Monetary Madness

Here we go again. Edmonton general manager Kevin Lowe today signed Anaheim restricted free agent forward Dustin Penner to an offer sheet worth $21.5 million over five seasons. Ducks GM Brian Burke now has a week in which to either match the offer, or accept compensation from the Oilers in the form of three draft choices: a first, a second and a third-round pick. With the rumored impending retirements of defenseman Scott Niedermayer and UFA winger Teemu Selanne, Burke probably has enough cap room to match the offer if he chooses to do so.

Penner is one of several players the Ducks have signed in recent years as undrafted free agents out of college. The 6-foot-4, 245-pound Penner began his collegiate career at Minot State in 2001-02, then sat out the following season so he could transfer to U. of Maine. (For the record, Minot State was not compensated when U. of Maine poached Penner.) He played one season at Maine in 2003-04, and the Ducks signed him on May 12, 2004.

Anaheim signed Andy McDonald out of Colgate in 2000 and inked Chris Kunitz out of Ferris St. in 2003. The Ducks have signed several other college free agents who are still in their system, but Penner, McDonald and Kunitz are the most noteworthy; all were integral players on the Ducks’ 2007 Stanley Cup championship team.

A few weeks after signing Buffalo’s Thomas Vanek to a seven-year, $50 million offer sheet (the Sabres quickly matched that one), Lowe set his sights on the 24-year-old Penner, a “veteran” of 101 regular season NHL games.

We’re almost exactly two years removed from the contentious lockout that cost the league, the players and us fans an entire year’s worth of NHL hockey and did damage to the game that is still being repaired. (It’s probably more accurate to say that repairs are being “attempted.”) We’re only two years out from having put in place an economic system that was supposedly fair to all and one that would keep salaries in check, players happy and ownership profitable.

But here we are now, living in a world where a 19-year-old kid and two-year NHL vet (Sidney Crosby) gets a contract that will pay him significantly more than established NHL stars such as Joe Thornton and Jarome Iginla and others.

We’re living in a world where a guy (Penner) with a shade more than a season’s worth of NHL experience (and 45 points in that one season) is now being given $4.3 million a year.

We’re living in a world now where a team thinks it’s a good idea to tie up about 20% of its salary cap allotment in Sheldon Souray and Penner. Which might mean that team is headed to lotto land for the next few years, which might make it worth Burke’s while to take the picks rather than match the offer sheet. It’ll be interesting to see what happens here in the next week or so.

If Burke does match, Lowe may then set his sights on someone like New Jersey’s Zach Parise or another high profile RFA. He’s done it once, he’s done it twice, what’s to stop him from striking again? Only Lou Lamoriello getting Parise’s signature on a deal as a pre-emptive measure.

Here’s another item that puts a bit of a different wrinkle on things. In the two years since the lockout’s end, the salary cap has risen from $39 million to $50.3 mil, a climb of 29% in a span of just three seasons. But that growth simply has to slow in the years ahead. The trouble is that salaries have shown no sign of slowing down.

Scott Gomez made $2,204,000 in 2005-06. He had a great year, putting up 84 points. His next one-year deal — an arbitration award — paid him $5 million. He backslid from 33 goals to 13 and dropped all the way to 60 points in 2006-07, but his salary skyrocketed in the other direction. Recently, Gomez signed a contract with the Rangers that will pay him $51.5 million for the next seven seasons. He’ll actually be paid $10 million in 2007-08, but the Rangers’ cap hit over the life of the deal is $7.357 per year.

In the same span that the salary cap rose 29%, Gomez’s salary went up more than 300%. Sure other salaries around the league have gone down since then, but the bottom line is this: if lucrative multi-year contracts are signed under one salary cap figure and that figure subsequently declines, there will be trouble.

If revenues drop and cause the cap to do likewise, guys like Gomez and Crosby could find themselves taking up more than 20% of their respective teams’ salary cap total. And their teams’ GMs might be put in the unenviable position of moving players in trades just to fit big-ticket guys under a shrinking cap.

The cap is based on revenue, right? So it would appear that revenue has risen at a strong rate, which is the whole idea. But we all also know that the NHL is a gate-driven league. According to ESPN’s attendance figures (which are compiled from figures given by the clubs themselves at each game), two-thirds of the league is already playing to 90% or better of capacity, and more than half the league is above 95%.

Aside from growing the attendance totals of the teams on the bottom third of the list (six of the bottom 10 were non-playoff teams and three others didn’t get past the first round), the only way to raise revenue would be to sell the “new look” jerseys for $400 or so, or to raise ticket prices. It’s hard for me to see how ticket prices can go up much more in most markets, so I believe we’re about to enter a period of slow growth (or even decline) for the salary cap. Also, even if there is growth in the attendance of the bottom 10 teams on the list, you’ll likely also see some other clubs slide in the standings, and then at the gate as well.

