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

[The Cobra]

Originally Posted by Enoch Root

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 reduced the cap hit because payments are deferred. In a normal 8 year deal, payments are made over the length of the contract, often front loaded, which actually increases the time value of the contract. It is still less that the total amount of the contract, but the more front loading there is, the more benefit to the player and the higher the actual true value of the contract. These are the true contracts in which rich teams can exploit poorer teams, by having more money paid sooner.

One might suggest that all contract should have the cap placed at the trus value of a contract based on present day value. So, a $75M contract over 5 years payable $15M per season might have a present day value of $70M (making thus up for the exact amount), so the cap hit would be $14M. If more money was paid up front, it would increase the present day value to say $72.%, so the cap hit would be $14.5M. The more deferred the payments were, the lesser the present day value and the lower the cap hit.

[sureLoss]

Originally Posted by 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?

I would assume whatever team he is part of when he defers salary would be responsible for that deferred amount in that year.

For example lets say he gets traded to the Flames in year 6.

Canes would be responsible for the deferred salary in years 1 and 2 and the Flames would be responsible for the deferred salary in year 7.

[topfiverecords]

Originally Posted by sureLoss

I would assume whatever team he is part of when he defers salary would be responsible for that deferred amount in that year.

For example lets say he gets traded to the Flames in year 6.

Canes would be responsible for the deferred salary in years 1 and 2 and the Flames would be responsible for the deferred salary in year 7.

I wouldn’t want to have to be the person responsible for calculating the implications of salary retention.

[getbak]

https://twitter.com/user/status/1830101307794837798

https://twitter.com/user/status/1830112337623241144

[GGG]

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.

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.

[PepsiFree]

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 ripe for abuse, but it really hasn’t been even though the first team did it a decade ago.

I think, generally, it doesn’t happen often for a few reasons:
1. Players generally prefer their money now
2. Owners generally don’t like paying for people who aren’t on their team
3. The amount extra that needs to be paid to make it worth it, combined with the amount the cap is reduced, makes it generally not worth it

It’s “brilliant” in the same way that someone feels brilliant for discovering you can extend your payments on a new purchase by just paying a bit more in interest!

Feels good to get the shiny new toy now. But financially, it’s usually pretty stupid.

[butterfly]

Originally Posted by PepsiFree

It’s “brilliant” in the same way that someone feels brilliant for discovering you can extend your payments on a new purchase by just paying a bit more in interest!

Feels good to get the shiny new toy now. But financially, it’s usually pretty stupid.

No, that's not why it's brilliant. Sounds like you're struggling to make your point directly.

Cash is not the constraint and cap space is. They found a way to gain a competitive advantage off the ice.

[Vinny01]

I always wonder what the Canes offer for Tkachuk actually was. It seems pretty clear that the Canes had Necas on the table but I wonder where Jarvis was in the equation? Apparently Treliving wanted him in 2020 so I wonder if he was a key piece to the Tkachuk deal or not? It always feels like the trade the Flames should have made

[butterfly]

Originally Posted by Vinny01

I always wonder what the Canes offer for Tkachuk actually was. It seems pretty clear that the Canes had Necas on the table but I wonder where Jarvis was in the equation? Apparently Treliving wanted him in 2020 so I wonder if he was a key piece to the Tkachuk deal or not? It always feels like the trade the Flames should have made

It's interesting to think about, for sure. But the Florida offer couldn't possibly have been worse, right? How many first round picks could we have got for Huberdeau at 1x$5.9 (retained would be 1x$2.95) and Weegar at 1x$3.25 (retained would be 1x$1.625). In their absolute prime.

Instead of giving them retirement contracts. Probably 3 at least. Would you trade 3 first rounders for Necas or Jarvis? Or even both? I don't think I would.

[PepsiFree]

Originally Posted by butterfly

No, that's not why it's brilliant. Sounds like you're struggling to make your point directly.

Cash is not the constraint and cap space is. They found a way to gain a competitive advantage off the ice.

I actually made my point directly. You should try it.

“They found a way.” Yeah, so did the Coyotes ten years ago. The magical way they found is “paying more for it.”

Wow.

[All In Good Time]

Originally Posted by PepsiFree

I actually made my point directly. You should try it.

“They found a way.” Yeah, so did the Coyotes ten years ago. The magical way they found is “paying more for it.”

Wow.

There are 3 truths that this signing/thread have brought to light

1. AAV DOES NOT equal total dollars divided by years
2. It’s mildly odd that the above revelation was widely unused and it could be argued even widely unknown until this particular time in the oilers contract cycle
3. If you even joke about point 2, some people here completely lose their minds (even though they obviously don’t have very much to lose)

So
Tread carefully or some will lobby to have you banned!

