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

[PepsiFree]

Originally Posted by butterfly

Sounds more like you’re talking about yourself than Jay, who has explained pity points and net present value to you in consecutive arguments and you simply choose to pick petty fights.

Says the person just begging to be included.

[All In Good Time]

Originally Posted by butterfly

$1.00 now is worth about 40-60 cents in 2031, depending on a multitude of factors - definitely toward the lower end if it isn't needed for immediate survival and can be used for investment, especially in tax advantaged methods. They implicitly accept dimes on the dollar if they don't insist on front loaded contracts.

That's why a series of 1-year contracts is so much more beneficial for the player, especially when they're on the rise (like Seth Jarvis). The time to take the long term contract is when you've peaked.

Absolutely
Agreed 100%, never questioned that at all. The player gets their cash, the team pays the cash, the cap hit is 5% less.
Silly that this hasn’t been happening all along and suddenly appears in this point in time
It’s a 4.4M player on an 88M cap


Oh
And I did those calculations in my head on a Saturday night after a vodka or two and I’m NOT an accountant believe it or not

[butterfly]

Originally Posted by All In Good Time

Absolutely
Agreed 100%, never questioned that at all. The player gets their cash, the team pays the cash, the cap hit is 5% less.
Silly that this hasn’t been happening all along and suddenly appears in this point in time
It’s a 4.4M player on an 88M cap


Oh
And I did those calculations in my head ona Saturday night after a vodka or two and I’m NOT an accountant believe it or not

No worries, but yeah. That's the idea. The player should be ambivalent about the payout structure (or at least the agent should explain to them that they should,) since the only thing that matters is the NPV.

[All In Good Time]

Originally Posted by butterfly

No worries, but yeah. That's the idea. The player should be ambivalent about the payout structure (or at least the agent should explain to them that they should,) since the only thing that matters is the NPV.

Yep
The future value of a few here has decreased exponentially



Edmonton Journal September 5 2024 headline

Leon Draisaitl Signs 116M Contract Extension 13.5AAV

[butterfly]

Originally Posted by All In Good Time

Yep
The future value of a few here has decreased exponentially



Edmonton Journal September 5 2024 headline

Leon Draisaitl Signs 116M Contract Extension 13.5AAV

We can only hope. That will be an anchor contract at age 30. Seth Jarvis is 22 and Tulsky talked him into this.

[nfotiu]

To go with a basic example to hopefully clear things up.

Player A gets a 10x10 million contract paid out traditionally and gets a 10 million/year cap hit.

Player B gets 100 million over 10 years, except that half that is paid in year 11, so he gets 5 million per year for 10 years and 50 million in year 11.

On the team side, they pay 5 million to the player each year, and put 4 million into an interest bearing escrow account. At year 11, that escrow account should be worth about 50 million, and the player will be paid from that money.

The team is paying 9 million each year and that is the cap hit. There's no advantage to the player or team in terms of cap space doing it this way vs just giving him a 9x10 million contract. They wouldn't structure like this for cap reasons.

The player would actually be better off taking a straight 9x10 million contract vs a 10x10 with deferred money as they could probably beat the discount rate if they invested it themselves.

[Robbob]

So if the player is traded, the new team would just continue to deffer into that pool? Is the NHL or agent managing that?

[The Cobra]

Originally Posted by All In Good Time

Absolutely
Agreed 100%, never questioned that at all. The player gets their cash, the team pays the cash, the cap hit is 5% less.
Silly that this hasn’t been happening all along and suddenly appears in this point in time
It’s a 4.4M player on an 88M cap


Oh
And I did those calculations in my head on a Saturday night after a vodka or two and I’m NOT an accountant believe it or not

The large majority of players take the early 8 year deal for security reasons.

It sets up their family and future families for generations.

[The Cobra]

Originally Posted by All In Good Time

So deferred payments don’t calculate into the cap hit?
Amazing that Vegas hasn’t insisted on this all along
Everyone for that matter
I guess we have a precedent now

They do go into the cap hit, but at a lesser value, as a dollar 9 years from now is worth less than dollar 1 (or even 8) years from now.

[Strange Brew]

I don’t really see this as a loophole. Deferred comp plans aren’t unusual and are tax planning vehicles. Makes sense when dealing with retirement contracts. What’s strange is that neither apply here, so he gets little benefit from deferring his comp. If his income is lower in year 9 because he’s no longer playing hockey, and if he moves to a lower tax state, it’s a tax win. Agreeing on the right investment strategy for the deferred comp plan shouldn’t be that hard either, lots of organizations do this.

