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The Signing Bonus: Rise Of The Buyout-Proof Contract (A Reprise)

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This article was originally published in July of 2016, but seems extremely relevant a year later. Most of the players discussed inside underachieved in their first season, and again we saw signing bonuses handed out like candy this summer. Included at the bottom is an update with new contracts from this offseason.

The life of an NHL agent is tough. As the league continues to tweak (or totally overhaul) their CBA each few seasons, changing contract regulations and offering teams different ways of structuring deals, agents are always trying to find ways to circumvent them and get the best offers for their clients.

With teams becoming more and more willing to use buyouts to rid themselves of the horrible contracts that they sign on July 1st – famously a day of simultaneous excitement and regret – agents around the league needed to find a way to protect their clients from losing out on a third (or sometimes two-thirds) of the salary the sides agreed on.

The most recent buyout window, which lasted from June 15th to 30th, saw a dozen NHL players bought out, including household names like Thomas Vanek and Dennis Seidenberg. While some fans may see this as an opportunity for a player to earn two contracts at the same time – Vanek was signed on by Detroit for $2.6MM on July 1st, more than the $1.5MM he surrendered in his buyout – most take it as a personal slight, an indictment of their play or character. Regardless, agents continue to try and secure guarantees for their clients, instead of leaving the power in the hands of the league’s general managers.

"<strongEnter the signing bonus, this summer’s contract-du-jour. All across the league, big name free agents have inked deals that will see them paid almost entirely in signing bonuses, with very little actual salary being given out each season.  Take Loui Eriksson for instance:

2016-17 – Salary: $1MM, Bonus: $7MM
2017-18 – Salary: $1MM, Bonus: $7MM
2018-19 – Salary: $1MM, Bonus: $6MM
2019-20 – Salary: $1MM, Bonus: $4MM
2020-21 – Salary: $1MM, Bonus: $3MM
2021-22 – Salary: $3MM, Bonus: $1MM

While Eriksson’s cap-hit sits at $6MM per year, he’ll make more than that in bonuses alone each of the next three seasons. There are a couple of reasons why this would benefit the player.

For one, everyone loves getting a big check rather than a weekly salary – who would turn down a piece of paper with six zeros?  As any economist will tell you, money in hand is worth more than money promised to come, and just as teams in other sports are deferring payments for this reason long into the future, having money up front is actually more valuable for the player in question.

It’s in the buyout rules that the contract really holds value though, as – hinted at by the title – these contracts are basically buyout-proof.  Under the current CBA, buyouts are calculated by taking two-thirds of the remaining salary owed, not including signing bonuses, and spreading it out over twice the remaining contract length. The new cap hit is determined by subtracting the savings from the average annual value of the deal which includes signing bonuses.

This means that if the Canucks were to want to buy out Eriksson after say, the third year of his new deal, they’ll only be saving $333K of cap hit in 2020-21, an insignificant portion of the $6MM number. That last season of $3MM is a bit better for the Canucks (they would save $2MM of his cap hit), but structuring it this way almost guarantees that Eriksson will collect at least $35MM of his deal – more than 97%. It’s just not worth it to buy him out any sooner than his final year.

"<strongAndrew Ladd, Milan Lucic, Kyle Okposo all signed deals heavily impacted by signing bonuses, protecting them against a buyout through all but the very end of their agreements.  Even Matt Martin, a career fourth liner secured a $10MM deal that is 65% bonus.  He’ll only be collecting $750K in salary in years three and four of the deal.

While this doesn’t necessarily mean trouble for clubs around the league, you can bet the owners and NHLPA will take a look at it when negotiations begin on the new CBA.  The current agreement expires in 2022, though the two sides have the option to end it a year earlier.

Just as the league has used cap recapture and contract limits to close loopholes in the past, be sure that if they want to continue to have the option to buyout bad contracts they’ll remove this option from the equation.  Creating a rule that would make signing bonuses only be able to hit a certain percentage of each season’s salary would be the easy fix, but expect push-back from the NHLPA.

