[Signing] Canes sign Jarvis to 8 yr ext worth $63.2 million with a rare 9th year deferred bonus

[sureLoss]

https://www.dailyfaceoff.com/news/so...rred-structure

The Carolina Hurricanes and restricted free agent Seth Jarvis have agreed to terms on a new eight-year, $63.2 million contract, sources tell Daily Faceoff. It’s an important piece of business for the Canes, locking up the heartbeat of their team for the foreseeable future, but the way the contract is structured may be important business for the NHL’s other 31 clubs.

That’s because Jarvis’ new deal is set to become one of the first in NHL history to have a salary cap hit substantially lower than the typical average annual value because he was willing to defer salary.

Nearly every NHL contract in the salary cap era, since 2005, has been prescribed a simple cap hit: Take the total dollars ($63.2 million) and divide it by the length of the deal (eight years) and you arrive at $7.9 million per year on the team’s salary cap chart. With this deal, Jarvis will land on the Canes’ books at approximately $7.5 million per year, a savings of $400,000 each season.

No source was willing to divulge precisely how much money has been deferred, or in which year(s) of the deal the money is deferred, but there is a deferred signing bonus payment that is scheduled for July 1, 2032 – which is one day after the contract officially expires on June 30, 2032.

Because that payment is technically scheduled for Year 9 of the eight-year deal, there is no Year 9 cap charge for the Hurricanes, and the cap hit for the Hurricanes over the course of the eight-year deal is charged on what is actually paid out during that time.

Deferred payments have been allowed in the Collective Bargaining Agreement, but to this point, the Hurricanes are believed to be the first NHL team to cross this threshold in a meaningful way. Sources indicated the NHL’s Central Registry and the NHL Players’ Association have been briefed and signed off on the structure of this deal before terms were agreed upon; the deal is expected to be registered on Saturday.

The NHL’s CBA calls for a time value of money discount calculation. It is easy to understand the value of money over time – we would all rather have $1 million today than $1 million three years from now. So, the NHL has a formula that estimates how much the time value of money is, based on the current interest rates, and adjusts for that. That way the $1 million that you deferred today for payment three years from now might only count on the books as if you received $850,000 today.

Of course, there is risk here. This type of contract structure requires understanding from Jarvis and his agent, Gerry Johannson of Edmonton-based The Sports Corportation, on a varying number of topics including investment vehicles, tax structures and elements, plus a healthy risk profile on things such as escrow rates, the possibility of a buyout or trade that could change every calculation. So, this was a mature conversation that evolved over the last two months to the point where everyone is comfortable, and Johannson and the NHLPA believe this is good for Jarvis – not just the Hurricanes. This deal was the brainchild of GM Eric Tulsky and his staff, which includes Darren Yorke, Aaron Schwartz and now Tyler Dellow, and there is risk for Carolina too, but it can be minimized or eliminated with returns on investment of the deferred money.

[kyuss275]

Considering teams and agents knew they could defer payments, I’m amazed that this is the first contract structured this way. Have to think this is going to be the new norm going forward.

[Ped]

Players don't like change, so I suspect no one was interested in trying it out.

[memphusk]

Here we go. I was wondering when it was going to start. Rich teams get richer.

[Fire]

Odds of a lockout in a couple of years has just increased.

[The Cobra]

The cap hit is $7.5M because the true value of his deal is just that, based on the time element of the deferred payment.

Carolina is not getting away with anything here.

The present day value of the deal is actually 7.5x8 or $60M, hence the lower cap hit.

Or at least I assume that is the case.

[PepsiFree]

Originally Posted by The Cobra

The cap hit is $7.5M because the true value of his deal is just that, based on the time element of the deferred payment.

Carolina is not getting away with anything here.

The present day value of the deal is actually 7.5x8 or $60M, hence the lower cap hit.

Or at least I assume that is the case.

Well, no, the true value of his deal is 63.2M.

