Wednesday, July 4, 2012

Parise & Suter Contracts - A Circumvention of the CBA?

Zach Parise and Ryan Suter have signed the same long-term deal with the Minnesota Wild: 13 years at $98 million.
The deal breaks down as follows across the 13 years:

$12M, 12M, 11M, 9M, 9M, 9M, 9M, 9M, 8M, 6M, 2M, 1M, 1M

The contracts take both Parise and Suter to the age of 40.

The issue is this: do these contracts constitute a circumvention of the NHL CBA?

When assessing whether a contract constitutes a circumvention, reference is had to a number of factors, including 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, the drop between the years at the end of the contract (called a diveback) and the number of throwaway years.

This last point, namely throwaway years, is important - have years been added to the back end of a contract to artificially lower the cap hit.

In this case, the last 3 years are worth 2 million, 1 million and 1 million. As well, the drop or diveback between years 10 and 11 is dramatic going from 6 million to 2 million.

When you include all the years in the deal, including the 3 throwaway years, the cap hit is $7.53 million. However, when you eliminate the last 3 years, and maintain the existing value for each year, the cap hit rises to $9.4 million.

That is a dramatic jump.

In the Kovalchuk arbitration case, arbitrator Bloch highlighted 4 contracts that constituted circumventions of the CBA. Here are the deals complete with yearly breakdowns:

(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) 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

These 4 contracts also have throwaway years (bolded/underlined) and divebacks. These contracts were considered circumventions.

The Kovalchuk contract was a lot more aggressive in its structure. To revisit the contract, here are your links:

Ultimately, the Parise and Suter deals fit the profile of contracts that have been found to circumvent the CBA. They have multiple throwaway years, a substantial diveback and end at the age of 40 when they will have likely already retired.

The NHL and NHLPA agreed on some new guidelines involving long-term deals post-Kovalchuk, including special calculations for deals that take a player past the age of 40. 

However, arguably those new guidelines do not appear to excuse contracts that are more generally designed or structured to artificially reduce the cap hit. That is, they do not appear to excuse circumventions of the CBA. 

Still, though, there is the argument that the NHL may have agreed not to challenge these types of deals with  in light of the new rules.

It will be interesting to see how this all shakes out in the coming days. Will the NHL approve the deal (I suspect it will)? Will other GMs be upset since deals like this undermine competitive balance (cue Brian Burke)? Will these deals give the owners more of a reason to seek further restrictions on long-term deals during CBA negotiations?

Indeed, it will be interesting.

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