Just as it happened in 2005, the contract that Columbus Blue Jackets winger Rick Nash received this week will impact what the Atlanta Thrashers will need to do to re-sign Ilya Kovalchuk. (The only difference is that Nash will have signed his deal one season before Kovalchuk has to re-up.)
The two players, selected first overall one year apart, have often have their destinies intertwined. In 2004, they both finished tied for the league lead in goals at 41 (along with Jarome Iginla.)
Nash, 25, signed an eight-year, $62.4 million contract that carries with it a $7.8 million annual salary cap hit.
The 26-year-old Kovalchuk has totaled more than a point-per-game in seven NHL seasons (545 games, 297 goals, 260 assists for 557 points) or 1.02 points per game.
Nash's totals are considerably lower. In 441 games, he has 194 goals and 161 assists for 355 points or .80 points per game.
So, in essence, Kovalchuk's production is almost 25 percent higher. Does that, then, mean that he should be paid 25 percent more than Nash?
That would mean an annual cap hit of a whopping $9.75 million per season. No doubt, Kovalchuk's agent Jay Grossman would love to land a deal of that value.
When Kovalchuk signed his last deal, contracts were mostly evaluated in terms of the average salary over the length of the deal. (Kovalchuk's was just shy of $6.4 million while Nash's was about $5.4 million. Atlanta could be lucky if the difference between Nash's and Kovalchuk's contracts ends up being $1 million per year more again.)
Because NHL teams have lengthened the terms of contracts with much smaller salaries at the tail ends to lessen the annual cap hit, the average value is no longer a valid measure of a player-to-player analysis.
For example, Tampa Bay center Vinny Lecavalier has an 11-year deal worth $85 million so his average is $7.72 million. Few would argue that Nash is a better player than Lecavalier, though Nash's contract's cap hit is higher.
And because of Lecavalier's winning of a Stanley Cup, Kovalchuk cannot command as much as Lecavalier.
But look more closely at the Lecavalier deal: It pays him $10 million for each of the first seven seasons.
Alexander Ovechkin's deal does not tail off in this way. It pays him $9 million for the first six seasons and then $10 million for the last seven, giving an annual cap hit of $9.538 million.
Some would argue that Ovechkin, relatively, is underpaid then when compared to Lecavalier. (Again, Lecavalier has that Stanley Cup on his resume, even if he had perhaps a better supporting cast than Ovechkin with Brad Richards -- Conn Smythe winner in the Cup-winning year -- and Martin St. Louis -- Hart Trophy winner that year.)
Look for Atlanta to use Marian Hossa's new contract with Chicago as a comparable. The most it pays him in any year is $7.9 million, as it averages $5.233 million. It is 12 years long and pays him $62.8 million. The total of Hossa's deal is only $400,000 more than Nash's, but the amount of years involved severely alter the average cap hit. However, Hossa is four years older than Kovalchuk and, thus, closer to a theoretical decline in production while Kovalchuk would theoretically have more years remaining in his prime.)
These will be the arguments between Kovalchuk and the Thrashers as they negotiate and, for the most part, these contracts will be the comparables that, to a large degree, will set the parameters.
Last time Thrashers general manager had Doug MacLean to thank for Nash's contract. This time, he has Scott Howson.
Showing posts with label Ovechkin. Show all posts
Showing posts with label Ovechkin. Show all posts
Saturday, July 4, 2009
Monday, June 29, 2009
How the NHL Salary Cap Went Up
This question has befuddled me for a while so I decided to do some research into it. As NHL fans might know, the league set its salary cap last week at $100,000 higher (at $56.8 million per team) for the 2009-10 season than it was for the previous year. This means that every year since the cap came into creation, its upper limit has gone up.
Because of The Great Recession, NHL revenues were down (ticket and suite sales, sponsorships, licensing, etc.) in 2008-09 as compared to 2007-08. With revenues down, one would expect the cap also to go down, correct? Not so fast, my friend, as Lee Corso would say.
It seems that every year, the NHL Players Association has the right to invoke a 5 percent bump in the cap. How is this possible, I wondered?