Revenue can fluctuate, so can the salary cap. Attendance can only go up to arena capacity, and is far more likely to decline once it reaches a certain level. The only way to make more revenue is to raise prices, and that should only happen once capacity is reached. Contracts are being signed as if the cap will continue to climb at its current rate, but can anyone show me how this would be possible?

There just doesn’t seem to be much “vision” being exercised in some of the front offices around the league. If the salary cap holds or drops even a few million, the Rangers and a handful of other teams are going to have some problems.

Much was made of Crosby’s altrusitic nature in taking less money than he could have made when he recently signed his five-year contract extension. He could have gotten a maximum of $10.06 million under the current 2007-08 cap, and yet he “settled” for a figure of $8.7 million per season. That savings ($1.36 million a year) is not enough for the Pens to pay the salary of defenseman Mark Eaton or forward Ryan Malone for this year or next season. Eaton and Malone are nice players, but are hardly key cogs in Pittsburgh. Evgeni Malkin is, and so is Jordan Staal. And those two will have their respective hands out soon enough. What then?

It’s crazy, and none of it is doing the Caps any favors. Washington is already looking to get Alex Ovechkin’s signature on a contract extension. And Caps fans are already getting antsy and suggesting Washington needs to lock up Ovechkin as soon as possible, even if it means giving him longer term and more money than Crosby got. The Caps need to lock up Ovechkin, and they want to lock up Ovechkin.

But what if every indication pointed to the salary cap going down next season? Would it still be prudent to go ahead and sign him now for $60 million over six years (too much, in my opinion), or better to wait and be able to get him for $57.6 million for six years (still too much) if the cap were to drop to $48 million in 2008-09? These are the hard questions that must be asked.

We can also hope that Ovie grants the Caps a bit more of a “discount” than Crosby did the Pens. Chris Clark certainly did so when he signed his three-year extension last week.

Right wingers Shane Doan ($4.550 million a season), Bill Guerin ($4.5 million a year), Scott Hartnell ($4.25 million), Todd Bertuzzi ($4 million) all recently signed multi-year deals that Clark and his agent could have used as the basis for their own number.

Doan is a better player than Clark, has had a better career than Clark and is roughly the same age, but has only seven more goals than the Caps’ captain over the past two seasons.

Guerin is five years older than Clark and has scored one fewer goal than Clark since the lockout ended. He’ll make $9 million over the next two seasons, less than Clark will be paid for the next three.

Hartnell is several years younger and has a lot of upside. But is he really that much better a player than Clark that he should earn a salary that’s more than 50% higher than the Caps’ captain? The Flyers think so.

Bertuzzi is a year older than Clark. A back ailment limited him to 15 games last season. But if one GM thinks he’s worth $4 million a year for the next two seasons, that’s all it takes. Burke is that one GM.

Blues right wing Lee Stempniak has played in all of 139 NHL games, totaling 41 goals. But he will earn just a shade below what Clark will be paid over the next three seasons, Stempniak’s contract is identical to the one just signed by Carolina right wing Scott Walker, a 34-year-old veteran of some 688 NHL games.

When it comes to NHL salaries, it is hard to find any rhyme or reason. General managers and owners would likely be happy negotiating a new deal for every player, every year. That’s a radical system proposed many years ago by former Oakland Athletics owner Charles O. Finley. Players and agents wouldn’t want any part of such a system, because it would much more accurately reflect a player’s actual “worth” at any given time.

One or two renegade GMs can skew the league’s salary structure and impact contract negotiations around the league for years to come. It’s what led to the lockout of 1994-95 and the lockout of 2004-05. I hate to even bring it up, but some of the foolishness we’re seeing now could be responsible for the next NHL lockout.

It’s great for players to be able to make as much money as they can, while they can. The career shelf life of a pro athlete is a very finite thing. The problem is that once profits began turning into losses, owners are always asking the players to empty their pockets. The most recent lockout was all about owners telling the players: “We can’t stop ourselves from spending, we need your help.” That help of course, came in the form of a salary cap and a 24% rollback of existing contracts at the time. What’s next? We can only wonder.

