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

[Paulie Walnuts]

Originally Posted by PepsiFree

It’s literally just a way for owners to buy cap space. The players get paid more in real money, the cap hit goes down. People are trying to over complicate it, but that’s what it is, that’s what it’s for, and that why anyone would agree to it.

Look at Ohtani. He was rumoured to be getting around 500-600 million. He is going to end up getting 700 by deferring 680, while still counting as 46m (the highest in the MLB) against the team salary.

So, to save 4-14m per year, the Dodgers have to pay him an additional 24m. And almost all of it when the contract is over.

These schemes only work when the team agrees to pay the player more than they would otherwise get without deferment (in value, not dollars, since some are struggling) and even then there is a point where it won’t make sense for one party or the other because the amount of deferment required to have a significant impact on the cap is significant itself.

Ok so that part makes sense. He got more real dollars by deferring part of the deal to the end of the contract.

I was wondering about the interest part. Does carolina have to invest that money and pay him interest earned on it as well ? I didn’t understand that part.

The cap savings is so small it really doesn’t do much. 400k doesn’t even get you another player.

[Jay Random]

Originally Posted by Paulie Walnuts

Hm maybe I wasn’t understanding. They have to pay him the 15M or whatever it is plus interested earned on that money?

Nope. They put enough into an escrow account so that after accruing interest for however many years, the total comes to $15 million.

Since they're putting less than the full amount into the account, the amount they put in is the actual cap hit.

[Paulie Walnuts]

Originally Posted by Jay Random

Nope. They put enough into an escrow account so that after accruing interest for however many years, the total comes to $15 million.

Since they're putting less than the full amount into the account, the amount they put in is the actual cap hit.

So not overly complicated l, just seems like a bunch of moving parts for such a small cap saving.

[GGG]

Originally Posted by topfiverecords

And again, there is zero way of us knowing what the contract would have looked like without the deferred amount. You can’t assume it would be the NPV of this deal divided by 8, so therefore you can’t judge whether he did or did not in fact do better or did or did not in fact do worse.

The calculation of this exact contract amount both ways is determining a cap reduction relative to itself, not relative to what the other contract would have been. The other deal would have panned out differently. But we’ll never know. We weren’t involved in negotiations. So did he really actually get slightly more money in the end than just going straight 8…

Ah so you now agree with me all that matters is the discount rate.

It’s only the discount rate that matters in terms of gaining any kind of cap advantage. If the discount rate is 7.5% and the player accepts a contract with 6.5% then the team saves the 1% cap hit.

The player has to take less than the NPV of the deferred rate using LIBOR + 1.25% to generate tax savings. But that isn’t special it’s just the player taking slightly less NPV. There is no magic cap space created outside of the player taking a lower discount rate as part of his chosen investment portfolio.

[topfiverecords]

Originally Posted by Paulie Walnuts

Ok so that part makes sense. He got more real dollars by deferring part of the deal to the end of the contract.

I was wondering about the interest part. Does carolina have to invest that money and pay him interest earned on it as well ? I didn’t understand that part.

The cap savings is so small it really doesn’t do much. 400k doesn’t even get you another player.

$400k isn’t much but if three players do it suddenly your salary cap is $1.2M higher than the rest of the league. These are the kinds of slight advantages teams are looking for to get an edge in a very tight system.

[topfiverecords]

Originally Posted by GGG

Ah so you now agree with me all that matters is the discount rate.

It’s only the discount rate that matters in terms of gaining any kind of cap advantage. If the discount rate is 7.5% and the player accepts a contract with 6.5% then the team saves the 1% cap hit.

The player has to take less than the NPV of the deferred rate using LIBOR + 1.25% to generate tax savings. But that isn’t special it’s just the player taking slightly less NPV. There is no magic cap space created outside of the player taking a lower discount rate as part of his chosen investment portfolio.

I haven’t changed my perspective so I’ve been either always agreeing with you, or you’re not coming to terms with the fact that you’ve actually just taken less NPV in this conversation.

