Kukla's Korner

What Can GMs Do With Lifetime Deals?

Another day, another monster long-term deal. This time, the deal keeps Henrik Zetterberg in Detroit until Miley Cyrus is in her late 20s. Yes, it’s that long, and it’s very similar to the deal that Tampa Bay gave Vincent Lecavalier.

It boggles my mind that teams would give any player that term if they’re over the age of 25. Even for players under that age (like the Mike Richards deal), it’s still a difficult number to accept but it makes a little more sense—you’d rather have the contract (and cap hit) run out when the guy is 35, not 40.

But it’s not all set in stone. The NHL CBA is a dense document filled with clauses and loopholes and all sorts of legal verbiage that will make your head spin. Inside the 100+ pages of legal mumbo jumbo, GMs have a few options for dealing with the end of a long-term deal. They’re not necessarily pretty, and the “fairness” of the whole thing can depend on how good the player actually is towards the end of his career. Here’s what they can do:

A) Keep the deal: If you keep things status quo and the player stays in the lineup in the latter years of the contract, the cap hit stays the same. Remember, the cap hit is the average over the lifetime of the deal regardless of the actual cash paid out. At this point, a GM can only hope that the player’s talent has longevity and that inflation/revenues have driven the salary cap up to the point where today’s $6 - 7 million is equivalent to tomorrow’s $3 - 4 million.

B) Retirement: If a player’s skills erode and he feels ineffective, then there’s a good chance that he will retire sometime between the age of 37 and 40 (when the bulk of star player retirements take place). In some cases, retired players still count against the cap—but that’s only when the contract is signed over the age of 35. If someone’s in their 20s and they sign a long-term (emphasis on long), retirement will remove the player from the cap. Of course, a helpful GM can entice this with the promise of a teary ceremony, jersey retirement, and a cushy office job.

C) Buyout: This is where the accounting gets a little clever. If a team buys out a player, then the following formula is used (courtesy of NHLSCAP.com):

When a player is bought out, the team still takes a cap hit for the player over twice the remaining length of the contract.  The amount of the cap hit (by year) is determined as follows:

  1.  Take the actual salary due for each remaining year.
  2.  Take the Averaged Player Salary (cap hit) for the current contract
  3.  Calculate the buy-out amount (as described above)
  4.  Spread the buy-out amount evenly over twice the remaining years of the contract
  5.  Take the number in #1 and subtract the number in #4.  This is the “buyout savings”.
  6.  Take the cap hit from #2 and subtract the buyout savings from #5.

NOTE:  This calculation has to be done for each year - meaning that the cap hit on a buyout will not necessarily be the same for all years (see examples below).  It can even be negative (meaning the team gets a credit).  However, it’s critical to have the correct information for #1 and #2 to get the correct cap hit.  The cap hit on a buyout is only the same for all affected years if the remaining yearly salary is the same for all years.  If it varies, then the cap hit on a buyout will vary.

Got that? In a nutshell, without getting out your sliding rule and graphing calculator, it’s a way to make the cap hit less. So for a player in the case of Zetterberg, the final two years of his contract are at $1 million each. Not only does that lower the average cap hit over the life of the contract, it makes buying out easier. Buy out the player and that $6 million annual cap hit becomes some cryptic number that’s far less than that.

The kicker is that the team buying out the player won’t be able to re-sign him. So if the Wings in the future decide that they can’t afford Zetterberg’s $6 million cap hit and he doesn’t want to retire, they can buy him out but will sever the ties to the team. GMs and owners will have to decide if that’s worth the PR hit for a beloved player.

D) Trade: Trades, of course, can happen but if a player is being made available for trade, chances are their skills are diminished beyond their cap worth. However, there’s always the “veteran leadership” paycheck (see: Sergei Fedorov going to Columbus), and a rebuilding team might look into bringing on a Stanley Cup veteran to guide the way.

Any way you look at it, these extremely long-term contracts look good for about 75% of their length, then they get iffy. If I was an NHL GM, I’d stay the heck away from them because you never know what will happen (see: Rick Dipietro’s hip/groin/lower body fiasco). The league itself is wary of them too, and when CBA negotiations re-open in a few years, look for the league to put a limit on length of contract.

Filed in: Salary Cap, | Mike Chen's Hockey Blog | Permalink
  Tags: henrik+zetterberg, mike+richards, vincent+lecavalier

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