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30 Comments on “Monetary Madness”

  1. KP Says:

    So does Kevin Lowe feel that secure in his job, and does he feel that secure he’ll never have to make a trade again, because no owner is going to hire the guy responsible for inflating contracts ridiculously high, and no GM is going to want to deal with another GM who tried to poach other players. Sure, they’ve had a bad offseason, and signing Souray won’t help that much, but to offer Vanek $50 mil over 7 years, and Penner $21.5 mil over 5 years is just plain nuts. And the Vanek offer was definitely poaching, Regier said he’d match any offers given to Vanek. As you stated, the reason the season was canceled a few years back was because the owners couldn’t reel in their spending. This is year three of the “new NHL.” When players elect for arbitration next year (because after seeing the contracts being offered this year, they’d be nuts not to), the owners will be right back where they started, except the cap will be a hinderance to them, and the players that make about $2-4 mil will be bumped out of the league in exchange for kids that have no business in the NHL, because they are cheap. Perhaps Lowe can save some money by disconnecting his phone, I have a feeling it won’t be ringing.

  2. doug Says:

    Mike, sadly the entire NHL salary structure is taking a beating at the hands of one greedy GM. If I were the Anaheim GM, I would take the draft choices. Why not? If one GM takes that stance, you may see others follow suit and pretty soon, the cycle of lunacy is broken.

    The Caps will get Ovie signed, I don’t have fear of that, but it probably won’t be a long-term deal and doubt it will be “discounted” that much. The players probably feel somewhat beholden to their union, and if one guy gives in and takes a “reasonable” salary, especially a superstar, this would send negative vibes to the rest of the leagues players. I’m all for the players, but even then, it is tempered with a degree of reason. Hockey, like all sports, is a team game; if you have 2 players eating up 30% of your cap, where is your “team” concept?? What I do fear is the Caps will have no room for Semin once Ovie takes the obligatory monster contract he is assured.

    Honestly, the Caps are not in any worse shape than other teams. What is good for one, is good for all of them. So long as the salary cap remains intact, and teams can’t “buy” their way around the salary cap, e.g. baseball, you will still have somewhat equal competition. Sure, there will be teams like Detroit and New York that make oodles of money because they sell-out their seats at ridiculous prices, mind you. That said, even the rich guys will have trouble buying a championship in the NHL; and if they do, the ensuing years will find them dumping salaries, eating contracts, etc.

    If there is a silver lining it’s this: a powerhouse team probably has a very limited shelf life. Anaheim’s chances for a repeat just got tougher.

    Here’s another thought with all of this salary stupidity: NHL games will be decided by the business guys with green eye shades more so than the players lacing up skates and moving the puck. Here’s another economic reality: if the currency exchange rate between the US and Canada regress in the US favor, as it was a mere 4 to 5 years ago, that will wreak havoc on ALL the Canadian teams.

    I still remain positive on the Caps and their chances for significant improvement next season and beyond. The young guys are looking great, their front office is doing fine, and all is thumbs-up in what the Washington Caps can control. As the old axiom states: Accept what you cannot control, change what you can, and be smart enough to know the difference. That said, none of this stuff is in the Washington Caps control.

    Another good piece of journalism, Mike.

    v/r
    Doug

  3. Mr. Moa Says:

    I have a hard time imagining another lockout. The league has a cap, so the desired cost certainty is there. Under any plausible system you’re going to end up with grossly overpaid and relatively underpaid players.

    Also, I don’t see what’s so bad about what Lowe is doing. This the system that everyone has agreed to; his job is to do what he thinks his best for his team under that system, not look out for the welfare of the league as a whole. That’s the job of NHL leadership, who unfortunately are complete nincompoops. The idiotic Versus deal is much more damaging to the health of the NHL than any “renegade” GM.

  4. Mark Tucker Says:

    But Mike, isn’t this a self-correcting issue?
    I mean, won’t the Penguins, Rangers, and Flyers of the world all have to “pay the piper” when revenues do drop, and they have to accept the consequences?

  5. dumpnchase Says:

    KP,
    You may be right about Lowe’s phone not ringing. There are those who believe Neil Smith was blacklisted from being hired as a GM for the offer sheet he gave to Sakic some years back. That said, a guy is gonna do whatever he thinks is right to make his hockey team better. And as was noted in one of the other comments above, everything he did was obviously within the rules. My only problem with it is the idea that if one guy thinks a 101-game vet is worth $4.3 mil a year, that’s what he gets.

    Doug,
    Thanks for the kind words. I think Ovie will get signed, but yeah, not much of a discount is likely nor should one be expected. I think the Caps will be fine, they’ve been smart about managing salaries and looking at the big picture. It’s the league I worry about.

    Mr. Moa,
    You’re probably right, another lockout might be extreme. I’d hope they’d try to tweak this system before scrapping it. There are teams whose payrolls are higher now than they were in 2003-04, before the cap system came in.

    The cost certainty is there for the owners, sure. No such animal for the fans, I can assure you. And you’re right about the Versus deal. One of my biggest problems about the powers that be at league headquarters is their willingness to fix everything that isn’t broken (tie games, sweaters) and ignore important issues like TV.

