Quote:
Originally Posted by Enoch Root
Again, the issue isn't with the time value of money, and whether the player is receiving an equivalent NPV.
The issue is with the cap. On an 8 year deal, there is no discounting on the amount. Here, they have added one day to the contract length, in order to discount $15.67M. This reduces the cap hit.
The moment you allow this, the cap is effectively dead.
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So scenario 1
Player gets an 8yr/ 80 million dollar cap hit 10 million cap hit
Scenario 2
Player gets an 8 yr / 94.3 million contract with a 10 million bonus in each of the first two years which is deferred and paid out in year nine at 7.5% interest. 17.8 million for the first bonus and 16.5 million for the second bonus.
Both have cap hits of 10 million per season. Both have the same NPV for the player using a 7.5% discount rate.
If a player views the risk of the blue jacks going bankrupt to be low enough and the 7.5% guaranteed return to be high enough he is better off with the second. But if someone did this over the last 8 years and instead just invested those first two bonuses in the S+P they would have been way worse off.
So from a cap hit perspective it comes down to do you believe the discount rate of 7.5% is too high? If so then you would consider it cap manipulation. But if you go back 2 years ago when Libor was almost 0 and the rate would be 1.5% then it would be a cap penalizing change. So if all parties are education then there verbiage in the CBA can’t really be abused.