BonusTotal $ PaidCap Hit
2013-141m3.5m4.5m5.25m
2014-151m3.75m4.75m5.25m
2015-161m4.5m5.5m5.25m
2016-172m5m7m5.25m
2017-182m5m7m5.25m
2018-191m3.75m4.75m5.25m
2019-201m2.25m3.25m5.25m

Thoughts regarding this contract or other contracts.



* Doesn't the variance in the CBA mean all contracts lowest year can only be 50% of the highest?

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Last edited by Riptide: 09-17-2013 at 12:42 PM.
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Old
09-17-2013, 01:11 PM
  #2
kdb209
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Quote:
Originally Posted by Riptide View Post
* Doesn't the variance in the CBA mean all contracts lowest year can only be 50% of the highest?
Only for contracts deemed to be ""Front-Loaded SPCs" - if the Averaged Amount of the first half of the contract is greater than the Averaged Amount of the entire deal. If addition to the 50% of highest year floor, there is also a year-to-year limit of +/- 35% of the Year 1 Salary/Bonuses.

The funky structure of Clarkson's SPC allows it to be considered a non-Front Loaded SPC - the Averaged Amount over the first 3.5 years is $5.21M, less than the $5.25M total average. This permits the final year of $3.25M to be less than 50% of the highest ($7M).

Quote:
Originally Posted by CBA Article 50.7
50.7 Variability Rules for Multi-Year SPCs.

(a) For all "Front-Loaded SPCs" (as defined below), the difference between the stated
Player Salary and Bonuses in any immediately adjacent League Years of that SPC cannot exceed
thirty-five (35) percent of the stated Player Salary and Bonuses of the first League Year of such
Front-Loaded SPC. Additionally, under no circumstances may the stated Player Salary and
Bonuses in any League Year of a Front-Loaded SPC be less than fifty (50) percent of the highest
stated Player Salary and Bonuses in a League Year of that same Front-Loaded SPC.
(i) To determine whether an SPC is a Front-Loaded SPC:
(A) Take the total number of League Years in the SPC and divide by
two (2) ("First-Half Term");

(B) Add the amounts of all stated Player Salary and Bonuses in the
First-Half Term. If the SPC has an odd number of League Years,
allocate to the first half of the SPC one-half of the stated Player
Salary and Bonuses paid to the Player in the middle League Year
of such SPC (e.g., the fourth year of a seven-year SPC) ("First-
Half Stated Player Salary and Bonuses");

(C) Divide the First-Half Stated Player Salary and Bonuses by the
First-Half Term. The resulting amount shall be the "First-Half
Averaged Amount";

(D) Calculate the Averaged Amount of the SPC in a manner consistent
with Section 50.5(d)(ii);

(E) If the First-Half Averaged Amount is greater than the Averaged
Amount for the entire term of the SPC, such SPC is a "Front-
Loaded SPC" and must comply with Section 50.7(a). Any SPC
other than a Front-Loaded SPC must comply with Section 50.7(b)
rather than Section 50.7(a).
These restrictions replace the old "100 Percent Rule" for Front Loaded SPCs. For non-Frontl Loaded SPCs, the restrictions of the old CBA still apply.


Last edited by kdb209: 09-17-2013 at 01:18 PM.
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09-17-2013, 01:32 PM
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Does anyone know if signing bonuses have the same escrow withholding as typical in-season paychecks?

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Old
09-17-2013, 01:51 PM
  #4
Riptide
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Quote:
Originally Posted by frozenrubber View Post
Does anyone know if signing bonuses have the same escrow withholding as typical in-season paychecks?
I don't see how they couldn't... otherwise it would really be the top end players robing the rest of the membership.

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09-17-2013, 01:57 PM
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Quote:
Originally Posted by frozenrubber View Post
Does anyone know if signing bonuses have the same escrow withholding as typical in-season paychecks?
By strict reading of the CBA, Escrow is not withheld from Signing Bonuses paid before the start of the regular season. The first quarter escrow rate is not set until the start of the Regular Season.

Quote:
Originally Posted by CBAA Article 50.4(d)(i)
(i) Each Club shall withhold from each Player who is party to an SPC with
that Club (and current Players who retire or otherwise cease playing in the
NHL to the extent such Players continue to be paid under an SPC with that
Club, including, without limitation, Players who were party to SPCs that
have been bought out) an amount of each payment of the Player's Player
Salary and Bonuses for that League Year. The amount of each payment to
be so withheld shall be calculated by multiplying the portion of each
Player's Player Salary and Bonuses to be paid during a pay period by the
applicable Escrow Percentage that is then in effect during that pay period.


...

(iv) Except as explicitly set forth below, for each League Year, the Escrow
Percentage shall be calculated upon the commencement of the NHL
Regular Season, and shall be subject to adjustment three (3) times during
the course of the NHL Regular Season, at the end of the first-quarter,
second-quarter, and third-quarter of the NHL Regular Season. Subject to
Sections 50.4(d)(iii), and 50.4(d)(iv)(D), and unless the parties mutually
agree to take into account additional relevant factors, the Escrow
Percentage shall be calculated as follows:
(A) Upon the commencement of the NHL Regular Season, the "first
quarter" escrow withholding (i.e., for the period between the
commencement of the NHL Regular Season through the end of the
first quarter of the NHL Regular Season
)
shall be calculated. The
total aggregated amount of all NHL Clubs' Actual Club Salaries at
the commencement of the NHL Regular Season shall be compared
to the aggregated Adjusted Midpoint of the Team Payroll Range,
as calculated in accordance with Section 50.5(b) below.

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Old
09-17-2013, 02:03 PM
  #6
frozenrubber
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Quote:
Originally Posted by kdb209 View Post
By strict reading of the CBA, Escrow is not withheld from Signing Bonuses paid before the start of the regular season. The first quarter escrow rate is not set until the start of the Regular Season.
That's what I was wondering as the rate isn't even set at the time of check distribution. The only other thing I could imagine is the signing bonus has the % withholding of the previous season.

Outside of giving you some protection against a lockout (where the term of Clarkson's contract does not apply), the escrow exposure factor might be a reason why Clarkson's contract is constructed the way it is.

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09-17-2013, 02:05 PM
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Riptide
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Quote:
Originally Posted by kdb209 View Post
Only for contracts deemed to be ""Front-Loaded SPCs" - if the Averaged Amount of the first half of the contract is greater than the Averaged Amount of the entire deal. If addition to the 50% of highest year floor, there is also a year-to-year limit of +/- 35% of the Year 1 Salary/Bonuses.

The funky structure of Clarkson's SPC allows it to be considered a non-Front Loaded SPC - the Averaged Amount over the first 3.5 years is $5.21M, less than the $5.25M total average. This permits the final year of $3.25M to be less than 50% of the highest ($7M).

These restrictions replace the old "100 Percent Rule" for Front Loaded SPCs. For non-Frontl Loaded SPCs, the restrictions of the old CBA still apply.
Okay, but that still doesn't really explain why it was structured as such. They could (I believe) have gone 7m, 7m, 7m, 5m,3.75m, 3.5m, 3.5m (36.75m/7=5.25m cap hit), or some variance of that which while steep up front, protected them over the latter years.

Other than not paying a lot up front, and allowing a lower year 7, what advantage was it to anyone for it to be structured as such? I'm just not seeing it.

Edit. Interesting on the escrow. So did all those players who just signed big deals that's heavily laden with bonuses (Parise, Weber, Suter, Clarkson, Ehrhoff, Richards), all just screwed the rest of the NHLPA membership, by offloading the escrow payments off of them, and onto the rest?

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