    Mark,
    Self-correcting to a point. Last time, the owners asked the players to correct it. This time, they’ll be asking the fans. The only way for the cap to go up is for revenue to go up. Pretty much the only way for revenue to go up is for ticket prices to go up.

  6. Shaggy Says:

    Monetary madness indeed. (Wasnt that a Graham Nash tune?) Gary Bettman has wrought a system that favors big markets – period. Small revenue markets cannot compete with big revenue markets. Who were the big “winners” the first few days of free agency? Not Buffalo, Atlanta, and Nashville.

  7. dumpnchase Says:

    And now we have Derek Roy (194 NHL games) earning the same salary as Rod Brind’Amour (1,265 NHL games) and about the same as Mike Modano (1,238 NHL games). Makes sense to me.

  8. Caps Nut Says:

    I’ve been saying all of this for a long time Mike…

    However, throw in the fact that the self-described “Hockeytown, USA” can’t sell out of a playoff game and you come to the realization that the NHL has tapped out its ticket market.

    But to answer the question as to where the revenue is going to come from once the tickets and new jersey sales have tapped out? Expansion. Think the NHL has a problem with scheduling now? Imagine trying to make certain that every team plays each other home and away while maintaining “the geographic rivalries” in a 32 or (I wouldn’t put it past them) 34 team league with an 82 game schedule.

    But when it comes to salaries, what you are already seeing now and will see more of in the future are players getting squeezed out because they either think they’re worth more than anybody can pay them or there’s a rookie/minor leaguer who can fill their role for a much cheaper rate. Minnesota flat out admitted that was why they were letting Adam Hall go UFA.

    Not that we should be all that surprised, the caps in the NFL and NBA have the same effect. Top drawer players get all the $$$$$ while the lesser talented players get washed out and replaced in a couple of seasons by younger players. We already know that without the cap, teams would be caught in an arms race and the younger players would be left behind in favor of “proven” veterans.”

    But the idea that the salary cap would keep salaries down is wrong. All salary caps do is provide cost certainty to the owners.

    Shaggy:

    Don’t forget, when the lockout ended in 2005, Atlanta and Nashville loaded up on players boughtout or simply let go by the big market clubs. Noteably Bobby Holik went straight to Atlanta and Paul Kariya landed himself in Nashville. Right out of the chute a bunch of small market clubs went on a spending spree in 2005 and found themselves in trouble down the road. It is only now that pre-lockout contracts are expiring that the big clubs find themselves in position to make the moves that they’re used to making. Don’t worry, it will swing back the other way soon enough.

  9. dumpnchase Says:

    CN,
    Spot on with the expansion comment, and thanks for noting it because I meant to. It’s even more attractive to the owners because it’s revenue they don’t have to share with the players.

    And you also sagely note the disappearance of the “middle class” and guys like Adam Hall. It seems you go straight from entry level (or thereabouts) money directly to the big coin before even playing 200 games in the league. (Roy went from $627,000 to $4 mil.) Either you take that leap, or you stay comfortably in the sub-$1 million area populated by the Sutherbys and Laichs of the world. Once you get above a mil … it’s risky. You’re a candidate to get non-tendered and go back to making $700K somewhere else. We’ve got lots of guys making $4 mill plus and lost making less than a mil, and fewer and fewer players in between.

    Seems like there ought to be a gradual progression to that level, otherwise where’s the incentive to draft and develop your own? If you’re successful, there’s no mathematical way to keep them all.

    Compare Roy’s progression to that of Michael Nylander who made the following salaries leading up to his receant deal with the Caps:
    2000-01: $1,250,000
    2001-02: $1,550,000
    2002-03: $1,800,000
    2003-04: $2,675,000
    2005-06: $2,280,000
    2006-07: $2,280,000

    Note that the last two seasons’ salary reflect a 24% rollback from the negoatiated salary of $3 million.

  10. Betsy Says:

    Honestly guys, I really don’t think Lowe will have any problems getting that big Kansas City or Las Vegas GM gig once cut loose from the Oil. Silly ass me: I always thought that MacTavish was the last Oil exec skating around with his lid off, but it sure seems more and more like Lowe over the past few seasons. Send some smelling salts up to Edmonton quick before he “acts” again.

    Whether public or private, Burke will launch jihad on Lowe and probably have the backing (again) of his brethren. Deservedly so.

    Remember gang: while all this is going on, the NHLPA is officially searching for its next Fearless Leader. Then they can let their collective true feelings about all business things hockey be known again…sort of.

