[Signing] Ducks re-sign Frank Vatrano (3 years, $4.57m AAV, deferred salary)

[Enoch Root]

Originally Posted by The Cobra

Because of the deferred value of the contract, there is no cap circumvention here.

The present day value of the contract equates to the cap hit.

The contract is not in reality worth $18M to Vatrano.

And here we go.

Contracts are NOT present valued. All contracts are notional, with the total dollar payout being divided by the number of years, to determine the AAV.

This contract is for $18M, and the player is under contract for 3 years, but the AAV is $4.57M

We all understand the present value of money, that is not the issues here. The issue is that contracts are notional, using the AVERAGE payout to determine the AAV, precisely for the purpose of not allowing teams to circumvent the cap by frontloading or backloading a contract.

[Paulie Walnuts]

Originally Posted by Weitz

Doubt it. Players and owners probably like the option even though it’s not popular (3 or 4 deals only I think).

What would the league give to the players to get rid of it?

They get paid now instead of in 10 years and 900k.

Keep 50% of HRR while the NBA and NFL has reduced the players share.

[The Cobra]

Originally Posted by ComixZone

If this were the case, why haven’t teams like Toronto/Tampa etc. been handing out deferred contracts with 10+ years of deferred salary to circumvent the cap-ceiling?

…the $900K/year for 10 years has to count against the cap, otherwise the salary cap isn’t a cap at all.

Because a dollar today is worth more than a dollar 10 years from now.

There is no cap circumvention here.

Vatrano likely had a choice between a 3 year contract at an AAV of $4.67M per year, or this contract. In reality, the present day value is the exact same.

[Funkhouser]

Originally Posted by The Cobra

Because a dollar today is worth more than a dollar 10 years from now.

There is no cap circumvention here.

Vatrano likely had a choice between a 3 year contract at an AAV of $4.67M per year, or this contract. In reality, the present day value is the exact same.

Agreed, no cap circumvention. This seems like a win-win that can be used by any team (notably those that have higher tax rates).

[The Cobra]

Originally Posted by Enoch Root

And here we go.

Contracts are NOT present valued. All contracts are notional, with the total dollar payout being divided by the number of years, to determine the AAV.

This contract is for $18M, and the player is under contract for 3 years, but the AAV is $4.57M

We all understand the present value of money, that is not the issues here. The issue is that contracts are notional, using the AVERAGE payout to determine the AAV, precisely for the purpose of not allowing teams to circumvent the cap by frontloading or backloading a contract.

The cap hit is determined based on the differed payments. Since he is getting $3m per season, why is the cap hit $4.67M? It’s based on the present day value of the deferred payments. We can assume that the present day value of the $9M deferred payments is $5M, the amount added to the actual $9M paid over the 3 year contract.

[Paulie Walnuts]

It is cap circumvention because they are paying him 9M that does not count against the cap.

[Weitz]

Originally Posted by Paulie Walnuts

It is cap circumvention because they are paying him 9M that does not count against the cap.

It’s literally in the CBA.

[The Cobra]

Originally Posted by Paulie Walnuts

It is cap circumvention because they are paying him 9M that does not count against the cap.

But he isn’t getting it now. So, the value of the contract is less than $18M.

[dino7c]

Its a loophole that will need to be closed

[Paulie Walnuts]

Originally Posted by Weitz

It’s literally in the CBA.

How to circumvent the cap and allow players to avoid paying taxes ?

If it it won’t be for long.

[Enoch Root]

Originally Posted by The Cobra

The cap hit is determined based on the differed payments. Since he is getting $3m per season, why is the cap hit $4.67M? It’s based on the present day value of the deferred payments. We can assume that the present day value of the $9M deferred payments is $5M, the amount added to the actual $9M paid over the 3 year contract.

You continue to miss the issue.

