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

[Sylvanfan]

I'm financially illiterate and have no qualms admitting it. What am I missing in thinking that this is just an alternate way of paying out 60 million over 8 years by changing how the money is paid out. Instead of paying out say 10 million a year the first two years and 60 over the life of the contract. The Canes can better manage their cash flow early on and control how they use the money. So in trade they are willing to accrue interest to pay out a guaranteed sum later.

So a team like Carolina doesn't need to spend 95 million with 25 paid out on July 1st to make their 87 million dollar cap team. They can kick the money down the road and possibly run a team that's 10 million below the cap in the future and square up at that time if players agree to a contract like this. So my feeble brain thinks it looks more like a cash flow thing than real cap savings.

So in that is the case there's no reason for a guy like Draisaitl to sign for 10 million AAV and defer 80% to years 9 to 16 and say look I got paid 160 million by doing this. He's still going to want the total sum of money over 8 years and the final value would be based on how much was deferred, when it was deferred, and when it gets paid out. The Oilers don't lack for money, so I'm not sure this would fit here.

[PepsiFree]

Originally Posted by nfotiu

I'm definitely not on Butterfly's side here as I don't think this does anything to gain a cap advantage.

But, you can't start calling people financially illiterate when you are mixing up finance terms that have a definition.

For the record, a nominal dollar is what the check is actually written for when the person gets it. A real dollar is the value of that dollar adjusted for time.

If the contract calls for a 10 million dollar payment 10 years from now, and with a 5% discount rate, the PV is ~6 million, the nominal value of the contract is 10 million, while the real dollar value is 6 million.

I’m just using the same definition she’s using. Both real dollars and nominal dollars increase.

[madmike]

How many players would want money deferred like that? It's worth less in the future because of inflation. And presumably the player can't invest it or make interest off it in the meantime. Or can they?

EDIT: Never mind. It looks like they can make interst on it. So I guess it's not that bad for the player. Wonder how it works for taxes.

[nfotiu]

Originally Posted by PepsiFree

I’m just using the same definition she’s using. Both real dollars and nominal dollars increase.

I don't know what you are trying to say here.

In this post, you mis-used the term "real dollars" 3 times, and makes it tough to understand what you are trying to say.

I think you’re closer here, as this is what a few people are missing.

It’s easy to look at this as a vehicle to save cap space, but it’s unlikely to be successfully used that way because teams have to pay players more to convince them to defer.

What is more likely to happen (and has happened historically) is that it will allow rich teams to “overpay” players at the same cap hit for a competitive advantage. Draisaitl isn’t going to take 2-3 million less in value just because the real dollars are more, but he might defer significantly more real dollars if the value is matched to his market price and he has some investment in being with that specific club.

The difference between a non-deferred contract and a deferred one would likely be:
- Draisaitl at 14/8 for 112M total
- Draisaitl at 14/8 for 146M total with 98M deferred

So, no cap saving, more real dollars, but for a team that wants to maximize their internal budget now and expects to be competitive for 8 years (and then have additional funds after that), a good move.

[nfotiu]

Originally Posted by madmike

How many players would want money deferred like that? It's worth less in the future because of inflation. And presumably the player can't invest it or make interest off it in the meantime. Or can they?

EDIT: Never mind. It looks like they can make interst on it. So I guess it's not that bad for the player. Wonder how it works for taxes.

If they get interest paid on the amount, it is counted as it's full nominal value for cap hit.

The cap hit is a pretty decent representation of what the contract is actually worth to the player, so it really isn't a big deal one way or another.

[PepsiFree]

Originally Posted by nfotiu

I don't know what you are trying to say here.

In this post, you mis-used the term "real dollars" 3 times, and makes it tough to understand what you are trying to say.

This isn’t a situation where real dollars and nominal dollars are separate in the way it’s being framed.

[Enoch Root]

This thread is hilarious.

I have said - in every one of my posts - that I am not debating discount rates or the time value of money. And in every single rebuttal, people try to explain the time value of money to me. I understand NPV as well as anyone on this board. That isn't the point here.