    It’s the best continuing, but mindless, soap opera this side of the stench known as the NFL or a multi-car crash on the expressway. Pass the popcorn and enjoy.

  11. GoBucks9 Says:

    Vogs,

    You can’t be the only one to see this? Are league personel sharing these concerns? Front offices around the NHL can’t be happy with these contracts or some of these GMs. I remember Columbus GM Doug MacClean (sp?) giving Rick Nash that huge contract after the lock out and that started the idea of paying for things before they happen.

    Like you, I love the Caps but I also enjoy hockey and the NHL in general. I am optimistic about the Caps but extremely worried about the NHL.

  12. Caps Nut Says:

    Actually Mike, the disappearance of the “middle class” actually ENCOURAGES teams to draft and develop well. Take for instance Brian Sutherby, once he (and/or his agent) decides he’s worth well more than the $800K he’s getting, well if the Caps can bring in a player from Hershey to take his place and what have the Caps lost?

    Take for instance last summer and Jeff Halpern, would the Caps have been any better in 2006-2007 with Halpern still on the club? And if so would it have been worth the $2 million that Halpern is getting paid? We can debate that until the cows come home.

    But the progression that you are looking for is what happens under an uncapped system and we all know what that leads to. The progression does serve as an insurance policy because let’s say that Derek Roy’s performance drops off the way that Scott Gomez’s did. Roy wouldn’t have much of a case for another big raise once that contract is up. But because the Buffaslugs are “keeping up with the Jones’s” they have to throw a long-term big pay raise at him. They’re also buying a portion of his UFA years as well so that has to be factored into his raise as well.

    But take a look at the Buffaslugs long-range prospects, they’re at a clear “now or never” point with five UFA’s next year and six the year after that. There’s no way the cap is going to rise far enough for them to keep the amount of talent they have without some serious “hometown discounts.” They’ve got to make their move now. With the buyout, they can get rid of those contracts like Vanek and Roy if they don’t pan out only paying the price of “dead $$$$$.”

    But that’s when they decide to ice a team of rookies and retreads like the Caps have the past couple of seasons. They’ll have the salary cap space to do it when they reach that point and dead $$$$$ won’t matter.

  13. Vlad Says:

    I do think that the current system is self-adjusting, because of the salary cap. Before, the GMs could blame the system that allowed the big-market teams hand out arbitrary contracts, raising the salaries. But in the current system, if you hand out a big contract, you screw yourself more than anybody. The fact that one GM overpaid for a Vanek does not mean that another has to overpay for Semin – you have to figure out what the player is worth, and hold your ground. If you can’t, your team will be a mess, but you only have yourself to blame. The argument to blame somebody else for handing out a big contract is ludicrous, its like saying “Because the other GM is crazy, its forcing me to be crazy, too”.

    I mean, I really don’t get the panic about Lowe destroying the NHL with big contracts. Its just market forces at work, and everybody is on fairly equal ground.
    Where it gets unequal is if the cap is unrealistically high as a percentage of revenues, preventing the small-market teams from spending to the cap. Thats what the revenue-sharing is supposed to address. And if it does not, thats an issue between the big-market and small-market teams: to what extent are the big-market teams ready to sacrifice their natural economic advantage in order to ensure parity in the league. Quite frankly, its far from obvious that parity has been good for the league, as many big market teams have struggled, player turnover is high, and rivalries have all but disappeared.

  14. dumpnchase Says:

    I see your point about encouraging to draft and develop well, and the Halpern example is a very good one. But it really only encourages you to draft “replacement level” players, not stars. If you draft and develop too many stars, you’ll never be able to keep them. Pittsburgh will find itself in such a quarry soon enough.

    We’re looking right at the reason that teams are better off with a $3.5 million Tom Poti as opposed to a $6.3 million (cap hit) Kimmo Timonen. Much easier on the rest of the payroll. IF a Jeff Carter or Mike Richards blossoms to Roy level, how ever will the Flyers squeeze them in amidst the Hartnells, Timmonens, Brieres and Gagnes? They won’t. Unless they make a deal, or unless rising ticket prices can keep revenue on the upswing. And how much would ticket prices have to rise to keep up with the upswing of the salary cap since the end of the lockout?

    I’ll have extra butter, Betsy.

  15. Chris S Says:

    Well what it is is a reverse of the old way free agency worked.

    Free agents used to get huge deals at the end of their careers on the way down based primarily on their previous numbers in their prime that they probably would never reach again yet were still being paid for.

    Now GMs are gambling and betting on a potential suprestar by paying him what he thinks he could be worth as he enters his prime. If you gamble and win you turn out to be a shrewd GM in the coming years. If you gamble and lose then you pretty much screw up your teams salary structure and have to carry around a Yashin type contract for years.

