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Another thought on dodging the cap..

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Old
01-04-2010, 04:18 PM
  #1
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Another thought on dodging the cap..

Right now, there's teams doing those front loaded contracts going into the players' 40s..

But another strategy a GM could make without even front loading a contract, is paying the player a level amount throughout the contract.

Let's say you expect a 28 yr old player to play till 38.

Instead of a 10 year contract @ 7 mil a year, do a 12 year contract @ 6 million a year (ends up being a little more total, but you need to account for the time value of money so it'd be fair), and in the final 2 years send him down to the AHL and don't play him. That way you save a million in cap space, and the player still gets paid what he wants, and you don't take the cap hit for the last 2 years.

Just another thought on gaming the system, and doing it this way probably wouldn't attract as much scrutiny until he actually gets sent down 10 years down the line (and by then it'll be too late to punish the team for it)

Yeah.. it's stupid that there's these big gaping loopholes in the cap system.. but this is what happens when the NHL sends an idiot in to do the negotiations / contract writing.

Hell, I could've come up with the front loaded contract loophole if I spent a day or two thinking over the terms of the CBA contract and the cap and I don't even have an MBA yet. In fact, I just came up with the above way to exploit it in about 15 minutes. Part of me thinks that loophole might be intentional. Yeah, doing these kinds of moves might draw ire, but if it's within the rules.. you can't get punished for it. There's no rule saying you can't sign a contract in bad faith that's deliberately meant to circumvent the cap.

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01-04-2010, 04:25 PM
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1. why would the player wan't to play in the AHL the last 2 years?

2. why would he want to play at all the last 2 years of the contract?
the point of these contracts is that they will probably retire before they are out. The player gets his money up front, team saves on cap, everyone is happy.

This way the player is getting boned. Suppose in the last 2 years of your hypo contract instead of making league minimum its for like 3-4 million. That's not a lot of money to be giving up, yet to collect on that the player would have to play in the minors, not something that is necessarily desirable to this supposedly "big name" player.

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01-04-2010, 04:40 PM
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The teams are structuring the contracts the way they currently are so they can buy them out in the final years. Look at Zhetterberg. If they bought him out in 2019, with two years at $900k-ish left on each year, they will only pay $333,333 each of the 4 buyout years. Two years are bad cap hits, two years are $333k cap hits.

We like to think in terms of cap hits, but owners think in terms of dollars. But figure they found a way to keep the cap hit down for over 10 years, but they bite the bullet for two. And this luxury only cost them pennies in the buyout instead of paying say Drury $3 or $4m to not play.

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01-04-2010, 04:58 PM
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rich, just because he's on the AHL's team roster doesn't mean he's actually playing.

They have an up front agreement that 10 years from now, he'll be sent down to the AHL and be a healthy scratch every game. Effectively retirement, but he gets paid, and the team dodges part of the cap hit.

It's not costing the team more, since it's the same salary over a longer time, and it's not making the player lose anything, because he'll collect his last 2 paychecks for doing nothing. But the team benefits from freeing up cap space "illegitimately"

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01-04-2010, 05:24 PM
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I'm fairly certain that these types of loopholes will be closed upon ratification of the next collective bargaining agreement.

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01-04-2010, 09:32 PM
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Without getting into the economics of it too much, front loading a contract actually allows a GM to receive a lower cap hit than paying evenly throughout. The thing that matters (or at least should matter) to a player is the present value of the contract, which front loading increases. A dollar received today is more valuable than a dollar received a year from today, and is much more valuable than a dollar received 7 years from now. The reason teams are willing to front load contracts (and thus pay more in present value terms) is to receive the lower cap hit, which is not based on present value, but simply on the number of dollars. The exchange for paying out a higher present value is that theoretically they are receiving a below market value cap hit, which is obviously debatable regarding some of Sather's signings. That's why those insanely long contracts for Hossa and Pronger are massively front loaded and they are earning nothing at the end of the contract (relatively). The step down rules required for decreasing salary from year to year are intended to counteract this type of circumvention, although obviously don't work well, especially when contracts are being signed for 12 years.

