Friday, August 27, 2010

NHL Contract Landscape: Analysing 58 Long Term NHL Player Contracts

We have conducted an in-depth review of the terms of all NHL player contracts that are 6 years or longer in length. That’s 58 contracts in all.

We looked at the age of the player at the start of the contract, the total dollar value of the contract, the duration of the contract, the yearly cap hit, the player’s age at the end of the contract and the number of throwaway years.

Why you ask?

The goal was to better understand the NHL contract landscape and just how many contracts are bad contracts. By bad contracts, we mean contracts that are designed to artificially push down the yearly cap hit (thereby constituting a circumvention of the CBA).

Reviewing these 58 contracts helped us better understand how common it is for contracts to cross the line, whether good contracts are in fact the norm and whether bad contracts are unique enough that they put other teams at a competitive disadvantage.

Our findings, to say the least, we’re pretty interesting.

Table Summary of 58 Contracts

Here’s a table summary of the results of our investigation:

Review of NHL Contracts Lasting 6 Years or More

Name

Age at Start of Contract

Contract Amt

Years

Cap Hit

Throwaway Yrs

Age at end of Ct

Marian Hossa

30

$62.5 million

12

$5 million

4

42

Marc Savard

33

$28.5 million

7

$4.007 million

3

40

Johan Franzen

29

$43.5 million

11

$3.955 million

3

40

Roberto Luongo

31

$64 million

12

$5.333 million

3

43

Henrik Zetterberg

28

$73 million

12

$6.083 million

3

40

Daniel Briere

29

$52 million

8

$6.5 million

2

37

Chris Pronger

35

$34.45 million

7

$4.921 million

2

42

Vincent Lecavalier

29

$85 million

11

$7.727 million

2

40

Mattias Ohlund

32

$25.25 million

7

$3.607 million

2

39

Duncan Keith

26

$70.51 million

12

$5.551 million

0

38

Thomas Vanek

23

$50 million

7

$7.143 million

0

30

Derek Roy

24

$24 million

6

$4 million

0

30

Eric Staal

24

$57.75 million

7

$8.25 million

0

31

Cam Ward

26

$37.8 million

6

$6.3 million

0

32

Rene Bourque

28

$20 million

6

$3.333 million

0

34

Brian Campbell

28

$57.12 million

8

$7.14 million

0

36

Rick Nash

26

$62.4 million

8

$7.8 million

0

34

Loui Eriksson

24

$25.6 million

6

$4.267 million

0

30

Pavel Datsyuk

28

$46.9 million

7

$6.7 million

0

35

Shawn Horcoff

30

$33 million

6

$5.5 million

0

36

Ales Hemsky

22

$24.6 million

6

$4.1 million

0

28

Tom Gilbert

25

$24 million

6

$4 million

0

31

Ryan Whitney

24

$24 million

6

$4 million

0

30

David Booth

24

$25.5 million

6

$4.25 million

0

30

Rostislav Olesz

22

$18.75 million

6

$3.125 million

0

28

Stephen Weiss

24

$18.6 million

6

$3.1 million

0

30

Anze Kopitar

21

$47.6 million

7

$6.8 million

0

28

Dustin Brown

23

$19.05 million

6

$3.175 million

0

29

Martin Havlat

28

$30 million

6

$5 million

0

34

Mikko Koivu (extension starting 2011)