    The only way the market will self correct itself is when the Cap stops going up at such a large rate each year. Because of that the large market teams magically get “extra cap room” and aren’t afraid to throw an excess at players. When the large market teams can’t afford to do this year after year, the salaries will come down.

  16. dumpnchase Says:

    Vlad,
    Good points, and you’re right of course, in that the cap is self-adjusting. The point of my original piece was merely that a lot of GMs are spending as if they expect the cap to continue to rise at its current rate. I just don’t see how that is possible. They also seem to neglect the fact that the cap also has the ability to decline.

    And while you’re right about “screwing yourself more than anybody,” nothing happens in a vaccuum. Contracts have an effect on future contracts, as we’ve seen.

    Chris,
    Great point on GMs “betting” on futures. I used to rail about players getting paid for what they did for their previous team once they became UFAs under the old system, and like you say, now guys are getting paid for what they “might” do. Thing is, paying the guy $4 million doesn’t make him a $4 milliion player.

    In a cap environment, the best teams are going to be the ones who get $55-60 million in production for their $50 million in outlay. The mediocre teams are going to wind up with $40-45 mil in production for their $50 million payroll. Too many guys making $4 million to have a $2.5 million year will kill your season. For the successful teams, it will always be more about “how” than “how much.”

  17. dumpnchase Says:

    Matt,
    You brought up Nash, and I took a peek thinking that maybe the market had corrected his contract to long marginally palatable by now. Nah. Forgot it was backloaded. The cap number is $5.4 mil, but he’ll be paid $5.5 mil this season followed by $6.5 mil in 2008-09 and $7 mil in 2009-10. Ouch.

  18. Vlad Says:

    If the point is to reward teams who draft well, then you have to extend the years of a rookie contract. If the cap stays the same, the players will still earn the same amount of money over the course of their careers, only it will be backloaded, allowing the teams who draft well to keep their stars longer at a discount, and raising their price for teams who fail to develop their own players.

    In the current system, a three-year rookie contract is too short – as soon as the player is ready for his peak years, he is fair game. Teams who do not have their own talent are not penalized enough. I’d say extending the rookie contract to five years would make sense, maybe increase the base salary in order to give the young guys more protection in case of career-ending injuries..

    A more radical idea would be to give the “home-team” a negotiating advantage tied to a sliding scale. Lets say a player become an RFA after a couple of years (development-time), as is the case right now. Then, give the home-team a “home-discount” of 30% – meaning if another team offers X amount of money to the player, the home-team can keep him at 70% of that amount. Thereafter, gradually decrease the home-discount to 0% over, say, 5 years. This gives a smooth transition from RFA to UFA, and ensures that teams get rewarded for drafting well.

  19. Muddapucker Says:

    If I were in Ted Leonsis’ position as owner I would be so mad I could chew nails and spit out tacks.

    What is the point of being frugal and thoughtful and doing things in a financially responsible manner only to have Kevin Lowe sign Penner to the contract that he has or Darcy Regier’s signing of Derek Roy. Boy, would I like either one of them to be my platform player during arbitration. Lots of players with above average but not superstar ability could have the numbers Roy had if they had played on the team he did…. Same with Penner. They are good, but not that good.

    A few GM’s are killing the NHL. Don’t blame the players for the next lockout…

    If I were Ted Leonsis, (even though I am a diehard Caps fan) I would be tempted to sign Ovechkin to a long term contract. Even if I had to pay top dollar. Lock him up for at least 3-5 years. Maximize the value of my franchise because of the Ovechkin long term contract. Sell the franchise to Besillie (the blackberry man sp?) and tell all these idiotic owners to stick it. They are obviously not business men.

    I have no idea how they made their money but luck must have been a factor.

    In reality I hope that never happpens because I am a huge Caps fan, but damned if I wouldn’t be tempted if I were Ted.


  20. nice article. I’ve been pounding the table at my blog against the Oiler$ insanity. The Oiler$ moves are predatory and foolish. Thankfully, no other teams have followed suit (yet!).

    There is one point in your post which I’m unclear on: you seem to say that a team will be stuck paying the dollar amount on a contract even if the cap decreases. I’m not sure that is accurate. My understanding is that the whole reason the owners insisted on an escrow provision is so that should the cap decrease, players salaries would be adjusted downward accordingly. Therefore, the exact dollar amount that a player signs for is less important than the % of the over all cap space he gets. For example: if a player were signed this summer for $10m per season (i.e. 20% of the team’s cap space), were the cap to drop that players actual salary would drop as well. The player would still be paid 20% of the adjusted cap amount but the actual dollar amount he receives would be less than $10m.