Even if they do end up closing it, agents will work on another way to get their clients the best possible guarantee; they always seem to be one step ahead of the league.

This summer, signing bonuses have taken off even further. Carey Price’s eight-year extension with the Montreal Canadiens is over 80% signing bonuses, with the goaltender making a maximum of $2MM in salary per year. A $10.5MM cap hit through age-38 will be impossible to buy out, offering almost no cap savings. The Blackhawks face a similar situation with Brent Seabrook, whose 2015 contract is looking worse and worse, and provides little incentive for a buyout.

Interestingly, the Nashville Predators have continued in their practice of avoiding signing bonuses altogether. After signing Filip Forsberg to a bonus-free deal last summer, both Ryan Johansen and Viktor Arvidsson have taken similar structures in their long-term extensions this year. GM David Poile has taken much of the risk off the table even as he allocated many of his resources to his trio of young forwards. Though they pose little risk of age-decline, all three carry large enough cap hits to really hurt the Predators if they were to take a step backwards in their development. It’s hard to see any deserving a buyout, but the option is still there.

Alexander Radulov may be the biggest example among 2017 unrestricted free agents, as his contract with the Dallas Stars is both front-loaded and filled with signing bonuses. Radulov will earn just $13.25MM in salary over the next five seasons, making it difficult to buy out even as he enters his mid-thirties. For a player who has a relatively short track record of success in the NHL, it may quickly turn into a problem if he starts to feel the draw of father time.

Donald Fehr Addresses Salary Caps, Contracts, And More

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NHLPA Executive Director Donald Fehr spoke to media during the NHLPA’s annual charity golf tournament this week. Fehr answered numerous questions regarding the salary cap, player contracts, and the Olympics.

At the outset, Fehr reiterates that the PA is against any form of salary cap, and that its presence hinders player salary growth. Fehr points out that Major League Baseball continues to function successfully without any salary limitations.

Fehr then addressed how the NHLPA deals with players potentially leaving money on the negotiating table. This question stems from the rumor that Connor McDavid walked back a $13.25MM AAV contract to one that pays him $12.5MM AAV. Fehr states that money is just one factor in contract negotiations, and the top-dollar amount is not always the main concern.

Regarding the Olympics, Fehr tells reporters that national pride drives players to play in international events, but did not expand on the PA’s position regarding player participation next season. Fehr did admit that the PA wants a series of international events just like the NHL. In the same international play vein, Fehr also admits that players have not been fully paid for the World Cup of Hockey. Prize money and stipends were handed out, but the rest of the revenue required complete accounting before distributing the players’ share.

Finally, Fehr addresses the revenue and salary gap between the NHL and NBA. The NHL, says Fehr, used to be only 20% behind the NBA in revenue numbers, but now lags behind significantly. As for player salaries, Fehr acknowledges that individual NBA players can affect the game more than an individual NHL player.

 

RFAs Headed For Payday In Arbitration

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As the list of the players who have filed for arbitration was released earlier today by the NHLPA, a few names stick out as those due a meaningful raise. Arbitration is a tricky process to reliably predict, but it’s a safe bet these names will see their cap hit rise substantially.

 

Brian Dumoulin – D – Pittsburgh Penguins

There was a time when the young Dumoulin was a well-kept secret in the league, overshadowed by the far flashier play of Kris Letang. Dumoulin’s accolades this last playoff year certainly didn’t go unnoticed, and as the lone defensive defenseman in their core group, he probably holds the greatest job security on the team’s blueline. He doesn’t put up points – only one goal in the last two seasons, but he blocks shots and drives possession while eating a ton of minutes against top competition. As analytics are utilized more and more, his case only gets stronger. A contract well over $4 MM is certainly looking possible.

Colton Parayko – D – St. Louis Blues

This is the name seen most commonly associated with offer-sheets this summer, and with good reason. Parayko plays with the mentality of an old-time defenseman, but he can skate quite well for a large (6’6) man. He’s only had two seasons in the NHL, but he’s impressed since he first took the ice. Again, he isn’t a massive offensive force (he scored 3 goals last season), but he’s already averaging over 21 minutes a night with near equal starts in both the offensive and defensive zone. He’ll be hurt by the quantifiable stats factor, but he’s a big body with a rare right-handed shot to boot. This contract could look relatively cheap compared to his next, if he continues along this course. He should cost around $5.5 MM.