[Matt Reeeeead]

Technically, from a cap space perspective only, the best way to reduce cap hit would be to front load the contracts significantly, so as to give the player a much higher NPV than his Cap AAV. They should be willing to do that.

For example, on a 8 year deal at $80m total spread even, a player may prefer to do 8 year $75m if it’s front loaded enough and is likely to earn more than the difference through investments.

In this Jarvis case, the only way to really get a cap savings is if the player is willing to defer a portion of his salary from being evenly distributed through year 8 to the day immediately following year 8 (assuming this payment is calculated as a full year different). The player may have no issue with that as the NPV difference is negligible, however, the cap hit would be more significantly altered.

I don’t think this is as big a deal as it’s being made out to be from a cap perspective, and more so an owner looking to delay payments from a cash floe perspective.


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[GGG]

Originally Posted by topfiverecords

I haven’t changed my perspective so I’ve been either always agreeing with you, or you’re not coming to terms with the fact that you’ve actually just taken less NPV in this conversation.

Do you still feel it’s cap circumvention?

[Jason14h]

Originally Posted by Matt Reeeeead

Technically, from a cap space perspective only, the best way to reduce cap hit would be to front load the contracts significantly, so as to give the player a much higher NPV than his Cap AAV. They should be willing to do that.

For example, on a 8 year deal at $80m total spread even, a player may prefer to do 8 year $75m if it’s front loaded enough and is likely to earn more than the difference through investments.

In this Jarvis case, the only way to really get a cap savings is if the player is willing to defer a portion of his salary from being evenly distributed through year 8 to the day immediately following year 8 (assuming this payment is calculated as a full year different). The player may have no issue with that as the NPV difference is negligible, however, the cap hit would be more significantly altered.

I don’t think this is as big a deal as it’s being made out to be from a cap perspective, and more so an owner looking to delay payments from a cash floe perspective.


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This is what teams use to do and why the changes for yeat to year were made . Also why players like a D1 signing bonus because it is worth “more” then salaries every 2 weeks

[topfiverecords]

Originally Posted by GGG

Do you still feel it’s cap circumvention?

When did I say it was?

[flamefan74]

One question I have is how far out can they defer? I read the Puckpedia explanation and it seems you can only defer out the same number of years as the contract, but not sure if that's correct.


So using their calculator, I tried Draisaitl at $120 mil for 8 years. Oiler fans seem to be wanting his hit to be around $10mil/season. In order to do this based on going a max of 8 years past contract end (year 16), he would have to defer $10mil of the $15 mil/year out to year 16. No way Draisaitl defers $80 of $120 mil to year 16. And would make sense why more players and owners don't do it.



This is assuming I'm understanding it correctly.

[butterfly]

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.

Hurricanes got some extra cap space and gained a competitive advantage due to persuasion and ingenuity.

You think deferred payments on a mutually agreed to contract of a given NPV is tantamount to extending the term on a loan.

You're struggling.

[PepsiFree]

Originally Posted by butterfly

Hurricanes got some extra cap space and gained a competitive advantage due to persuasion and ingenuity.

You think deferred payments on a mutually agreed to contract of a given NPV is tantamount to extending the term on a loan.

You're struggling.

They’re paying more real dollars tomorrow to have more spending power today.

What you call ingenuity, most financially literate people call a mistake.

It isn’t new, or creative. There is a reason it isn’t often done, and it’s not because it’s some super special secret.

You barely understand the situation enough to even qualify as struggling with it. Which seems to be pretty much par for the course at this point.

[butterfly]

Originally Posted by PepsiFree

They’re paying more real dollars tomorrow to have more spending power today.

What you call ingenuity, most financially literate people call a mistake.

It isn’t new, or creative. There is a reason it isn’t often done, and it’s not because it’s some super special secret.

You barely understand the situation enough to even qualify as struggling with it. Which seems to be pretty much par for the course at this point.