  21. GoBucks9 Says:

    Exactly! Rick Nash was given that contract after he was announced to be the best player in the world…playing along side Big Joe on a stacked Candian international team. Suprise surprise Nash isn’t so good playing all alone on the Blue Jackets.

    These GMs are just on crack. That should be the league’s catch phrase, “Our GMs are on crack, but the players are clean.” Might spark those neilson ratings. (its been a long week)

  22. Mike Says:

    Mike –

    There are only a few star players drafted in any given year. I just looked back through the first round of the draft back to 1990 and the average is about 5 star players coming from the first round. Not all stars come out of the first round (zetterberg and datsyuk come to mind first), but it’s a starting place for the discussion.

    So the idea that teams will have to somehow avoid star players is a little odd. First, so few players become stars. Second, players who don’t become stars and stay in the league become the “replacement” players you mention. Do you think the Caps drafted Sutherby with the intention that he’d be the 3rd or 4th line center? It’s certainly possible, but I bet they were aiming a little higher (second line center would be my guess) with a pick in the middle of the first round.

    Heck, just look at the caps draft history and you see that it isn’t easy to draft star players even when you try! Since 89 you have Kolzig, Bondra, Gonchar, Semin, Ovechkin and maybe guys like Fehr, Backstrom, Varlamov, Neuvirth, Lepisto, Bouchard, etc. But you have 5 guys that became star players from 89-04 drafts.

    If you think the caps drafted poorly throughout the 90’s, then look at a team like the Red Wings who everyone seems to think draft really well. They took Lidstrom, Federov, Konstantinov, Slava Kozlov, Datsyuk, Zetterberg and maybe guys like Kronwall, Kopecky, Hudler, Fleischmann, Filpula, and Franzen. I didn’t intentionally keep the numbers the same either, but the caps and red wings have drafted a similar number of “star” or “potential star” players since 1989.

    What all that writing amounts to is that the current salary structure won’t be changing the way teams draft. GM’s know that only a handful of players in a particular draft are going to be star players. The rest are either going to be “replacements” or aren’t going to make it at all.

    The only time that past drafting will likely be a problem is when you have a team like the Penguins who had top 5 draft picks 5 years in a row (4 years of top 2 picks!). These players all reach the end of their first contracts around the same time and they all could turn into stars. But this isn’t all that likely a scenario going forward, imo.

  23. Vlad Says:

    Mike,

    Your article is very interesting, and I completely agree with you that a lot of GMs seem to be gambling, to put it mildly, with the contracts they are handing out.

    But when you say that:
    “One or two renegade GMs can skew the league’s salary structure and impact contract negotiations around the league for years to come.”,
    it does seem that you feel that these contracts have a big impact on the other teams. My feeling is that it only affects other teams to the extent that their GMs allow themselves to be affected. Again, with the Vanek/Semin example – suppose for a second that they have equal value as players… I don’t see a problem with McPhee deciding, “Semin is only worth 5M to our team”, and sticking to it, no matter what somebody else paid for an equivalent player. If the GM makes a correct valuation of talent, he should have no problem with another team overpaying to pry his player away — because he can also do the same to another team’s players..

    I mean, to me, the whole issue seems to be that teams don’t get to keep their younger players for years at a discount. Everybody is in the same boat, it just does not reward teams who draft well nearly as much as before… but it seems to be more of a league-league issue as opposed to a league-player issue.

  24. dumpnchase Says:

    Vlad,
    Really interesting system you devised there. I think it could work, in principle, with some tweaks. I say that one or two renegade GMs can skew the league’s salary structure, yes. Maybe I should have said “renegade/misguided.” Because a contract like the one give Rick Nash a couple years back does have an affect on subsequent contracts. The whole arbitration process is based on the concept of “comparables,” so if 23-year-old Johnny Hotshot gets $6 mil a year over five years when he signs a deal as an RFA, then 24-year-old Johnny Slapshot’s agent is going to point to that in arbitration, if the numbers are similar.

    I also agree with you that everyone is in the same boat. But potentially, teams with more budding young stars like Pittsburgh and Washington are in position to be hurt in that they may not be able to keep some of their players for the full term of their RFA years.

    Hockey Rabbi,
    I actually went and asked the question of someone whose job it is to be initimately familiar with the ins and outs of the CBA, and used basically the example you used. A guy signing a $10 million deal this year will still be paid the same next year, even if the cap drops. Now, we didn’t get into whether those actual monies would be paid in full by the team or whether escrow dollars would assume a portion. But he did tell me that under such a scenario, yes, a player will be taking up more than the alloted 20% of the cap space.