And the cap hit is simply the money that gets put into the plan.

[GGG]

A few things here that help both the player and club.

Libor is back up to just under 6% right now. So the discount rate for the cap hit on deferred comp is 7.5%. This makes it actually useful from the sub 2% values previously.

Depending on your thoughts on the market CAPE ratios are at all time highs which suggest real rates of return much lower than average.

The tax rates and jurisdictions in year 9 are more controllable.

So there is likely a wedge of value where the Hurricanes pay the same amount of dollars discounted to today, the player earns the same amount as the dollars discounted today, and the cap hit is lower by a few hundred k.

[memphusk]

Originally Posted by transplant99

The Canes are a "rich" team??

Not the Canes are rich, but wait until everybody starts squealing about the Rangers and Leafs doing it.

[butterfly]

Originally Posted by Strange Brew

If his income is lower in year 9 because he’s no longer playing hockey, and if he moves to a lower tax state, it’s a tax win. Agreeing on the right investment strategy for the deferred comp plan shouldn’t be that hard either, lots of organizations do this.

And the cap hit is simply the money that gets put into the plan.

I don't think it matters where he lives or moves. He could live in a zero tax state already and just play home games in North Carolina. I think it matters where the games occur.

[Enoch Root]

No one is debating that there is a time value of money. But let's not forget, there is no time value of money applied to an 8 year deal, so there should be no time value applied if you go a day longer.

This contract added a day, in order to reduce the cap hit. IMO, that is a huge mistake, and will open up a can of worms which will destroy the meaning and purpose of the cap.

I am astounded the the NHL and the NHLPA endorsed this.

I have zero doubt that we will see a deal for Draisaitl that will lower the cap hit on his contract by at least $1M.

Remember back-diving contracts? They got worse and worse until they had to be limited. The same will happen here.

[sureLoss]

The key point to understand is that the player is being paid at the $7.49 AAV rate over 8 years.

The only difference is that the team and player have come to an additional agreement.

In exchange for deferring payments for parts of what the player is supposed to earn in years 1, 2, and 7 (per Puckpedia) the team has agreed to pay the player what he was owed in those years plus interest at the end of year 8. Basically the player has agreed to loan parts of what he should have been paid to him to the team and the team has agreed to pay him back principal + an interest rate set by the CBA (LIBOR+1.5) at the end of the contract.

To the player it would be no different if he took all the money and invested or loaned the money to a different entity at the same interest rate.

I assume Jarvis' agent has looked at other investment vehicles and came to the conclusion that going the deferred payment route would yield better returns and/or is less risky than what is available to them.

[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.

[Enoch Root]

The other potential issue here is escrow...

The deferred payment does not get included towards the cap in year 9, so I would guess that it also doesn't count against escrow. If that is the case, then players would definitely be all over this, and would defer as much as possible, because that deferral would avoid escrow and therefore be worth more to them. And would further circumvent the cap.

[sureLoss]

Originally Posted by Enoch Root

The other potential issue here is escrow...

The deferred payment does not get included towards the cap in year 9, so I would guess that it also doesn't count against escrow. If that is the case, then players would definitely be all over this, and would defer as much as possible, because that deferral would avoid escrow and therefore be worth more to them. And would further circumvent the cap.

No. seravalli's article says escrow is a risk to the player. If the escrow goes up in year 9, the player potentially loses a lot of money.

[The Cobra]

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.

No, because the value of his contract is actually equal to the cap.

If the deferred money was paid a year later, say year 10, the cap would be reduced even more, since the time value of the contract would be less.

having the money paid the first day of the 9th year isn't some sham. The deferred money being paid as soon as the contract is over simply means the time value of the money isn't lessened so much.

The cap is reduced simply because the value of his contract is not as great as the actual money he receives. Carolina will not need to pay the full $63.2M, they actually pay about $60M, since they will need to put the deferred payments into escrow and let it earn money.

[butterfly]

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.

It's been allowed since the CBA was agreed to, so I suppose the cap was always effectively dead. It only hurts the owners and helps the players. The Hurricanes already did it with Slavin. It requires a player to be willing to accept deferred payments.

Brilliant move.