So I set out to find the legal verbiage that gives the PA this right. I had to locate my dusty copy of the NHL's Collective Bargaining Agreement, a trusty spiral-bound copy of which I obtained at the 2006 draft in Vancouver (along with a seminar for us low-rent hockey scribes run by Messrs. Bill Daly and Ted Saskin).
It took a few minutes to hunt down the applicable passage and a few more to translate it from the legalese, but I believe this to be the relevant portion:
Article 50 Team Payroll Range System, Section 50.5 (b) Lower Limit and Upper Limit (i) explains the formula for setting the per-team cap and says that it "shall be adjusted upward by a factor of five (5) percent in each League Year... until League-wide Actual [Hockey Related Revenue] equals or exceeds $2.1 billion, at which point the five (5) percent growth factor shall continue unless or until either party to this Agreement proposes a different growth factor based on actual revenue experience and/or projections, in which case the parties shall discuss and agree upon a new factor." [The italics are mine.]
There it is, basically in the fine print of the CBA, my reading of this section (borne out by what has happened in practice) shows that the league gave the players association the right to increase the cap by 5 percent every year until the CBA expires.
So if the players had not invoked this so-called "escalator clause" for 2009-10 the cap would have fallen by $2.84 million per team to $53.96 million. It doesn't seem like much, but as one agent pointed out to me during the lockout, you have to multiply the difference by all 30 teams. Do that and you have an extra $85.2 million in player salaries next season. That equates to roughly 179 extra players making the league minimum of $475,000 (or 7.8 full team rosters' worth) or another 7.5 players capable of making the league-maximum salary of $11.36 million. It's sort of like the NHLPA's equivalent of President Obama's economic stimulus plan -- flip the switch and print more cash.
Wouldn't it seem, then, like a no-brainer for the players to vote every year to invoke the 5 percent increase? Again, not so fast.
Because the CBA guarantees teams, in the famous words of Commissioner Gary Bettman, "cost certainty," the owners (and the players) always get their percentage of hockey related revenue. This is where the "escrow account," which the players dread, comes in.
The owners have the right to retain a percentage of players' salaries up to 20 percent until the exact amount of revenue and player salaries are finalized at the end of the season to make sure that each gets the exact percentage it is due. So, in theory, a player who signs a contract for $1 million might gross only $800,000. (It also works in the flip direction: if hockey-related revenue exceeds projections, a player could earn more than the contract he has signed.)
Larry Brooks of the New York Post, who understands the machinations of the CBA probably as well as any hockey writer, wrote about this subject on Sunday, June 28.
He reported that the escrow for 2008-09 was 15.9 percent and used the example of the Washington Capitals' Alexander Ovechkin, who was to be paid $9 million but, because of the escrow, grossed $1.431 million less.
Brooks reported that the union's vote on upping the cap 5 percent was close and then opined that players who voted against the escalator clause "were short-sighted and selfish, for it always is important to have the cap as high as possible and the most money possible in the system."
Let's examine that statement for a minute. If you're a high-end player like impending free agents Jay Bouwmeester or Marian Hossa, you may very well command a top salary of $8 or $9 million. Even if you have 20 percent of it withheld -- the escrow will surely increase since the cap has gone up artificially because of the escalator clause -- you still gross $6.4 or $7.2 million. Not bad.
But what if you're Colin Stuart of the Atlanta Thrashers, making the league minimum? On your contract of $475,000, you're looking at grossing perhaps $380,000 instead of $400,000. Do you want to vote, in essence, to lose $20,000 in pay so the top-end free agents can have the theoretical right to make the maximum salary of $11.36 million instead of $10.79 million?
Remember, there's probably a lot more guys making the league minimum than there are Ovechkins, Lecavaliers, Heatleys, Bouwmeesters and Hossas. And the average length of a career of a guy making the league minimum is a lot shorter than the highest-paid players. The players at the bottom end of the salary structure need to make as much as they can before they're back in the AHL, ECHL or lower-paying European leagues.
Because of The Great Recession, NHL revenues were down (ticket and suite sales, sponsorships, licensing, etc.) in 2008-09 as compared to 2007-08. With revenues down, one would expect the cap also to go down, correct? Not so fast, my friend, as Lee Corso would say.
