NHL Lockout 2012: Should Guaranteed Contracts Be Abolished?

nhl salary capThe NHL Lockout hit day 43 on Saturday. With every passing day the chances of a full 82-game season are rapidly eroding. And while the loss of the 2012-13 season will sting at all levels, the loss of the biggest Winter Classic in NHL history between the Toronto Maple Leafs and Detroit Red Wings will cost the league millions if dollars and immeasurable exposure for the NHL.

Both the NHL and NHLPA are said to be willing to get to that magical 50-50 split of all Hockey Related Revenue, but with no agreement on what constitutes HRR and no meetings scheduled over the weekend there is little hope of a deal getting signed anytime soon.

Besides, with the two sides seemingly not “speaking the same language” as NHL commissioner Gary Bettman said the other day, there seems to be little being accomplished when the two sides do meet, so what’s the point until they are truly ready to negotiate and not simply go round and round in circles with the same old proposals?

Even though the NHL pulled their most recent offer off the table on Friday, it appears as if a 50-50 split of HRR is all but a certainty when everything is all said and done. All things considered, at this point, it seems foolish for either side to be digging in, but I digress.

NHL hockey has been on an upswing since the last lockout, bringing in record revenues of some $3.3 billion, which is up over $1 billion from seven years ago. Along with record revenues NHL hockey has seen an upswing in support from novice fans who may not return after a lockout.

The biggest obstacle now seems to be the players’ insistence on the owners “making whole” on their current NHL contracts. With the owners looking to institute a rollback on all players’ contracts, the two sides remain at odds with no end in sight.

If and when the two sides do get a deal done, the salary cap, which currently sits at an estimated $70.2 million, would gradually get smaller in an effort to give some relief to some of the NHL’s struggling franchises.

Any shortcomings could be off-set if the NHL continues its growth spurt, but with fans starting to lose their patience with both the NHL and NHLPA there is a real danger that the NHL will see a reduction in revenue whenever they do sign a deal.

The NHL has already said that they are willing to enter a new CBA with the current salary cap being honored. Trouble is, that would only last one season with a hefty downward slide expected in year two, which does not sit well with the players.

Here is what the NHL’s current proposal says about payroll:

Payroll Range will be computed using existing methodology. For the 2012/13 season, the Payroll Range will be computed assuming HRR will remain flat year-over-year (2011/12 to 2012/13) at $3.303 Billion (assuming Preliminary Benefits of $95 Million).

2012/13 Payroll Range: Lower Limit = $43.9 Million

                                                   Midpoint = $51.9 Million

                                                  Upper Limit = $59.9 Million

Appropriate “Transition Rules” to allow Clubs to exceed Upper Limit for the 2012/13 season only (but in no event will Club’s Averaged Club Salary be permitted to exceed the pre-CBA Upper Limit of $70.2 Million).

One of the reasons the owners are losing money en masse is linked to their own over spending on contracts. Many owners were more than happy to sign numerous players to 8-15 year deals which would see many players earn as much as $8-$14 million per season.

While not every player is making this kind of loot, there are enough of these monster deals out there that it is hurting the league on the whole.

The salary cap, which has risen every year since the last lockout, was supposed to protect the owners from signing players to outrageous deals. Unfortunately, many owners and general managers have found ways to circumvent the cap, cleverly structuring contracts so as to minimize the cap hit over the term of the deal.

The results of this has been numerous clubs spending beyond their means, which has contributed to as many as 20 NHL teams operating in the red.

Try as we might to side with the players, the owners need relief. Owners invest in hockey teams with the expectation of making a profit, not to simply pour millions of dollars into a failing system.

From a fans perspective any whining from the owners in terms of what is being paid to the players is falling on deaf ears. The owners got themselves into this mess when they found ways to circumvent the salary cap, so why shouldn’t they pay the price for their stupidity, right?

The trouble is the majority of the owners have not done this, which means there is a clear divide amongst the owners that have the wherewithal to sign a player to a monster deal and those that either chose not to or cannot afford to do so.

Of course, every investment comes with risks, and there are no guarantees that every NHL owner will make money every year. But the current CBA is killing a number of NHL teams, which may mean some owners will have to consider selling and/or moving their team.

Bettman has never been a fan of moving franchises. He begrudgingly allowed the Atlanta Thrashers to move to Winnipeg, but on the flip-side he has steadfastly opposed any move of the Phoenix Coyotes franchise to a fault.

Even if the owners and players do get to that inevitable 50-50 split of HRR, many franchises will struggle to spend to the cap limit. As it stands now as few as ten teams are making money, with very few franchises (Toronto Maple Leafs, Montreal Canadiens, Detroit Red Wings, New York Rangers, Philadelphia Flyers, etc.) taking in a good chunk of whatever profits exist.

To continue to operate the NHL under the current arrangement which sees the players draw a 57 percent share of HRR would be an act of stupidity, which is why so many fans have started to support the owners in their desire to reduce payroll and the amount of HRR the players receive.

Getting the players to accept a 50-50 split of HRR would only be the first step towards securing a healthy NHL. The owners are said to be asking for a number of other concessions, which include a five-year limit on all future contracts.

This would limit the amount of “damage” a team could do to themselves, which is a good thing! Of course, the players will not like this as they all crave security, but if it means a better NHL, so be it.