28

$47.25 million

7

$6.75 million

0

35

Nick Schultz

25

$21 million

6

$3.5 million

0

31

Scott Gomez

27

$51.5 million

7

$7.357 million

0

34

Tomas Plekanec

27

$30 million

6

$5 million

0

33

Martin Erat

26

$31.5 million

7

$4.5 million

0

33

David Legwand

27

$27 million

6

$4.5 million

0

33

Patrik Elias

30

$42 million

7

$6 million

0

37

Danius Zubrus

29

$20.4 million

6

$3.4 million

0

35

Anton Volchenkov

28

$25.5 million

6

$4.25 million

0

34

Colin White

28

$18 million

6

$3 million

0

34

Martin Brodeur

34

$31.2 million

6

$5.2 million

0

40

Rick Dipietro

24

$67.5 million

15

$4.5 million

0

39

Wade Redden

31

$39 million

6

$6.5 million

0

37

Henrik Lundqvist

26

$41.25 million

6

$6.875 million

0

32

Jason Spezza

25

$49 million

7

$7 million

0

32

Mike Richards

23

$69 million

12

$5.75 million

0

35

Scott Hartnell

25

$25.2 million

6

$4.2 million

0

31

Kimmo Timonen

32

$38 million

6

$6.333 million

0

38

Brooks Orpik

27

$22.5 million

6

$3.75 million

0

33

Marc-Andre Fleury

23

$35 million

7

$5 million

0

30

Dany Heatley

27

$45 million

6

$7.5 million

0

33

Dan Boyle

31

$40 million

6

$6.667 million

0

37

Ryan Malone

28

$31.5 million

7

$4.5 million

0

35

Dion Phaneuf

23

$39 million

6

$6.5 million

0

29

Ryan Kesler

25

$30 million

6

$5 million

0

31

Dan Hamhuis

27

$27 million

6

$4.5 million

0

33

Keith Ballard

26

$25.2 million

6

$4.2 million

0

32

Alexander Ovechkin

22

$124 million

13

$9.538 million

0

35

Nicklas Backstrom

22

$67 million

10

$6.7 million

0

32

Standard of Review

When assessing contracts, we focused Richard Bloch's Kovalchuk decision, which in my view, clearly sets out the standard for an NHL contract.

Specifically, as per Bloch's landmark decision, the NHL will look at each contract individually and analyse their different components to asses whether the aggregate effect of these various factors equals a circumvention. No single factor will be determinative of a circumvention; rather it is the combined effect of the various factors in a contract that must be considered as a whole to determine whether a contract is a good one.

As I previously reported on this blog, in the case of Kovalchuk, the arbitrator found that his age at the end of the contract (44) together with the dramatic diveback after 11 years, the significant frontloading of the contract, the relatively minimal payout in the last 6 years and the transition from a "No Move" to a "No Trade" had the combined effect of supporting a finding of circumvention.

Since we can’t review the 58 contracts, we don’t know whether the contracts have material transitions from a No Move to a No Trade. However, as per Bloch's decision, this was only one factor supporting a finding circumvention. Bloch would have made the same finding even if the Kovlachuk contract didn’t have this transition clause.

Findings

Of the 58 contracts that were signed for 6 plus years, only 9 included throwaway years - or about 15%. It is no wonder that both leafs GM Brian Burke and Caps owner Ted Leonis complained that the Kovalchuk contract upset the competitive balance and didn’t create an even playing field (please see Burke, Leonsis Not Fans of Kovalchuk Contract).

In keeping with our standard of review, the following contracts are potentially problematic as they have throwaway years: Marian Hossa, Chris Pronger, Marc Savard, Henrik Zetterberg, Daniel Briere, Vincent Lecavalier, Roberto Luongo, Mattias Ohlund and Johan Franzen.

Of course, the Savard and Luongo contracts are under investigation.

The contract of Duncan Keith was close, but just fell short of being problematic. Close though. In the case of Ohlund, it was also a close call. The tipping point was the drop from $5 million to $2 million in just two years, which was too significant to ignore.

Some of the divebacks are quite dramatic, particularly in the cases of Hossa, Pronger and Savard. The yearly breakdown of these 10 contracts is as follows:

(a) Marian Hossa: $7.9, 7.9, 7.9, 7.9, 7.9, 7.9, 7.9, 4.0, 1.0, 1.0, 0.75, 0.75

(b) Chris Pronger: $7.6, 7.6, 7.2, 7.0, 4.0, 0.525, 0.525

(c) Marc Savard: $7.0, 7.0, 6.5, 5, 1.5, 0.525, 0.525

(d) Henrik Zetterberg: $7.4, 7.75, 7.75, 7.75, 7.5, 7.5, 7.5, 7.5, 7.0, 3.35, 1.0, 1.0