The point is this: on all contracts up to 8 years, there is NO discounting of cash flows - you want to front load, you want to back load - that's up to you. BUT THE CAP IS CALCULATED AS THE AVERAGE OF THE NOMINAL VALUES, REGARDLESS OF TIMING. Full stop. Does everyone understand this simple point? Good, let's carry on... However, if you go one day longer, as this contract has, you get to discount some of the cash flows. That makes the cap calculation of this contract different than all contracts that don't go beyond 8 years. It's a very simple statement, it really shouldn't be that hard to understand.



(I can't wait for people to tell me again, that future payments are worth less than current payments - that will be fun to read!)

[topfiverecords]

Originally Posted by Enoch Root

This thread is hilarious.

I have said - in every one of my posts - that I am not debating discount rates or the time value of money. And in every single rebuttal, people try to explain the time value of money to me. I understand NPV as well as anyone on this board. That isn't the point here.

The point is this: on all contracts up to 8 years, there is NO discounting of cash flows - you want to front load, you want to back load - that's up to you. BUT THE CAP IS CALCULATED AS THE AVERAGE OF THE NOMINAL VALUES, REGARDLESS OF TIMING. Full stop. Does everyone understand this simple point? Good, let's carry on... However, if you go one day longer, as this contract has, you get to discount some of the cash flows. That makes the cap calculation of this contract different than all contracts that don't go beyond 8 years. It's a very simple statement, it really shouldn't be that hard to understand.



(I can't wait for people to tell me again, that future payments are worth less than current payments - that will be fun to read!)

future payments are worth less than current payments

[nfotiu]

Originally Posted by Enoch Root

This thread is hilarious.

I have said - in every one of my posts - that I am not debating discount rates or the time value of money. And in every single rebuttal, people try to explain the time value of money to me. I understand NPV as well as anyone on this board. That isn't the point here.

The point is this: on all contracts up to 8 years, there is NO discounting of cash flows - you want to front load, you want to back load - that's up to you. BUT THE CAP IS CALCULATED AS THE AVERAGE OF THE NOMINAL VALUES, REGARDLESS OF TIMING. Full stop. Does everyone understand this simple point? Good, let's carry on... However, if you go one day longer, as this contract has, you get to discount some of the cash flows. That makes the cap calculation of this contract different than all contracts that don't go beyond 8 years. It's a very simple statement, it really shouldn't be that hard to understand.



(I can't wait for people to tell me again, that future payments are worth less than current payments - that will be fun to read!)

The cap assumes money is paid out per service year and uses that as reference. There are rules about front loading or back loading contracts in the cba. Yeah, a player getting maxed out front loading of a contract is getting more money in real dollars vs a contract with some back ending.

If people want to complain about taking advantage of cap rules, then call out the teams maximizing the front loaded rules.

No player is going to want to take a maximum back loaded contract though.

If year 8 is paid out in year 9, I assume they get a PV calculated number based on a 1 year deferral. Deferring the first and second year payments until the end get the bigger adjustment.

[The Cobra]

Originally Posted by Enoch Root

This thread is hilarious.

I have said - in every one of my posts - that I am not debating discount rates or the time value of money. And in every single rebuttal, people try to explain the time value of money to me. I understand NPV as well as anyone on this board. That isn't the point here.

The point is this: on all contracts up to 8 years, there is NO discounting of cash flows - you want to front load, you want to back load - that's up to you. BUT THE CAP IS CALCULATED AS THE AVERAGE OF THE NOMINAL VALUES, REGARDLESS OF TIMING. Full stop. Does everyone understand this simple point? Good, let's carry on... However, if you go one day longer, as this contract has, you get to discount some of the cash flows. That makes the cap calculation of this contract different than all contracts that don't go beyond 8 years. It's a very simple statement, it really shouldn't be that hard to understand.



(I can't wait for people to tell me again, that future payments are worth less than current payments - that will be fun to read!)

Yes, the cap calculation is different, but not in a way that helps to artificially reducing the cap hit. And that's the only thing that is really relevant. I'm not sure why it should matter if the cap is calculated differently in cases where it should be.

[GGG]

Originally Posted by Enoch Root

This thread is hilarious.

I have said - in every one of my posts - that I am not debating discount rates or the time value of money. And in every single rebuttal, people try to explain the time value of money to me. I understand NPV as well as anyone on this board. That isn't the point here.

