The NHL and NHLPA are expected to discuss removing the option for teams and players to structure contracts with deferred payments when they begin negotiating a new Collective Bargaining Agreement next month, Pierre LeBrun of TSN and The Athletic reported Tuesday.
Deferring part of a contract’s total value until after its expiry to earn a discount on a player’s cap hit has been legal since the 2004-05 lockout, which signaled the beginning of the salary cap era. However, it was used incredibly rarely until the past few months. Four players—the Hurricanes’ Jaccob Slavin and Seth Jarvis, the Maple Leafs’ Jake McCabe, and the Ducks’ Frank Vatrano—have accepted deferred compensation as part of new contracts or extensions since July 1.
Vatrano’s extension, a three-year, $18MM commitment that carries just a $4.57MM cap hit compared to $6MM without deferred compensation, has taken the most advantage of the rule. It’s the first of the four to defer base salary, not just signing bonus money, and he’ll only earn half of the money over the contract’s life. The other $9MM will be paid out in 10 yearly checks of $900K from 2035 onward. During that time, Vatrano anticipates retiring in Florida and will not pay California state income tax on the money.
However, as LeBrun relayed, most player agents aren’t suggesting this strategy for their clients. Octagon’s Allan Walsh put up a brief explainer of why it’s not always a tax-saving measure in the long run, although LeBrun countered with the supposition that Vatrano wouldn’t have earned as much total cash by not using deferred compensation.
The league determined that Vatrano’s deal was compliant with the deferred compensation rule as written, but “that shouldn’t be interpreted as the league being a big fan of it or deferred payments in general,” LeBrun said. He adds the NHLPA has historically opposed deferred payments – the value of money paid later is almost always lower than money earned in the present due to inflation – creating an environment for both parties to close the door on that contract structure when the next CBA goes into effect for the 2026-27 season.
IMO teams are doing these types of tactics because of the maximum cap increase of only 5% per year. Raise the cap increase so teams can have some leeway as nearly 2/3rds of the league right now is barely below the cap limit. It’s ridiculous. If the league doesn’t want to do that then have a luxury tax percentage for teams who are willing to pay extra to afford another one or two upper level talents on their roster. Most teams are financially strained in the league because of the tight cap restrictions. It got worse especially after the flat cap matter as teams are still recovering from that mess.
Teams put themselves in that position by agreeing to sign players to long-term contracts with stupidly high cap hits (see: TOR). But supposedly the upper limit is going up significantly after this season, so we’ll see what happens.
Let them do deferrals but the hit happens the year they pay it out and it affects the overall cap hit for the year. Just like a buyout of a players contract.
Bettman is so stupid it hurts. Why the NHLPA would be against the deferrals if a player and his agent are ok is mind boggling, until one remembers that the NHLPA is the worst union representatives in any sport.
I said this was gonna happen after the Vatrano contract. Just before the Oilers can sign McDavid to his mega deal with diferrals for the next 25 years.
Escrow’s in jeopardy…Gary.