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01-04-2010, 10:35 PM
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Quote:
Originally Posted by f2d View Post
.

Yeah.. it's stupid that there's these big gaping loopholes in the cap system.. but this is what happens when the NHL sends an idiot in to do the negotiations / contract writing.

Hell, I could've come up with the front loaded contract loophole if I spent a day or two thinking over the terms of the CBA contract and the cap and I don't even have an MBA yet. In fact, I just came up with the above way to exploit it in about 15 minutes. Part of me thinks that loophole might be intentional. Yeah, doing these kinds of moves might draw ire, but if it's within the rules.. you can't get punished for it. There's no rule saying you can't sign a contract in bad faith that's deliberately meant to circumvent the cap.
Just so I've got this straight... You really believe that you, in 15 minutes, came up with a way to circumvent a massive legal document that not ONE of the pro teams with multi-million dollar budgets who hire some of the best, brightest attorneys available in the entire business haven't found a way to figure out? And you really think your idea is better than what all those guys who do that for a living have decided is the best way. Good luck with that. You certainly don't lack confidence.

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01-04-2010, 10:48 PM
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Originally Posted by SML View Post
Just so I've got this straight... You really believe that you, in 15 minutes, came up with a way to circumvent a massive legal document that not ONE of the pro teams with multi-million dollar budgets who hire some of the best, brightest attorneys available in the entire business haven't found a way to figure out? And you really think your idea is better than what all those guys who do that for a living have decided is the best way. Good luck with that. You certainly don't lack confidence.
He's really the chief legal advisor to the NHL, trying to mess with our minds.

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01-05-2010, 09:13 AM
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Originally Posted by Brooklyn Ranger View Post
He's really the chief legal advisor to the NHL, trying to mess with our minds.
Why am I paying for law school? I should just pay this guy to teach me all he knows.

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01-05-2010, 09:30 AM
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Quote:
Originally Posted by SML View Post
Just so I've got this straight... You really believe that you, in 15 minutes, came up with a way to circumvent a massive legal document that not ONE of the pro teams with multi-million dollar budgets who hire some of the best, brightest attorneys available in the entire business haven't found a way to figure out? And you really think your idea is better than what all those guys who do that for a living have decided is the best way. Good luck with that. You certainly don't lack confidence.
The current front loading cheat is better. But if they set a rule saying you can't do huge salary drops, then extra years that they don't actually play would work.

Obviously the best, brightest attorneys didn't do too good of a job writing the CBA to begin with when they left the massive loophole in it (unless it was intentional)

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01-05-2010, 09:45 AM
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Quote:
Originally Posted by f2d View Post
The current front loading cheat is better. But if they set a rule saying you can't do huge salary drops, then extra years that they don't actually play would work.

Obviously the best, brightest attorneys didn't do too good of a job writing the CBA to begin with when they left the massive loophole in it (unless it was intentional)
I was under the impression that a player's salary couldn't drop by more than 50% from the prior year in a multi-year contract. I just tried finding it in the CBA and couldn't. Can anyone verify this either way? I could have sworn that this was the case; and I even remember seeing it in that massive document, but couldn't find it just now.

Might have found it, it's clause 50.7:
Quote:
"100 Percent Rule" for Multi-Year SPCs. The difference between the stated
Player Salary and Bonuses in the first two League Years of an SPC cannot exceed the
amount of the lower of the two League Years. Thereafter, in all subsequent League
Years of the SPC, (i) any increase in Player Salary and Bonuses from one League Year to
another may not exceed the amount of the lower of the first two League Years of the SPC
(or, if such amounts are the same, that same amount); and (ii) any decrease in Player
Salary and Bonuses from one League Year to another may not exceed 50 percent of the
Player Salary and Bonuses of the lower of the first two League Years of the SPC (or, if
such amounts are the same, 50 percent of that same amount)."


Quote:
Illustration #6: An SPC provides for $1.9 million in Player Salary
in Year 1, and $1.9 million in Year 2. In Year 3, the SPC may not
provide for less than $950,000.