No, they're paying nominal dollars tomorrow to save real dollars today.

I would say 'nice try,' but that's pretty poor for your struggling efforts to understand anyone. That's a bogey for the course, even for you.

[Jay Random]

Originally Posted by flamefan74

So using their calculator, I tried Draisaitl at $120 mil for 8 years. Oiler fans seem to be wanting his hit to be around $10mil/season. In order to do this based on going a max of 8 years past contract end (year 16), he would have to defer $10mil of the $15 mil/year out to year 16. No way Draisaitl defers $80 of $120 mil to year 16. And would make sense why more players and owners don't do it.



This is assuming I'm understanding it correctly.

Looks to me like you've got it pretty much right (not having run the exact numbers myself).

Remember that until the post-Covid inflation hit, discount rates were a lot lower. Jarvis's contract gets the Hurricanes an extra $400k of cap space. If they had tried it in 2020, they might have got half that or less. The juice was not worth the squeeze.

I believe that's why we're just starting to see deals like this now. We'll probably go on seeing them as long as inflation risk is priced into interest rates.

[GGG]

Originally Posted by topfiverecords

When did I say it was?

Oops I think I confused you with Enoch at some point.

[The Cobra]

Originally Posted by flamefan74

One question I have is how far out can they defer? I read the Puckpedia explanation and it seems you can only defer out the same number of years as the contract, but not sure if that's correct.


So using their calculator, I tried Draisaitl at $120 mil for 8 years. Oiler fans seem to be wanting his hit to be around $10mil/season. In order to do this based on going a max of 8 years past contract end (year 16), he would have to defer $10mil of the $15 mil/year out to year 16. No way Draisaitl defers $80 of $120 mil to year 16. And would make sense why more players and owners don't do it.



This is assuming I'm understanding it correctly.

Draisaitl wouldn’t defer that much for so long as it lessens the try’s value of his contract.

Let’s say he wants $120M for 8 years.


If The Oilers want to defer payments, he’ll say sure, as long as the NPV of the contract does not decrease. That would mean they will need to increase the amount of the contract to make up for the deferment.

The starting point is to figure out how much the player will make on an 8 year contract based on NPV. Then you can play around with deferred payments as long as the NPV does not change. The more deferment, the larger you will need to increase the ultimate payout.

[PepsiFree]

Originally Posted by butterfly

No, they're paying nominal dollars tomorrow to save real dollars today.

I would say 'nice try,' but that's pretty poor for your struggling efforts to understand anyone. That's a bogey for the course, even for you.

Thanks for the laugh

So, for the financially illiterate, the cap hit is apparently the “real dollars” and the actual increase in real dollars is simply “noninal”? Fascinating. I don’t recommend having a credit card. But I bet you love “low interest” payment plans.

Why don’t you show off and tell us the dollar figure these parties would have landed on without deferment? Maybe it’ll be more impressive than running around saying “omg struggling! struggling!”

[PepsiFree]

Originally Posted by The Cobra

Draisaitl wouldn’t defer that much for so long as it lessens the try’s value of his contract.

Let’s say he wants $120M for 8 years.


If The Oilers want to defer payments, he’ll say sure, as long as the NPV of the contract does not decrease. That would mean they will need to increase the amount of the contract to make up for the deferment.

The starting point is to figure out how much the player will make on an 8 year contract based on NPV. Then you can play around with deferred payments as long as the NPV does not change. The more deferment, the larger you will need to increase the ultimate payout.

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 PepsiFree

Thanks for the laugh

So, for the financially illiterate, the cap hit is apparently the “real dollars” and the actual increase in real dollars is simply “noninal”? Fascinating. I don’t recommend having a credit card. But I bet you love “low interest” payment plans.

Why don’t you show off and tell us the dollar figure these parties would have landed on without deferment? Maybe it’ll be more impressive than running around saying “omg struggling! struggling!”

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.