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.
Why?
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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