Last edited by BrandNewDream: 01-05-2010 at 09:55 AM. Reason: Found it?
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01-05-2010, 09:58 AM
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There is a rule, it doesn't allow the salary to drop by more than 50% of the previous year IIRC. If they want to stop this type of circumvention, they could change that to 33% or 25%. Then it would take a much longer contract to drop the average, and the buyout level would still have some bite to it at the ending years.

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01-05-2010, 10:06 AM
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Originally Posted by SML View Post
There is a rule, it doesn't allow the salary to drop by more than 50% of the previous year IIRC. If they want to stop this type of circumvention, they could change that to 33% or 25%. Then it would take a much longer contract to drop the average, and the buyout level would still have some bite to it at the ending years.
But that's what I don't understand. Marian Hossa's contract goes like this:

$7.9 until 15/16

16/17: $4m
17/18: $1m
18/19: $1m
19/20: $750k
20/21: $750k

My question is, in the face of the rule above, how? Am I not reading something correctly?

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01-05-2010, 11:01 AM
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There's a loophole
it's 50% OF THE AMOUNT OF THE FIRST 2 LEAGUE YEARS.

AKA:

If the first 2 years are 8 million, the amount you can decrease it by is 4 million.

So that's why it steps from 8 million to 4 million to 1 million.



Who knows what the actual intention was, but the wording states that it's the $ amount of the first 2 years that matters, not the actual % increase/decrease year over year.

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01-05-2010, 11:05 AM
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This also means if a player starts at $1 million for the first 2 years, the most their contract can ever increase in the later years is 500K a year.

That's easily circumvented though.

Sign them for 1 million for 2 years, then have them sign an extension at the same time for say 4 million for 3 years (though the cap hits would be different then a single contract).

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01-05-2010, 11:10 AM
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Originally Posted by f2d View Post
This also means if a player starts at $1 million for the first 2 years, the most their contract can ever increase in the later years is 500K a year.

That's easily circumvented though.

Sign them for 1 million for 2 years, then have them sign an extension at the same time for say 4 million for 3 years (though the cap hits would be different then a single contract).
This wouldn't work, because after a contract is signed there are provisions that govern when a contract can be extended.

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01-05-2010, 11:19 AM
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Originally Posted by BrandNewDream View Post
But that's what I don't understand. Marian Hossa's contract goes like this:

$7.9 until 15/16

16/17: $4m
17/18: $1m
18/19: $1m
19/20: $750k
20/21: $750k

My question is, in the face of the rule above, how? Am I not reading something correctly?
No I see it too. I really don't know why, unless there's an age related clause because he'll be like 38 then. You got me stumped pal. Actually, IIRC wasn't that particular contract the point of some sort of controversy when it was signed? It may be an issue that has been resolved but the contract website hasn't updated.

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01-05-2010, 11:21 AM
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Originally Posted by SML View Post
No I see it too. I really don't know why, unless there's an age related clause because he'll be like 38 then. You got me stumped pal.
It's legit. Read my above post.

It's based off the $ amount in the first 2 years, not the % change year over year.

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01-05-2010, 11:30 AM
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Originally Posted by f2d View Post
It's legit. Read my above post.

It's based off the $ amount in the first 2 years, not the % change year over year.
Well there you go. I should have known you would have it all figured out already. Good job.

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01-05-2010, 11:35 AM
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Even if it was 50% a year that's still dumb. it'd just go 4-2-1-.525-.525 or something (I think 525K Is the minimum). Still a massive cap hit savings.

It should've been 50% over the life of the contract...

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01-05-2010, 11:43 AM
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Quote:
Originally Posted by SML View Post
Just so I've got this straight... You really believe that you, in 15 minutes, came up with a way to circumvent a massive legal document that not ONE of the pro teams with multi-million dollar budgets who hire some of the best, brightest attorneys available in the entire business haven't found a way to figure out? And you really think your idea is better than what all those guys who do that for a living have decided is the best way. Good luck with that. You certainly don't lack confidence.
Yeah, he just waited 4+ years to let the cat out of the bag.


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