Ondrej Palat – F – Tampa Bay Lightning

Others will look to the undersized center Tyler Johnson as most likely to get a payday. But don’t over look Palat’s consistency – it may give him an edge with arbiters. Johnson does have his 72 point campaign to lean on, but that was now two full seasons ago. The fact that both players couldn’t break 20 goals in the last two seasons will bring their prices back down to Earth. Palat has grown into his role on the team and back-checks with a ferocity not often seen in younger stars. Johnson is no slouch either – they’ve both accumulated Selke votes over the years. These are two pivotal pieces of the Lightning, and their upcoming contracts were a big reason Jonathan Drouin was traded away to Montreal. GM Steve Yzerman will happily lock both up, but he will be hoping for figures under the $6 MM mark.

Viktor Arvidsson – F – Nashville Predators

This would have been an unlikely name on such a list even last December, when you consider how truly meteoric Arvidsson’s rise was. His value in arbitration will be deeply interesting – the shifty winger has played himself into the core of the team within a season. He really only has 2016-17 and the long playoff run to hang his hat on, as he scored only 16 points through 56 games in 2015-16. This year was a remarkable offensive explosion, with 30 goals and 31 assists. At only 5’9, Arvidsson has really shocked many onlookers by how easily he’s adapted to the physicality of the NHL game. His talent has never been in question, and with his production now well-established, it’s safe to believe he’s going to get a cushy award. How bad the damage will be is going to affect Nashville’s cap going forward – I suspect over $5 MM, but there are few comparables.

Mikael Granlund – F – Minnesota Wild

Granlund is perhaps slightly more enticing league wide than fellow Wild RFA Nino Niederreiter. He’s a marginally more cerebral player, and he plays the valuable center position. Neiderreiter is the more natural goal-scorer and larger frame, but Granlund has better PPG and has broken 30 assists thrice. Both players will get paid, as they both broke 25 goals last season and will be important pieces in the State of Hockey for some time. I think the more interesting thing to watch here is whether the Wild play it safe with Granlund and take a one year deal, or attempt to lock him up for longer. This was the first season he really scored with any consistency, but the Wild have shown their faith in the player by continually giving him over 17 minutes of icetime even when he struggled to produce. A one-year would easily command over $5 MM, whereas a longer deal could bring cost down.

 

Snapshots: Top-93, Healy, Vegas Deals

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TSN has released their final ranking for the 2017 Entry Draft, and Nico Hischier has finally overtaken Nolan Patrick at the very top. Bob McKenzie who compiles the list based on a survey of 10 working scouts, writes that Patrick now only received four votes for the top spot, with Cale Makar even getting a single #1 vote.

That’s a much different ranking than earlier in the season when Patrick was the unanimous selection, and shows the volatility this year’s draft board. Even at #1 there is no consensus, and there are dozens of players who could go in the top-10. With such different boards around the league, there may be quite a bit of movement in the first round as teams target who they want.

  • Former NHL goaltender Glenn Healy has been named Executive Director of the NHL Alumni Association. Healy has worked with the NHLPA in the past and had been working as the interim Director for the NHLAA. He’ll lose the interim tag now and got a ringing endorsement from Wayne Gretzky himself, saying that Healy “is the right guy to lead us into the future.”
  • Scott Cullen of TSN believes there is at least seven side deals completed with Vegas in order to protect extra players or have a particular player selected. That would explain some of the interesting choices in yesterday’s protection list reveal, such as Minnesota and Anaheim leaving top flight defenders available. The Islanders, Penguins, Blackhawks, and Blue Jackets are also expected to have deals already in place, though nothing will be official until the expansion selections come out on Wednesday night.