(e) Daniel Briere: $10.0, 8.0, 8.0, 7.0, 7.0, 7.0, 3.0, 2.0

(f) Vincent Lecavalier: $10.0, 10.0, 10.0, 10.0, 10.0, 10.0, 10.0, 8.5, 4.0, 1.5, 1.0

(g) Roberto Luongo:$10.0, 6.716, 6.714, 6.714, 6.714, 6.714, 6.714, 6.714, 3.382, 1.618, 1.0, 1.0

(h) Johan Franzen: $5.5, 5.0, 5.25, 5.25, 5.0, 5.0, 5.0, 3.5, 2.0, 1.0, 1.0

(i) Mattias Ohlund: $4.0, 4.0, 5.5, 5.0, 3.75, 2.0, 1.0

(j) Duncan Keith: $8.0, 8.0, 8.0, 7.66, 7.6, 7.5, 6.0, 5.0, 4.5, 3.5, 2.65, 2.1

Also interesting is that teams havelooked to reduce the cap hit by giving non-star players longer term deals. Tom Gilbert got a 6 year/$24 million deal, while Nick Schultz got 6 years at $21 million. The list goes on: Scott Hartnell, Brooks Orpik, Keith Ballard, Ryan Malone, Rene Bourque Danius Zubrus. Before the cap was in place, long term deals for these types of players was not only unusual but non-existent.

Given the length of these contracts, many teams will come to regret the signings. Expect the contractual landscape to change over the next 10 years as teams make adjustments. Which brings me to Rick Dipietro.

Dipietro Contract

The Rick Dipietro deal has not been included as a bad contract. It’s a 15 year deal that pays the Isles goalie $4.5 million every year of the deal. It has no dramatic diveback and was signed when Dipietro was 24 years old. While it’s a long deal, and a bad one at that, it wasn’t a case of circumvention since it didn’t look to artificially push the cap hit down.

Ovechkin & Competitive Balance

There are of course good deals. One is the 13 year/$124 million deal signed by Alex Ovechkin. The cap hit on the deal is $9.5 million, and the winger makes more in the last 7 years of the contract ($10.5 million/year) than in the first 6 ($9 million/year). Getting back to competitive balance, ask yourself this - is it fair that the Capitals have a yearly cap hit of $9.5 million over the 13 years of the Overchkin contract, while the Devils’ cap hit is just $6 million? Of course not.

If you have any comments or questions, use the Comments Section. We would love to hear from you.


17 comments:

Aaron Gordon said...

Great post. How much of this is the responsibility of poor collective bargaining by the player's association and the owners during the previous negotiations? Isn't it their responsibility to assure there are no significant loopholes? It didn't take a genius to see that averaging the cap hit over the length of a contract was a poor idea. Anyone who had the slightest knowledge of how the NFL cap system works would have known to remedy that instantly.

Eric Macramalla said...

Very good point Aaron. Agreed - with no cap on max years for a contract together with the cap hit being the average made the Kovy situation entirely predictable. Perhaps the cap hit could be the average of the top five years of a contract. We will have more on the cap hit issue once we are done analysing the various CBAs. Appreciate your comments Aaron.

Aaron Gordon said...

I don't know how familiar you are with the NFL's structure, but it is a much more effective method than what the NHL has produced. The non-guaranteed aspect of NFL contracts leaves most of the emphasis on signing bonuses and other forms of guaranteed money, like incentives-likely-to-be-earned (ILTBE) which get averaged throughout the length of the contract. Annual salaries, on the other hand, are counted as such against the cap.

Eric Macramalla said...

It is hard to compare the NFL and NHL cap structures because of the reason you mention, one league has guaranteed contracts and the other doesn't. Since NFL salaries are not guaranteed they can't have the cap hit be the average salary over the length of the contract because at any time the player could be cut. So you could have a player with an high cap hit because his contract is back-end loaded but the team has absolutely no intention of keeping the player for the pricier part of his deal. This is why for the NFL, guaranteed payments are averaged out over the life of the contract for the cap but the non-guaranteed salary is counted on a year by year basis. Since the NHL has guaranteed salaries, the player will be paid no matter what, so averaging the salary for cap purposes allows teams to spread the cap burden of a player over the length of his deal.

Aaron Gordon said...