The NHL also proposed that the salaries of minor league players above $105,000 be counted against a teams’ cap. This provision would prevent NHL clubs from burying bad contracts in the AHL (or any other professional league), like the New York Rangers did with Wade Redden and the Toronto Maple Leafs did with Jeff Finger, etc.

This is one part of the NHL’s proposal that should receive a lot of support from the fans, especially those that live in cities that could ill-afford to bury a bad player contract.

brian burke

One of the coolest parts of the NHL’s proposal was the inclusion of a new rule which would allow NHL teams to assume a portion of a player’s salary when trading. This would give NHL teams more flexibility to make big trades, which is an area that has slowed down since the last CBA was signed. Toronto Maple Leafs general manager Brian Burke wanted this badly, an idea I supported from day one.

The five-year limit on contracts, the inability to bury unwanted salaries and the ability to trade salary/cap room are all good ideas which would help protect the owners from their own worst enemy…themselves!

Another way the owners could protect themselves is to adopt the NFL’s current contract policy which allows for heavy signing bonuses for players in return for no guaranteed contracts.

Such contracts can benefit the player’s as they get a huge chunk of change up front, which is guaranteed. That said, every player would then be in jeopardy of being cut from his team, which effectively voids a player’s contract and makes him a free agent.

The signing bonuses would be pro-rated equally for each year of the contract, making it much easier for owners to budget their rosters and, in the event they make a mistake by signing an undeserving player to a monster deal, they would then have the option of getting out of the deal.

This would take away the fear of not being able to bury a bad contract and put additional pressure on your top players to perform at an elite level.

On the surface this may seem very unfair to the players, but with the players receiving a good chunk of their contract money up front few would be left poor.

Besides, how many players actually get one of these monster deals? They are few and far between, but when they go south they can really kill a team.

For example: if a player was signed to a ten-year/$100 million deal the team that signed them could offer a signing bonus of say $30 million. That $30 million would account for $3 million in cap hits over the ten-year term of the contract, with the other $70 million being paid out on a year-to-year basis depending on the player’s performance and their teams’ willingness to continue to employ said player.

Contracts could also be “back-loaded”, which would see the player earn progressively more over the term of the contract leaving the owners less vulnerable to bad contracts over time.

That same player that signed a ten-year/$100 million contract could be paid $30 million in signing bonus money, followed by ten seasons which would see them earn a sliding scale of $3 million in year one, $4 million in year two, $5 million in year three and so on until they were compensated the full $100 million.

When you take into account the $3 million cap hit per season due to the $30 million in signing bonus, that would mean in the first three seasons the team would be on the hook for a cap hit of $6 million ($3 million signing bonus, $3 million in salary) in year one, followed by $7 million in year two, and $8 million in year three, etc.

The NHL currently allows for signing bonuses, but they count against the salary cap for the entirety of the contract.

Nashville Predators defenseman Shea Weber signed a monster 14-year/$110 million contract this summer which will pay him a total of $13 million in signing bonuses in each of the first four years of the contract ($52 million), followed by two more years that will see Weber collect another $8 million in signing bonuses per season ($16 million).

If we used the NFL model where all signing bonuses are guaranteed, that would mean that Weber would be guaranteed a total of $68 million of the $110 million he signed for, which isn’t all bad!

On the flipside, if Weber’s play drops off dramatically the Predators could let him go, essentially making Weber a free agent and letting the Predators off the hook for any remaining salary.

Under the current NHL cap rules, Weber’s contract equates to a $7,857,143 cap hit in each of the 14-years of the term of the contract. Under the terms of the current CBA the Predators will have to pay out the contract in its entirety, with the exception of any rollbacks that come with a new CBA.

The NHL currently allows for teams to “buyout” a players contract with the remainder of the contract being paid out over two-times the length of what is left on the players current deal.

According to capgeek.com, if the Predators wanted to buyout Weber after this season (if there is one) they would be on the hook for $2,461,538 in salary in each of the 26-years it would take to pay Weber out. The Predators would also have to incur a cap hit for the full $96 million over 26-years, which would vary between $3,681,319 and up to $9,318,681 depending on the season.

To put things into perspective, under the current system Weber’s salary/cap hit would finally come off the books in 2038-39! That’s a long time to pay out a player!

Guaranteed contracts are a way of life for every NHL player. A switch towards contracts that would see more signing bonuses in return for no longer having guaranteed contracts is a great way for players to maximize their earnings in the short term while also allowing the owners to get out from bad contracts.

Simply put, if a player continues to perform at a level that deserves he be compensated to the fullest he will make a bundle of money. If not, he could be let go with no penalty to the team, essentially making that player a UFA.

This is how all of us are employed. If we do well, we keep our jobs and/or get a raise. If not, we are often shown the door. Why should NHL players be any different? Why should teams be stuck with a bloated contract with no way of getting out of it? And why should NHL teams continue to be punished for signing a player to a bad contract?

Of course the NHLPA would not be fond of this idea, but who cares?

As a fan I am not concerned over what a player makes or doesn’t make. All I care about is my team and their ability to make key signings, and if your favorite club is stuck with a brutal contract it is highly unlikely they will be able to make substantial changes until they trade said contract, which is often unlikely.

What say you? Should the NHL continue to allow guaranteed contracts? Or go the way of the NFL and abolish them?





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