The issue is this: cap hit is determined by the total payout, divided by the term ($18M/3 years in this case). The AAV is determined in this way in order to avoid having contracts circumvent the cap by frontloading or backloading. There is no present valuing of payouts. And there is an 8 year limit. These contracts A) go beyond 8 years, and B) present value the payouts, instead of using the notional value (like all other contracts do).

I can't understand why people continue to miss the very basic point that contracts use notional value to calculate the AAV, not the present value.

[Jason14h]

You don’t avoid (evade probably a better word) paying taxes nor avoid the cap

You defer when you are paying taxes - that’s the only benifit to doing this

Players in Cali have seen what Ohtani did and realized deferring and moving the heck away from Cali when you get paid makes a lot of tax difference

The CBA won’t care. However - I bet California changes the way athletes are taxes / tries to close this loophole

[Jason14h]

Originally Posted by Enoch Root

You continue to miss the issue.

The issue is this: cap hit is determined by the total payout, divided by the term ($18M/3 years in this case). The AAV is determined in this way in order to avoid having contracts circumvent the cap by frontloading or backloading. There is no present valuing of payouts. And there is an 8 year limit. These contracts A) go beyond 8 years, and B) present value the payouts, instead of using the notional value (like all other contracts do).

I can't understand why people continue to miss the very basic point that contracts use notional value to calculate the AAV, not the present value.

It depends if it uses today current value or the value each year then dividing by 3

I assume yearly , meaning it is not any different then a 3 year 4.X contract being offered - which is what the cap hit is

It doesn’t lower the cap hit by adding more years at a low amount , because you still divide by 3

[The Cobra]

Originally Posted by Enoch Root

You continue to miss the issue.

The issue is this: cap hit is determined by the total payout, divided by the term ($18M/3 years in this case). The AAV is determined in this way in order to avoid having contracts circumvent the cap by frontloading or backloading. There is no present valuing of payouts. And there is an 8 year limit. These contracts A) go beyond 8 years, and B) present value the payouts, instead of using the notional value (like all other contracts do).

I can't understand why people continue to miss the very basic point that contracts use notional value to calculate the AAV, not the present value.

I think we are arguing different points.

It’s the present day value of the deferred payments which is added to the actual salary paid to determine the cap hit.

This is allowed purposely under the CBA as there is no cap circumvention.

Vatrano did not have the option if taking $18M over 3 years. He agreed to the deferred payments as he understands that in reality his contract is actually worth $14M in today’s dollars. Which is likely what he could have taken under a standard 3 year contract.

[The Cobra]

Originally Posted by Jason14h

You don’t avoid (evade probably a better word) paying taxes nor avoid the cap

You defer when you are paying taxes - that’s the only benifit to doing this

Players in Cali have seen what Ohtani did and realized deferring and moving the heck away from Cali when you get paid makes a lot of tax difference

The CBA won’t care. However - I bet California changes the way athletes are taxes / tries to close this loophole

In Canada, it doesn’t work I believe, as an employee pays taxes based on income as earned. If I deferred part of my income to future years, it would be taxed in the year it was actually earned.

Othani’s present day value of his $700M contract was actually $470M.

[Jason14h]

Yeah that why I expect California to move to change the tax rules - the NHL won’t care at all

[Reggie Dunlop]

The Islanders are paying Rick DiPietro through 2028-29 (although it's now a re-jigged buy-out).

Tremendous risk to take on any player, really.

[Weitz]

Originally Posted by dino7c

Its a loophole that will need to be closed

It’s not a loop hole.

[dino7c]

Originally Posted by Weitz

It’s not a loop hole.

It is, the contracts and the cap arent intended to be used this way. It will be corrected in the next CBA. Having current contracts pay out until 2045 is not something the league will want

[Weitz]

Originally Posted by dino7c

It is, the contracts and the cap arent intended to be used this way. It will be corrected in the next CBA

This has been in the CBA since like 2013. It’s just rarely used. The interest wasn’t fabvourable till now.