NHL Salary Cap Raised To $75 Million

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The NHL’s salary cap ceiling has been raised by $2 MM to $75 MM, according to NBC and various sources. The NHLPA voted on this decision back on June 16th according to TSN’s Pierre Lebrun, and the results of that vote resulted in next season’s total. The floor (or minimum) will be set at $55.4 MM.

The increase is slightly less than what many fans had hoped for, though the figure had been floated around for quite some time. This is only a 2.6% increase in the ceiling, which is less than the option the NHLPA could have opted for – an automatic 5% yearly increase. The stagnation in the cap overall is concerning to many teams who are very near the cap and/or have players due raises in the near future.

Many teams have been operating under the assumption that the ceiling would be around this number, so it shouldn’t affect any single organization too greatly. The team that will be most impacted is the Chicago Blackhawks, who are already over that ceiling. Teams such as the Washington Capitals and Tampa Bay Lightning highlight a group that will struggle to get a compliant roster in the near future with such little room to maneuver.

Latest On Salary Cap Limits For 2017-18

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There has been much speculation over the past few months over where exactly the upper limit of the NHL salary cap will land for the 2017-18 season. Some have claimed it will remain flat, but a new report from James Mirtle of The Athletic (subscription required) refutes that. Because of the revenue that the league has generated over the past year, Mirtle writes:

It’s important to note here that there’s actually no scenario where the cap goes down or stays flat at $73-million.

Mirtle’s sources tell him that the most likely number for the cap will be $75MM, a relatively low bump but one that could be crucial to teams already pressed to the limit. The Chicago Blackhawks for example are already projected to be over the cap by more than $4MM for next season, while others like the Ducks, Red Wings and Kings could all desperately use a few extra million to work with. It also means that the cap floor is likely to increase at least slightly, meaning teams like Carolina and Arizona, currently projected for less than the 2016-17 floor, will need to do some work to increase their payroll for next season.

The decision on the upper limit comes down to whether the NHLPA exercises its full 5% escalator as it has traditionally done. This year, as Mirtle writes, the players’ union is considering not pushing it up as far as possible because of the escrow issue that has been brought up several times. Not only is the amount of escrow players are losing off each paycheck determining this specific decision, but negotiations on a whole between the two sides when it comes to the next CBA. It has been widely speculated that the players may use their 2019 termination deadline to opt-out of the current agreement in 2020, which could potentially cause another work stoppage for the league should a new deal not be ironed out.

Either way, the expected increase in the salary cap for next season will come as a breath of fresh air for several teams hoping to make an impact in free agency this summer, and for those with several high-priced restricted free agents to sign this summer (see: Tampa Bay, Nashville). For other clubs, like Toronto and Edmonton who will have to pay their young talent over the next few seasons, any increase above $75MM would also be welcome. According to Mirtle, should the NHLPA use the entire 5% the cap would sit somewhere around $77.5MM, a large increase from last season.

Chris Chelios Leaving Red Wings

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Chris Chelios is leaving the Detroit Red Wings thanks in part to a possible opportunity with the NHLPA, reports TSN’s Darren Dreger (video link).  Chelios was a part-time assistant coach, but with his contract ending, both parties chose to sever ties in light of Chelios’s new prospects.

Chelios has worked for the Red Wings organization since his retirement in 2010, and most recently as an assistant since 2015. Not a true assistant coach, Chelios adopted part-time duties to remain closer to his family. The former NHL defenseman had been linked to NHLPA positions before, and had his contract terminated early—it was set to expire at the end of this month—because of his involvement with player agents Rich Winter, Anton Thun and Kurt Overthardt on how to strengthen the union.

Dreger mentions that there may even be a role within the NHLPA for Chelios as an ombudsman, a position that does not report to the executive director, but rather to the 30 player representative board. The NHLPA created this position as part of a system of checks and balances against executive director impropriety, and to prevent an Alan Eagleson-esque situation.

Chelios cannot hold both a position with the Red Wings and be involved in this process because it would create serious conflicts of interest. The NHLPA serves to protect players’ interests in the face of managements’ transgressions, so employees cannot fully represent both sides of the coin.