    Mike,
    I would never advocate not going after star players, as you mention, very few of them are drafted in any given year. Like I said above, it’s just going to get harder and harder to keep them. Think Montreal Expos in the late 1990s, and that happened without a salary cap.

    You are right that it may not happen often, and that Pittsburgh with its rash of recent high picks is an outlier situation that is not likely to happen again soon. Still, it’s hard to see how Crosby, Malkin, Whitney, Fleury and Staal will all be Penguins even two or three years from now. The idea is to identify, draft, and develop talent. But that might not be enough anymore.


  25. Thanks for the info!

  26. Absaraka Says:

    The problem that WILL happen if ticket prices go up is that attendance will go down, Fans’ pockets are not bottomless, and some will opt to stay home. Teams will end up making less money if they get too greedy. Cap would then go down that much faster, and we’re back behind the eight ball.

    For his shenanigans, Lowe needs to have Chris Simon use him for slashing practice.

    Of course, if we could sell out our arena every night next year, the cap would probably go up like five million per, our tickets are getting so pricey. Yes, I’m exaggerating.

    I’m sure GMGM is already buying his ticket for the Penguins Fire Sale. It will be sooooo much fun to be chanting “Last Place Penguins” in a couple of years after their salary cap implosion.

    Or, hey, maybe Kevin Lowe can try to pull his poaching shenanigans on the Pens? We can only hope, right?

  27. doug Says:

    All, this is an exceptional blog, from the origin down to all the comments, responses and counter-responses. Let’s hope the NHL is not on schedule to implode; another lockout would probably ruin the business end of the game. I still hate the fact that the business guys with green eyeshades and sharp pencils will control games more than the guys who skate and shoot the puck. It’s so much more fun to watch hockey and root for the Caps than it is to ponder the future of the NHL, wring our hands over salaries, and worry if we can keep our core players intact. Ted said he would do just that; this was before all the nonsense of Vanek, et al. I don’t think any GM or owner will be keeping all the players they would like. This will further alienate the fan base, who grow attached to rooting for certain players and watching them play. I’m just ready for the season — phooey with the business case analysis for now!!!
    v/r
    Doug

  28. idil Says:

    “The idea is to identify, draft, and develop talent. But that might not be enough anymore.”

    Yes and no. It’s definitely still key but you’re right in that it’s not quite so simple anymore. The rise of RFA offer sheets is only going to increase the value of rostering organizational loyalty. If front offices and team leaders can help foster that sentiment, as the Caps have done to a decent extent at this point, then you can potentially enable your younger players to sign for less than market value when they’re due for raises. That’s hard to do but that’s the likeliest route to a dynasty cropping up these days. (On that note, Kolzig signing a sweetheart deal would set a good precedent. Though for injury reasons, I can well understand why the Caps would wait until the season is over or close to being over.)

    If there isn’t a good deal of organizational loyalty, then you’ve got to have a shrewd GM at the helm to have the foresight to make the right trade before losing a player to an offer sheet and just simply getting picks in return. Such deals might become necessary for teams like Pittsburgh and Washington from a salary and depth standpoint. Otherwise, they could wind up structured like Tampa Bay has been the last couple of years.

    What Lowe has helped caused is that teams are going to concentrate on getting their RFAs signed to new contracts much, much earlier. That way they’re able to gauge the mindset and priorities of their RFAs and have an opportunity to avoid losing them to offer sheets.

  29. pucksandbooks Says:

    I’m late getting to this fun and thought-provoking party (I blame Comcast). The warning light for me with the new CBA was, and remains, the league’s concession to the union to lower, significantly, the UFA age. All the way to 27 — just when the typical hockey player is entering his prime. In general, teams need 3-5 years to develop drafted talent. Even of first-rounders. So in effect teams today are getting less than half of the service life from drafted players they were five years ago. 32 we could agree was an unworkable UFA age — Ulfie and only a handful of others had really good years from thereon. 30 seemed a significant move downward that was fair to both owners/managers and the players. Given the investments clubs make in scouting and development — it costs literally hundreds of thousands of dollars to get a player evaluated and matriculated from his first year in juniors all the way up to the big club — isn’t it reasonable to allow clubs to hold onto their big-league services SOMEWHAT into their prime playing years? Moving the UFA eligibility from 27 to 29 seems to me equitable, fiscally responsible, and an important hat tip to good scouting.


  30. […] A recent missive in this space mentioned that the fans will be footing the bill for the latest increase in the NHL salary cap, which is followed by the latest rise in player salaries as sure as autumn follows summer (please tell me autumn follows summer). I’m sure Buffalo isn’t the only team that will be employing these tactics, but it’s hard to conceive of other teams doing so to this degree. […]


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