Sunday, March 3, 2013

Next For Ryan O'Reilly: A Cut In Pay?

By Rory Johnston (@RnfJohnston)

When the Colorado Avalanche found out yesterday afternoon that RFA centre Ryan O’Reilly had signed an offer sheet with the Calgary Flames, they had 7 days to make a decision on whether to match the Flames’ offer. Instead, it took them only a few hours to decide they wanted to keep him.

Colorado has now secured O’Reilly’s services for the next two years, albeit at a salary that’s a fair bit higher than what they would have preferred. Another downside - they’ve gone without him for the first 19 games of the season and are sitting outside of a playoff spot.

The Flames’ offer came with a twist: the structure of the offer was carefully designed to make it less attractive for the Avalanche to match. It’s only a two-year deal, set up so that O’Reilly will make $6.5 million in 2013-14, and only $3.5 million this year ($2.5 million of which comes as a signing bonus). By jacking up the salary in year two, O’Reilly will be guaranteed a rich payday if the Avalanche want to retain him.


The structure of the Flames’ offer was meant to be a ‘Poison Pill’. The high second-year salary of $6.5 million will set the bar for future negotiations and salary arbitration such that O’Reilly may never be cheap again. That means that the Avs first year offer must be $6.5 million – subject to possible conditions.

So the Flames purposely torpedoed any long-term savings on the contract in an effort to make it a less attractive option for the Avalanche to match.

‘Poison Pill’ is a term I’m borrowing from NBA offer sheets, which use a different salary cap trick to make it hard to match offer sheets, but the concept is the same: it’s a contract term that could hurt whichever team signs the player, with the goal of keeping a team from matching an offer.

Some have noted that the higher salary in year two means that the qualifying offer necessary to keep O'Reilly will be a steep $6.5 million for 2014-15. Quite possible - but not the only option.

At the end of the 2013-14 season, O’Reilly will be a restricted free agent once again, and instead of tendering a qualifying offer, the Avalanche could file for ‘cut-down’ arbitration in the hopes that they can retain O'Reilly at a lower price than his $6.5 million 2013-14 salary. 'Cut-down' arbitration is a rarely-used CBA provision that allows teams to file for arbitration with the hopes of giving their player a pay cut of up to 15%. 

In 2012, the Vancouver Canucks filed for cut-down arbitration for Mason Raymond – and he settled with the team, agreeing to take a 14% pay cut after injuries had slowed down his performance.

In O’Reilly’s case, the 15% pay cut would be measured against his $6.5 million 2013-14 salary. So the lowest possible salary he could get at arbitration would be $5.525 million. Though it might be counter-intuitive to give a pay cut to a player on the rise, NHL salary arbitrators may look at other RFA-eligible players at similar age and experience levels and conclude that few players at O’Reilly’s age make as much money. 

There are no guarantees, though. Since the Mason Raymond case was settled before going to arbitration, O'Reilly would be a real test case for cut-down arbitration. It’s tough to know how that would unfold (if we get there). While there may be reasonable arguments justifying a drop from the qualifying offer, if O’Reilly has a reasonably good season in year two of his deal, it will probably be tough to get an arbitrator to cut his salary. Honoring the intent of the qualifying is the starting point and there will need to be good reason to move off that.

Why did the Avalanche match so quickly? Avs GM Greg Sherman had presumably given a lot of thought to this ahead of time, including making a decision on how high an offer he would match. Sherman was Colorado’s Assistant GM before graduating to the big job in 2009. In his previous role, he was the team’s lead contracts man, handling contract negotiations, a bit like the old role occupied by Leafs GM Dave Nonis. Sherman, no doubt, had the various possibilities (including, possibly, the option for cut-down arbitration) in mind well in advance before the offer sheet dropped.

These guys are generally prepared – we just don’t hear about it.

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