Daily Archives: August 10, 2012

Impact of new NHL CBA on mega length contracts

The upcoming NHL season is about to be held hostage by the NHL owners as they push for some significant concessions from the players. The Collective Bargaining Agreement is up for renewal and the owners have fired the first shot.

The significant asks as I understand them are a reduction in the players share of revenue from 57% to 47%; a 22% rollback in player salaries; a five year maximum contract term; a delay in free agent eligibility and some changes to the salary cap structure.

I obviously have no idea how things will play out over the next few months. The NBA and NFL players associations agreed to a 50% revenue cut. I think that 50% number will have a pretty firm gravitational pull to the negotiations. A drop to 50% would likely bring with it an accompanying roll back in players salaries to fit into the revised, lower salary cap number.

I was thinking of these potential changes on this summer’s free agency proceedings. Did Minnesota offer Ryan Suter and Zach Parise the moon thinking that the ultimate outlay would not be anywhere near what was agreed to? Did Nashville step up and match Philadelphia’s offer sheet to Shea Weber with the hope that the new CBA would reduce the dollars, the term and potentially the signing bonus structure? It would be a dangerous game of poker to play, but it might prove to be a winning hand.

Below, courtesy of capgeek.com, are tables detailing Weber’s deal and the identical deals of Suter and Parise.

My understanding is the signing bonus forms part of the NHL salary and acts as a mechanism to satisfy the 100 percent rule of the recently expired CBA (please comment and correct me if I am incorrect here). The year one non-bonus portion of the contracts is $1 million and $2 million respectively, which makes the $1 million salary in the final years of the contracts kosher.

Below are adjusted tables that simply assume the NHL owners are successful in gaining a 22% rollback in salaries.  For the cap hit, I have shown it three ways: no restriction on contract term; a seven year maximum contract terms; and a five year maximum term.

The math likely works pretty well in terms of revised cap hit over the full contract length under the owners’ first offer.  Weber’s $110 million contract becomes an $85 million deal; still monster cash, but it probably a lot easier for a team to stomach if their share of revenues goes up to 50%.  The Wild still have $152 million tied into two players, with Suter’s ultimate value without Weber as a partner is still to be determined.

The columns with the seven year and five year terms illustrate an issue that will need to be dealt with should the owners be successful in capping contract lengths and that restriction is applied retroactively. The resulting annual cap hits likely won’t fit into the revised maximum salary caps.  Some sort of fancy math is going to be required to make that work.

This annual cap hit issue illustrates just how complicated the CBA negotiations will be. In addition to gaining common ground on the dollars involved, both sides are going to need to agree on all the resulting implications on their salary cap world.

I hate to be a pessimist, but it is going to take a fair while to get both parties in agreement. The owners hold most of the cards, while the players have a real stubborn SOB in Donald Fehr to lead them. Fehr famously led the baseball players association through a lengthy strike without giving in on key negotiating points. It will be interesting to see what points, if any, the players concede to in the next month. The September 15th lockout date is going to hit players and fans before we know it.


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