The NHLPA has a history with Chelios. In 2006, Chelios, along with Trent Klatt and Dwayne Roloson, sued the NHLPA in U.S. Federal Court to remove then-current NHLPA executive director Ted Saskin. Saskin succeeded Bob Goodenow as NHLPA director during the 2004-05 NHL lockout, though Goodenow did not formally step down until two weeks later. The Court eventually dismissed the case because it should have been brought in Toronto, where the NHLPA was located.

Though he now isn’t part of the Red Wings organization, Dreger makes it clear that there is “no bad blood” between the two sides and that a reunion could be in order if it doesn’t work out with the NHLPA.

Evening Notes: Chayka, Boogaard, Oilers

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Coyotes GM John Chayka spoke with Craig Morgan of Arizona Sports and provided decent insight into the team’s strategy headed into the summer. Chayka is the youngest general manager in the league and has become infamous for his cap management strategies. Chayka seems highly interested in acquiring a player from a team worried about losing an asset for nothing. Although many other GMs will be seeking to accomplish similar deals, Chayka looks to be relatively aggressive on this front. He tempered Mike Smith trade speculation, saying “there’s a value to our team that Mike has, being an All-Star and our rock; his value is extremely high but if someone wants to pay an even higher value for him, that’s the industry.” There is also no news as to Shane Doan’s retirement decision. Chayka emphasized the increasing urgency among all GMs as the expansion draft seems to have every organization slightly on edge.

  • The case for wrongful death filed against the NHL on behalf of the late Derek Boogaard has been tossed out, according to the Star-Tribune. Boogaard died at the age of 28, after a long enforcer career with the Minnesota Wild and New York Rangers. He received multiple brain injuries and relied on opioid pain killers as treatment, which led to an addiction that eventually resulted in his demise. Fighting has declined substantially over recent years in the NHL, as both the NHL and NHLPA are looking to reduce incidents of traumatic brain injury. The debate over the role of violence in the sport remains a hot-button issue, but players still generally vote in favor of fisticuffs when surveyed. That the Boogaard case has been dismissed on technicalities is a setback for safety advocates, as there is a looming lawsuit in U.S. courts which seeks to prove that the league has been reckless in its regard for player safety in relation to concussions. Whether these off-ice lawsuits will impact the next Collective Bargaining Agreement, or the way penalties are called, remains to be seen.
  • The NHL released the results of a fan vote for the greatest team of all time in honor of the 100 year anniversary – with the 1984-85 Edmonton Oilers taking top honors. The 1991-92 Pittsburgh Penguins came in at number two, followed by the 1976-77 Montreal Canadiens.

Potential Buyout Options

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NHL fans are looking ahead to an offseason which will likely see a lot of movement, but will also feature teams tight up against a stagnant cap ceiling. Buyouts are always an option teams will weigh, although certainly an avenue of last resort. Dumping a contract isn’t as simple as taking the player’s salary off the books. They will count as 1/3 or 2/3 of the original cap hit, for twice the remaining years on that contract. So if a 26 year old player has two years remaining at $3 MM, he will cost $1 MM for four years against the team’s cap total. That means a substantial savings of $2 MM, but is a habit GMs will not want to fall into. For players over 26, the 2/3 rule applies, and that same player would count for $2 MM each of the next four seasons. In such a scenario, the savings are rarely worth it. However, teams can be backed into this corner when trade options completely vanish.

For the 2017 offseason, there is an extra component at play – the expansion draft. Players with full No-Movement Clauses must be protected by their team, exposing potentially better, younger, cheaper options to selection by the Vegas Golden Knights. Prior to the expansion draft, on June 15-17th, there will be a buyout window. Consequently, there will most likely be at least one case where a player who otherwise would not have been bought out will be due to a team’s long-term prospects. This certainly isn’t what the NHLPA had hoped for when they agreed to another 20+ players in the league with the expansion of Vegas, but is an unfortunate unforeseen consequence. Here are just some of the players who could be facing the buyout option this summer:

 

Antti Niemi – Dallas Stars

Both Niemi and fellow goalie Kari Lehtonen should be expecting this fate. With Ben Bishop signing a massive six-year contract with Dallas, their time as starters in this league look all but complete. Both are paid an asburd amount of money, but Niemi’s $4.5 MM is the more unpalatable total. His .892 save percentage through 37 games this year was only edged in ineptitude by Michal Neuvirth among tenders who got more than 15 starts. At his pricetag he is virtually unmoveable, and with only one year remaining on his contract, the hit would be worth it for 2 seasons to keep him away from the team.

