Quote:
Originally Posted by GGG
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.
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In Scenario 2, the player got more money. Same cap hit. How do people keep missing the point here?
Contracts of 8 years or less do not discount the cash flows, for cap calculation purposes. If you go longer, you can. It is cap circumvention.
I am not discussing discount rates here, I am saying that, by adding a day to the contract, you can reduce the cap hit. It's a bad move that is now going to get exploited until it's fixed (or the cap will be dead)