Which leads exactly into my point. Even a middle school student could understand that by placing the cap hit on the average salary, teams could simply increase the number of years with a very low salary neither side has the intention of honoring to lower the cap hit. To some extent, I think the NHL did themselves such a disservice and was so negligent in the creation of this rule they should not have the right to nullify the existing contracts.

Anonymous said...

Hossa was 30 at the start of his contract, not 32. Thus it will end at age 42, not 44.

Eric Macramalla said...

Thanks, you were right. The chart is fixed.

Eric Macramalla said...

You are absolutely right that by deciding to calculate a player’s cap hit using his average salary the NHL and the NHLPA were seemingly blind to the fact that teams would come to the realization that they could artificially lower a player’s cap hit like the Devils did with Kovalchuk. However, you have to remember that the CBA is an agreement between both sides, the NHL and the NHLPA, which is the product of bargaining and negotiation. This cap system, from the point of view of the players and teams, has benefits, which is why they bargained for it.

This system encourages larger upfront payments to players because teams that are cash-rich but cap-poor can afford to pay a player $8 million in cash but don’t have the cap space to fit the player in at $8 million. So a longer deal that is averaged, allows the team to “buy” time and cap space. From a player’s perspective he would rather have $8 million early in his contract and a much smaller amount later, than $5 million every year of the deal because of the principle of time value of money. $8 million today is better than $5 million today and $3 million next year. The downside is that this can be taken to the extreme, like with Kovalchuk.

Aaron Gordon said...

Point taken. Also, I love anything that reminds me of Rick DiPietro's existence.

Daniel Gilbeau said...

Yes, as an Islanders' fan, I always want to be reminded of the DiPietro contract. To be honest, it is a good contract and decent to pay a top notch goalie only $4.5 million a year. Only problem is damn injuries which have made this contract look so bad. I still prefer this contract over the stupid Yashin contract the Islanders had.

Eric Macramalla said...

Thank your Aaron and Daniel. We appreciate your comments and interest.

Gerald said...

While I know that people love to slag the NLH when it comes to, well, just about anything, one must keep in mind that the NHL does not exist in a vacuum (the point of which I will get to in a second).

I applaud Eric for putting together this assembly of long term contracts which include both "cap dodge contracts" (a term Tyler Dellow and I were using in a discussion) and straightforward long term contracts.

What seems to be extremely clear to me now (formerly just a feeling) is that NHL players have become substantially more risk-averse in recent years. In any contract negotiation, there is a balancing of risks between the various parties. One of the key areas of risk allocation is contract length. For the player, it is a question of whether one wishes to secure longterm dollars at the cost of losing out on potential higher salaries (due to cap increases, or increased performance by the player, or simply a more favourable market).

Based on Eric's table, there seems to be a rush of many of the NHL's top players (for whom there is a sufficient demand to allow that player to make their own decision on the risk allocation, instead of having it imposed on them by the marketplace) to make their decision in favour of longterm security.

THe question is why that is.

My theory (and here we come back to my point about the NHL not being in a vacuum) is that they are making this decision because they have been affected by the dramatic economic global downturn. After the Great Depression, it is reasonably well documented that an entire generation became much more fiscally conservative, having had the suffering caused by the Great Depression seared into their consciousness. I believe that what is happening among elite NHLers is a small example of what will be happening to a lot of people over the long term. NHL hockey players and their agents have (rightly, IMO) become far more uncertain about the economic future. The necessary outcome of this is that elite players will no longer want (or, at least, will want less) to sign multiple contracts, since if Doomsday does come, having your contrsact come up during a period of deflation (or worse) will not be very pleasant.

THe point of this is that, much like the rest of the world, the NHL would not have seen an externality of this magnitude coming down the pike. In assessing the likelihood of players signing contracts of 8-12 years, this had not happened before (Gretxky 21-yr contract excluded). The NHL would have reasonably expected that players would time their contracts more like Crosby, with their next contract coming up while they were still in their mid-twenties, and then perhaps one more kick at the UFA can around age 30 or 31. That has traditiionally been the tactic used to maximize earnings. The fact that the 2007-09 asskicking that the global economy took, with all of us teetering on the cliff closer than anybody wants to admit any more, has made longterm contracts look pretty sweet. That was not predictable by any of the parties.