Kevin Bieksa – Anaheim Ducks

Bieksa might seem an odd inclusion on this list, considering his age, but it should be remembered that he has a No-Movement Clause, meaning he would need to be protected by the Ducks. Needing to also protect Sami Vatanen, Cam Fowler, and Hampus Lindholm, even under the 8 player protection model, this would likely expose Josh Manson. Considering his play in this post-season, and Bieksa’s complete inability to remain healthy, this is a darkhorse candidate for a last-minute buyout. Bieksa’s Corsi is the worst on the backend for his team and his skating has looked quite problematic of late. The flare of his Vancouver days seems long past and with only one year remaining at $4 MM, he seems an easy target to eliminate.

Scott Hartnell – Columbus Blue Jackets

Hartnell is considered a gutsy character player, a net-front presence, and a veteran leader. However, he has seen his production shift from being that of a decent offensive threat (28 G, 32 A in 2014-15) to an average third liner (13 goals, 24 A in 2016-17). His problems run deeper, though, as his brand of physical hockey has taken its toll on his play. No longer quite the intimidating wrecking-ball of his Philadelphia days, Hartnell is not as effective on the forecheck as he once was. The reason he is included on this list, however, is because Columbus has a lot of young, promising players they will wish to protect in the expansion draft, and Hartnell has a No-Movement Clause. At 34 years old and in a quickly diminishing role, it will be difficult for GM Jarmo Kekalainen to save a space for Hartnell. With toughness adequately filled by hard-nosed forwards in Brandon Dubinsky, Boone Jenner, Nick Foligno, and Brandon Saad, he seems even more superfluous. Assuming Dubinsky (NMC), Brandon Saad, Jenner, Foligno (NMC), Cam Atkinson, and Matt Calvert are protected, Hartnell’s inclusion would sacrifice the 24 year-old William Karlsson. That’s a difficult concession for the Jackets to make, even if the youngster took a step back offensively this season. If they would opt to buy out Hartnell’s contract at $4.75 MM, it would mean $3.16 MM in dead space for 4 more seasons, a hefty pill to swallow.

 
There are certain to be other candidates for buyouts as well, but these are three that could easily find themselves looking for a new contract come June 18th.

2020 World Cup Tied To New CBA

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While the 2016 World Cup of Hockey wasn’t as successful as the NHL and NHLPA had hoped, it was a promising first step for a tournament that had been dormant since 2004. Now according to Gord Miller of TSN, who is commentating the IIHF World Championship currently, the 2020 tournament may be in jeopardy.

Miller tweets that the World Cup is “unlikely” should the NHLPA opt out of the current CBA—which they can do in September 2019—and don’t have a new agreement in place in time for the 2020-21 season. The 2004 tournament was followed by a lockout, a situation that will not be allowed to happen again.

There has been speculation for months (if not years) that the NHLPA will utilize their opt-out clause due to the growing concern over escrow and the NHL’s stance on the Olympics. When the NHL tried to bargain a CBA extension for Olympic participation, it was met with a resounding rejection from the players. Executive Director Donald Fehr at the time told the Canadian Press that there was “no appetite among players to extend the agreement.”

As Pierre LeBrun of TSN clarifies, neither side wants to hold the World Cup before they “turn the lights off” on a season, and have been in agreement on that part since the September tournament. It’s interesting though, that not only will the next negotiations impact league play but international competition as well. The 2019 opt-out dates—September 1st, 2019 for the league, and September 19th, 2019 for the players—will some of the most important since the last lockout to determine the future of the league.

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