The point is this: on all contracts up to 8 years, there is NO discounting of cash flows - you want to front load, you want to back load - that's up to you. BUT THE CAP IS CALCULATED AS THE AVERAGE OF THE NOMINAL VALUES, REGARDLESS OF TIMING. Full stop. Does everyone understand this simple point? Good, let's carry on... However, if you go one day longer, as this contract has, you get to discount some of the cash flows. That makes the cap calculation of this contract different than all contracts that don't go beyond 8 years. It's a very simple statement, it really shouldn't be that hard to understand.



(I can't wait for people to tell me again, that future payments are worth less than current payments - that will be fun to read!)

No it doesn’t change the way the cap hit is calculated, all contracts calculate the cap hit based on the NPV of the salary in the year the Salary is earned. All contracts need to be compliant with front loading and back loading rules for th year the salary is earned.

The deferred contracts only change when money is paid out to the player, it does not change when the salary is earned.

Thats the best I can do without talking discount rate.

[Enoch Root]

Originally Posted by GGG

No it doesn’t change the way the cap hit is calculated, all contracts calculate the cap hit based on the NPV of the salary in the year the Salary is earned. All contracts need to be compliant with front loading and back loading rules for th year the salary is earned.

The deferred contracts only change when money is paid out to the player, it does not change when the salary is earned.

Thats the best I can do without talking discount rate.

No they don't. All payments are summed and averaged, regardless of timing. No NPV calculation, no discounting of cash flows.

Three contracts:
1) Year 1: $5M, Year 2: $6M, Year 3: $7M --> cap: 3 X $6M
2) Year 1: $6M, Year 2: $6M, Year 3: $6M --> cap: 3 X $6M
3) Year 1: $7M, Year 2: $6M, Year 3: $5M --> cap: 3 X $6M

With the additional day, this contract discounts some of its cash flows, i.e. no longer a simple average of the nominal payments.

[GGG]

Originally Posted by Enoch Root

No they don't. All payments are summed and averaged, regardless of timing. No NPV calculation, no discounting of cash flows.

Three contracts:
1) Year 1: $5M, Year 2: $6M, Year 3: $7M --> cap: 3 X $6M
2) Year 1: $6M, Year 2: $6M, Year 3: $6M --> cap: 3 X $6M
3) Year 1: $7M, Year 2: $6M, Year 3: $5M --> cap: 3 X $6M

With the additional day, this contract discounts some of its cash flows, i.e. no longer a simple average of the nominal payments.

Three year contracts

Year 1 5M (1 paid 4 deferred), year 2 6M (5 paid 1 deferred), year 3 7m (7 paid.

Cap hit 3 x 6.

What the player earns each year is still what the cap hit is based on.

You said you didn’t want to talk NPV so nominal payments are not relavent.

[Enoch Root]

Originally Posted by GGG

Three year contracts

Year 1 5M (1 paid 4 deferred), year 2 6M (5 paid 1 deferred), year 3 7m (7 paid.

Cap hit 3 x 6.

What the player earns each year is still what the cap hit is based on.

There is no deferral there, just an average of all the nominal payments. Why are you trying to create something that doesn't exist?

Scenario 1: $1M salary and $10M bonus
Scenario 2: $11M salary and $0 bonus

Different timing of cash flows, same $11M cap hit. No deferral, no NPV of cash flows. Simple average of nominal payments.

The only contract that discounts any cash flows is the one that goes beyond 8 years.

[GGG]

Originally Posted by Enoch Root

There is no deferral there, just an average of all the nominal payments. Why are you trying to create something that doesn't exist?

Scenario 1: $1M salary and $10M bonus
Scenario 2: $11M salary and $0 bonus

Different timing of cash flows, same $11M cap hit. No deferral, no NPV of cash flows. Simple average of nominal payments.

The only contract that discounts any cash flows is the one that goes beyond 8 years.

No the only contracts that have discounts are the ones where the years where the Salary/Bonus is earned is different from when the salary is paid.

The bonus is earned and paid the same day. The Salary is earned and paid the same year. In all cases the cap hit is assessed when the Salary is earned.