It seems that every year, the NHL Players Association has the right to invoke a 5 percent bump in the cap. How is this possible, I wondered?
So I set out to find the legal verbiage that gives the PA this right. I had to locate my dusty copy of the NHL's Collective Bargaining Agreement, a trusty spiral-bound copy of which I obtained at the 2006 draft in Vancouver (along with a seminar for us low-rent hockey scribes run by Messrs. Bill Daly and Ted Saskin).
It took a few minutes to hunt down the applicable passage and a few more to translate it from the legalese, but I believe this to be the relevant portion:
Article 50 Team Payroll Range System, Section 50.5 (b) Lower Limit and Upper Limit (i) explains the formula for setting the per-team cap and says that it "shall be adjusted upward by a factor of five (5) percent in each League Year... until League-wide Actual [Hockey Related Revenue] equals or exceeds $2.1 billion, at which point the five (5) percent growth factor shall continue unless or until either party to this Agreement proposes a different growth factor based on actual revenue experience and/or projections, in which case the parties shall discuss and agree upon a new factor." [The italics are mine.]
There it is, basically in the fine print of the CBA, my reading of this section (borne out by what has happened in practice) shows that the league gave the players association the right to increase the cap by 5 percent every year until the CBA expires.
So if the players had not invoked this so-called "escalator clause" for 2009-10 the cap would have fallen by $2.84 million per team to $53.96 million. It doesn't seem like much, but as one agent pointed out to me during the lockout, you have to multiply the difference by all 30 teams. Do that and you have an extra $85.2 million in player salaries next season. That equates to roughly 179 extra players making the league minimum of $475,000 (or 7.8 full team rosters' worth) or another 7.5 players capable of making the league-maximum salary of $11.36 million. It's sort of like the NHLPA's equivalent of President Obama's economic stimulus plan -- flip the switch and print more cash.
Wouldn't it seem, then, like a no-brainer for the players to vote every year to invoke the 5 percent increase? Again, not so fast.
Because the CBA guarantees teams, in the famous words of Commissioner Gary Bettman, "cost certainty," the owners (and the players) always get their percentage of hockey related revenue. This is where the "escrow account," which the players dread, comes in.
The owners have the right to retain a percentage of players' salaries up to 20 percent until the exact amount of revenue and player salaries are finalized at the end of the season to make sure that each gets the exact percentage it is due. So, in theory, a player who signs a contract for $1 million might gross only $800,000. (It also works in the flip direction: if hockey-related revenue exceeds projections, a player could earn more than the contract he has signed.)
Larry Brooks of the New York Post, who understands the machinations of the CBA probably as well as any hockey writer, wrote about this subject on Sunday, June 28.
He reported that the escrow for 2008-09 was 15.9 percent and used the example of the Washington Capitals' Alexander Ovechkin, who was to be paid $9 million but, because of the escrow, grossed $1.431 million less.
Brooks reported that the union's vote on upping the cap 5 percent was close and then opined that players who voted against the escalator clause "were short-sighted and selfish, for it always is important to have the cap as high as possible and the most money possible in the system."
Let's examine that statement for a minute. If you're a high-end player like impending free agents Jay Bouwmeester or Marian Hossa, you may very well command a top salary of $8 or $9 million. Even if you have 20 percent of it withheld -- the escrow will surely increase since the cap has gone up artificially because of the escalator clause -- you still gross $6.4 or $7.2 million. Not bad.
But what if you're Colin Stuart of the Atlanta Thrashers, making the league minimum? On your contract of $475,000, you're looking at grossing perhaps $380,000 instead of $400,000. Do you want to vote, in essence, to lose $20,000 in pay so the top-end free agents can have the theoretical right to make the maximum salary of $11.36 million instead of $10.79 million?
Remember, there's probably a lot more guys making the league minimum than there are Ovechkins, Lecavaliers, Heatleys, Bouwmeesters and Hossas. And the average length of a career of a guy making the league minimum is a lot shorter than the highest-paid players. The players at the bottom end of the salary structure need to make as much as they can before they're back in the AHL, ECHL or lower-paying European leagues.
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