[The Cobra]

Originally Posted by butterfly

No, that's not why it's brilliant. Sounds like you're struggling to make your point directly.

Cash is not the constraint and cap space is. They found a way to gain a competitive advantage off the ice.

No they didn’t. Jarvis’ cap hit is less simply because the present day value of his contract is less than the total payout. The true value of his contract is the cap hit.

If Jarvis wanted a $63.2 contract, and they said they’ll give him that much but want to defer payments, and he replied “sure, why would I care?”, they did get a deal but not because of the CBA, but because of a dumb player.

Now I don’t believe he and his agent are dumb, and they knew the true value of his contract is $60M.

[Enoch Root]

Originally Posted by The Cobra

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.

You keep missing the point (and actually arguing against yourself)

The issue here is not the time value of the contract. It is the fact that, because the contract is deferred beyond the 8 year max, it is allowed to NPV the future payments. NO CONTRACT OF 8 YEARS OR LESS CAN DO THIS.

As a result, the cap hit is less. Adding the one day beyond 8 years allows for the cap hit to be reduced.

[Enoch Root]

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.

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)

[topfiverecords]

Originally Posted by The Cobra

No they didn’t. Jarvis’ cap hit is less simply because the present day value of his contract is less than the total payout. The true value of his contract is the cap hit.

If Jarvis wanted a $63.2 contract, and they said they’ll give him that much but want to defer payments, and he replied “sure, why would I care?”, they did get a deal but not because of the CBA, but because of a dumb player.

Now I don’t believe he and his agent are dumb, and they knew the true value of his contract is $60M.

You don’t know what the contract offer without the defer was so you can’t conclude that the player is dumb.

[topfiverecords]

Originally Posted by Enoch Root

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)

Ya, compare two scenarios where the player gets the exact same NPV at the end of the contract and calculate the different cap hits. That’s what matters here. Not two 10 mil cap hits with different actual cash.

[Enoch Root]

All contracts, of 8 years or less, calculate the cap hit by adding up the notional value of all the payments and divide by the number of years, REGARDLESS OF WHAT YEAR THEY ARE RECEIVED - in other words, all contracts calculate the cap hit, based on face value.

So it is up to the player and team whether they want front loaded, back loaded, or whatever - doesn't matter with respect to the cap.

This contract, because it goes beyond 8 years, is allowed to discount the cash flows. That creates an opportunity to have a cap hit that is less than the total payments. I don't understand why people are struggling to understand this. The issue here is not the time value of money, the issue is that these types of contracts can reduce the cap hit, compared to contracts within the 8 years.

[Sylvanfan]

I don't think it's dumb because they have transferred an amount of risk to the team to guarantee that the future value of the deferred salary is 3.2 higher than what it would be if it was paid out.

NHL players and the high paid ones who get 8 year contracts are not losers like me who need to grow their savings by a factor of 10 if they ever hope to retire. They just need to preserve their earnings and can put a more into risk free investments with lower growth potential. I don't think Bobby Bonilla hates his 1.19 million dollar payment he gets every July 1st because he turned down 5.9 in a single shot. He's also been getting half a million in deferred salary from the Orioles since 2004 and only gets that for 4 more years. So a good way to not end up broke in retirement might be to keep the money coming for a lot of years after you do retire.

[GGG]

Originally Posted by Enoch Root

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)

The player didn’t get more money. He got the exact same amount of money each year but chose to buy Columbus blue jacket bonds with a 7.5% coupon rate. So there is no difference aside from the discussion on discount rates.

Can you run through how this will be exploited? The cap hit isn’t xx/9 instead of xx/8. It’s the total value of the Salaries in the year they were earned divided by the 8 years the player playing. The salaries each year when they are earned have to be compliant with contract rules.

Do we agree that the player is incentivized by getting the highest net present value contract? A deal that pays the player 12,12,12,12,8,8,8,8 is better for the player than a 10,10,10……. For 8 years? If you agree to that premise then how do you compare those to deals without a NPV at a discount rate. If you accept that comparing the NPV at a discount rate is how to compare the value to the player vs the cap hit then do that calc for the Jarvis contract. You will find that the Salary paid out normally and the Salary with deferred comp have the same cap hit and same NPV.

So the only thing left to discuss is is 7.5% a fair discount rate. Otherwise you can’t gain advantage in terms of NPV for the player vs cap hit.

[GGG]

Originally Posted by topfiverecords

Ya, compare two scenarios where the player gets the exact same NPV at the end of the contract and calculate the different cap hits. That’s what matters here. Not two 10 mil cap hits with different actual cash.

That’s what I did. The two scenarios both have the same NPV to the player provided a 7.5% discount rate is fair.

Essentially the question whether this is better or worse for the player is purely based on wether the risk adjusted return on the 7.5% blue jackets unsecured debt is a reasonable rate of return.