Eric Macramalla said...

Thanks for your interest Gerald. Your point about the economic downturn and players become more risk-adverse is interesting. Whether players are feeling pressure to lock themselves into long-term security, who knows. Even with the economic downturn of the last couple of years, the salary cap and maximum player salary have continually increased. A maximum player makes roughly $4 million a season more now than in the first year of the cap.
The money is still there to be had, which suggests that players aren't necessarily giving up dollars for years. Even lower tier players like Nick Schultz or Tom Gilbert are making around $4 million with long term deals. Top tier guys are still getting around $7-10 million on longer deals. So if a player can get near the max of what he could potentially make and for a longer term, its a win-win.

Another issue that could be the cause of younger players locking into longer term deals is that the age to qualify as an unrestricted free agent has become lower. Under the old CBA, a player had to be 31 to be an unrestricted free agent. Currently, a player that is 27 or has 7 years of service can become one. So you'll see from the chart that a bunch of these players with long term deals will be 31 or under when their contract expires. (Vanek, Staal, Kopitar, Dustin Brown).

What they have done is let their team "buy" up the years where they would be a restricted free agent or under team control for a premium and then they will hit the market during their prime and can take advantage of another big money deal.

Look at Anze Kopitar for a second. He signed a 7 year deal when he was 21 for an average of $6.8 million a season. Typically you would not see a 21 year old make that much that early, so by locking in with the Kings he's making good money. And, he'll hit the market at 28 and will probably be able to cash in with another big money deal. So for a certain type of player, a long term deal makes sense.

Matt said...

Eric,
How do you define a throw away year? Daniel Briere's contract will end when he is 37 and you have indicated that he has 2 throw away years, so are you suggesting that he is not reasonably expected to play beyond age 35?

The notion that the salary cap is circumvented because a player is paid more upfront than he is towards the end is patently false, UNLESS he does not play for the entire duration of the contract. For example, there is no difference between a player being paid $10M one year and $1M the next compared with being paid $5.5M one year and $5.5 the next. The difference to the team would be a (sort of) cap savings in the first year but then an equal cap penalty in the second.

It is reasonable to assume that a player's productivity will decline with age. Even Wayne Gretzky had his best years early so if one expects a player to earn relative to their performance, a long term deal would pay a player less in the later years than it would in the begining.

Eric Macramalla said...

Matt

Determining whether a year is a throwaway year is really a function of age, salary and how the salary changes over time.

You are right that a player's productivity declines over time and that player should expect to earn less as his productivity decreases. The problem is that in some of these contracts the drop off in salary between one or two seasons is substantially more than the likely drop off in their play.

For example, between year 4 and year 5 of Marc Savard's contract, he goes from making $5 million to $1.5 million. It is unlikely that in year 4 he will have the production of a $5 million player and year 5 his production will drop dramatically to that of a $1.5million player. Most players decline in production on a more gradual basis than that.

So if you are a 37 year old Marc Savard and you've made roughly $25 million in the first four years of your deal you aren't going to be as eager to play for $1.5 million, even if you still have the production of someone worth more because you are older, beat up, have a family, etc. and the value is not there. After all the money he will have made, why would someone like Marion Hossa play at age 42 for $0.75 million or even someone like Briere, who'll make $47 million in the first six years, play for only $2 million at age 37?

This is where it becomes problematic because there is a reasonable probability that all parties know the player won't play out the last, lower salary years on his contract because the value isn there for him. So presumably the only reason for these cheap years on the end is to circumvent the cap.

Matt said...

Eric,
I agree completely. In the intitial Kovalchuk deal there were clearly throw away years at the end. And to your example of Savard, one could argue that given his personal history of concussions he may choose to retire rather than play for those throw away years at a reduced salary.

But for Briere, I don't see him retiring at 35 and would not consider his last two years to be throw away.

Thanks, and I must say I enjoy your blog.

Eric Macramalla said...

Thanks for the compliment Matt.

I agree with you that Briere is not as an obvious example of this problem as other players.