The cap hit is lower because a portion is paid outside of the 8 year calculation

[gvitaly]

How is this not cap circumvention? Also would the deffered signing bonus be added to his next contracts' caphit?

PS: That's a very convenient loophole, because when calculating the cap hit salary on year 8 of a contract isn't weighted less than year 1 just because it will be paid in 8 years.

[Fire]

Teams will start doing this to spend more during their cup window and defer as much cap as possible until after the window.

[stemit14]

Is there anything keeping a team from taking this to an extreme? Sign a 2 year deal for a total of $25 million but there is a signing bonus of $23 million the day after the deal expires. Am I correct in calculating that as a $1 million AAV cap hit despite the real average being $12.5 million?

[gvitaly]

Originally Posted by stemit14

Is there anything keeping a team from taking this to an extreme? Sign a 2 year deal for a total of $25 million but there is a signing bonus of $23 million the day after the deal expires. Am I correct in calculating that as a $1 million AAV cap hit despite the real average being $12.5 million?

I don't think it would work that way. In your example the $23M would still be included in the calculation but as a smaller number. Let's say the NHL thinks that $23M two years from now is worth $22M this year, which means the cap hit will be (22 + 2)/2 so it would still be $12M.

[Ped]

Originally Posted by gvitaly

How is this not cap circumvention? Also would the deffered signing bonus be added to his next contracts' caphit?

PS: That's a very convenient loophole, because when calculating the cap hit salary on year 8 of a contract isn't weighted less than year 1 just because it will be paid in 8 years.

It's not circumvention and it's not a loophole. It's right in the CBA.

[Groot]

The Canes save $400k per season doing this. It's nor going to trigger so massive shift in how contracts are handled.

[memphusk]

Originally Posted by Groot

The Canes save $400k per season doing this. It's nor going to trigger so massive shift in how contracts are handled.

Like when they didn't have to adjust the way contracts work every other time?

[Sylvanfan]

I take it that the year 9 payment will count against overall NHL expenses that year vs overall revenue. If that's the case and every team had say 6 million in these non cap charge payments a year, it might have a minor effect on escrow. 5 years from now everyone is likely doing this and someone will become the NHL's one day getting deferred payments for a lot of years after they dtop playing.

[The Cobra]

Originally Posted by PepsiFree

Well, no, the true value of his deal is 63.2M.

The cap hit is lower because a portion is paid outside of the 8 year calculation

I am talking about the true value of the deal based on present day avlues. The deferred payment substantially lowers the present day value of the deal.

Yes he gets $63.2M, but the delayed payments mean that the present day value of the deal is less. Hence the lower cap hit.

The actual cost to Carolina in terms of present day value is lower than $63.2M. Which is why I say they aren't getting away with anything here. The CBA contemplates this and allows it. They think its good for players to get deferred payments, and since this presumably makes the total pay out to the player larger (players expect more if the pay is deferred), if they ignored present day cost, no team would ever do it.

[The Cobra]

Originally Posted by stemit14

Is there anything keeping a team from taking this to an extreme? Sign a 2 year deal for a total of $25 million but there is a signing bonus of $23 million the day after the deal expires. Am I correct in calculating that as a $1 million AAV cap hit despite the real average being $12.5 million?

No, the league would look at the present day value of the contract. Since the deferred payment happens so quickly, the cap would be less that $12.5M, but not substantially less. And would be based on the present day value of the contract.

[transplant99]

Originally Posted by memphusk

Here we go. I was wondering when it was going to start. Rich teams get richer.

The Canes are a "rich" team??

[calculoso]

I wonder if that deferred payment will count against the Canes cap in that 9th year just like how player bonuses for older players do

https://puckpedia.com/salary-cap/per...and-carryovers

[Scornfire]

Originally Posted by Groot

The Canes save $400k per season doing this. It's nor going to trigger so massive shift in how contracts are handled.

I mean, do this for all your larger contracts and suddenly you have a few more mil in space during your window. Seems sus