[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

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.

You are missing the point. A contract of 8 years or less has no deferred payments. It's only when deferred payments are contracted for beyond the 8 year contract. Only the deferred payments are part of the NVP. What really reduces the cap hit is deferred payments.

The contract is not deferred, certain payments are. To the extent those payments decrease the NPV of the contract, the cap is decreased accordingly, as it should be.

[The Cobra]

Originally Posted by Enoch Root

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.

But only the NPV of the deferred payments are calculated in the cap hit. To the extent that, for example, $5M of salary is deferred to the 9th year, the NPV of that $5M is calculated to determine its true value to determine its cap hit adjustment.

The highest NPV of contracts occurs when contracts are front loaded. That's the real advantage to rich teams.

But all contracts actually have a lower NPV than their stated value, simply because the contracts total value is not paid out on day one. But the CBA has determined that they will only calculate the NPV of deferred payments on payments whch are deferred past 8 years.

[Enoch Root]

Originally Posted by GGG

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.

In scenario 1, the player got $80 and the cap hit was $10M

In scenario 2, the player got $94M and the cap hit was $10M

More money, same cap.

How many times do I have to say this isn't about the discount rate or the time value of money. It is about the fact that an 8 year deal gets calculated at notional value and and 8 year + 1 day gets discounted. Apples and oranges, and it affects the cap.

[Enoch Root]

Originally Posted by The Cobra

You are missing the point. A contract of 8 years or less has no deferred payments. It's only when deferred payments are contracted for beyond the 8 year contract. Only the deferred payments are part of the NVP. What really reduces the cap hit is deferred payments.

The contract is not deferred, certain payments are. To the extent those payments decrease the NPV of the contract, the cap is decreased accordingly, as it should be.

Jesus Christ. I can't explain it to you again. I am done with you.

[GGG]

Originally Posted by Enoch Root

In scenario 1, the player got $80 and the cap hit was $10M

In scenario 2, the player got $94M and the cap hit was $10M

More money, same cap.

How many times do I have to say this isn't about the discount rate or the time value of money. It is about the fact that an 8 year deal gets calculated at notional value and and 8 year + 1 day gets discounted. Apples and oranges, and it affects the cap.

Which contract does the player sign and why?

[topfiverecords]

Originally Posted by GGG

Which contract does the player sign and why?

Neither. He goes back with a better calculation that gets the cap hit down to $9.6M so his team has more cap room to enhance his chances at winning a Stanley Cup.

[GGG]

Originally Posted by topfiverecords

Neither. He goes back with a better calculation that gets the cap hit down to $9.6M so his team has more cap room to enhance his chances at winning a Stanley Cup.

Okay, let’s run those numbers. What calculation gets the cap hit down to 9.6 while preserving his NPV (again assuming the 7.5 discount rate is fair). And then once you do it using the deferred comp strategy I will give you the same
NPV contract and cap hit without using deferred comp.

[All In Good Time]

Originally Posted by Enoch Root

Jesus Christ. I can't explain it to you again. I am done with you.

Again
The thing we need to come to terms with is we’ve been wrong since 2006
AAV does not equal total dollars divided by years
It’s just that miraculously, nobody used this mechanism to lower their cap hit

[GGG]

Originally Posted by All In Good Time

Again
The thing we need to come to terms with is we’ve been wrong since 2006
AAV does not equal total dollars divided by years
It’s just that miraculously, nobody used this mechanism to lower their cap hit

It is still total value divided by years. It just reenforces that it’s the value of the money the year the money was earned in.

The new concept in deferred comp is that you earn the money one year but don’t receive the payment for a number of years.

So calculation of cap it hasn’t changed. It’s still the sum of the salary each year using the value of that salary in the year it was earned. This is how it’s always been done.

The reason it wasn’t used previously is that Libor was between 2% and zero so the difference between market returns and the deferred comp returns was so aignificant that there was no point to the player. With LIBOR being higher right now there is an opportunity for the player to get a relatively high interest on a relatively low risk bond.

[Paulie Walnuts]

I can’t see this being a thing going forward. The cap savings is not significant either.

15M is a lot of money to defer. You are losing out on investment opportunities right now that could grow the money to be worth more over time.

[PepsiFree]

Originally Posted by GGG

It is still total value divided by years. It just reenforces that it’s the value of the money the year the money was earned in.

The new concept in deferred comp is that you earn the money one year but don’t receive the payment for a number of years.

So calculation of cap it hasn’t changed. It’s still the sum of the salary each year using the value of that salary in the year it was earned. This is how it’s always been done.

The reason it wasn’t used previously is that Libor was between 2% and zero so the difference between market returns and the deferred comp returns was so aignificant that there was no point to the player. With LIBOR being higher right now there is an opportunity for the player to get a relatively high interest on a relatively low risk bond.

Which is not total dollars.

Agree or disagree, I feel like some of you are trying to miss what people are saying in the most complex ways possible.

[Paulie Walnuts]

Originally Posted by All In Good Time

Again
The thing we need to come to terms with is we’ve been wrong since 2006
AAV does not equal total dollars divided by years
It’s just that miraculously, nobody used this mechanism to lower their cap hit

I don’t know. Is 400k in cap savings worth cutting a 15M cheque?

I just can’t see this becoming a thing. But who knows.

[GGG]

Originally Posted by PepsiFree

Which is not total dollars.

Agree or disagree, I feel like some of you are trying to miss what people are saying in the most complex ways possible.

No this is a complex contract in which people are refusing to think. Yes 80 is less than 94. But that isn’t what the cap is trying to manage.

The Real Value of money being paid out is unchanged and the cap hits value relative to real money is unchanged. (provided you agree with the discount rate)

If people think this is circumvention then give me $100 and I will give you $100 back in 5 years.

[All In Good Time]

Originally Posted by Paulie Walnuts

I don’t know. Is 400k in cap savings worth cutting a 15M cheque?

I just can’t see this becoming a thing. But who knows.

I agree
In this case it’s a 5% reduction in AAV
My point was that I was mistaken
I always assumed that AAV = Total dollars/years

[Paulie Walnuts]

Originally Posted by All In Good Time

I agree
In this case it’s a 5% reduction in AAV
My point was that I was mistaken
I always assumed that AAV = Total dollars/years

Gary is adding it to his list of things for the next lockout. I wonder if it will be a hill to die on, or they use that for term limits.

[Groot]

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.

In scenario 2 as you presented it, the deferred payments earn interest and as such are counted in full against the cap. Scenario 2 as presented would carry an AAV of $11.788/year.

If they don't earn interest, then a portion of the differed amount as calculated by current fair market value which is 1-year LIBOR rate (now SOFR rate) plus 1.25% counts against the cap.

If Draisatl signed an 8-year contract for $115 million and deferred $33 million they could maybe save $1 million per year AAV

https://puckpedia.com/deferred

[topfiverecords]

Originally Posted by GGG

Okay, let’s run those numbers. What calculation gets the cap hit down to 9.6 while preserving his NPV (again assuming the 7.5 discount rate is fair). And then once you do it using the deferred comp strategy I will give you the same
NPV contract and cap hit without using deferred comp.

You’re fixated on fair. That’s not what happened here.

[Paulie Walnuts]

Originally Posted by Groot

In scenario 2 as you presented it, the deferred payments earn interest and as such are counted in full against the cap. Scenario 2 as presented would carry an AAV of $11.788/year.

If they don't earn interest, then a portion of the differed amount as calculated by current fair market value which is 1-year LIBOR rate (now SOFR rate) plus 1.25% counts against the cap.

If Draisatl signed an 8-year contract for $115 million and deferred $33 million they could maybe save $1 million per year AAV

https://puckpedia.com/deferred

His contract is going to be huge. 120M deal most likely. No way he gives up a large chunk of that for a 9th year payment.

This is rare. Most players want most of the money right away. He also doesn’t seem like the type of guy to do this.

I think he wants his money, and he’s going to get it.

[Sylvanfan]

Originally Posted by Paulie Walnuts

I can’t see this being a thing going forward. The cap savings is not significant either.

15M is a lot of money to defer. You are losing out on investment opportunities right now that could grow the money to be worth more over time.

Maybe for a commoner who needs to grow savings, or an aggressive financier who can never have enough money.

But for a regular person making irregular money who can get someone else to take any risk and guarantee future value plus a nice income stream after the contract is done. There could be some appeal.

[Paulie Walnuts]

Originally Posted by Sylvanfan

Maybe for a commoner who needs to grow savings, or an aggressive financier who can never have enough money.

But for a regular person making irregular money who can get someone else to take any risk and guarantee future value plus a nice income stream after the contract is done. There could be some appeal.

I don’t know. It’s a risk to the player and I’m sure not a lot of owners would be very happy to pay all that money in one shot.

I’d rather have my money now. I don’t know what the world looks like in 9 years. You never know when a Donald Trump like person tries to overthrow the US government. We had a pandemic. A lot of factors.