Salary Cap Inflates Prices

Ever wonder why there has been so many ridiculously huge salary cap hits being handed out all over the place?

I guess we only have the NHL to blame.

With the salary cap going up from last year about $5 million, teams have found that they can spend more than is needed. Even looking at the signings that have happened already, there have been some major overspending. Here are some contracts handed out that I thought were a bit much:

Over Spending on Free Agents (cap hit in millions)
PLAYER TEAM CAP HIT  YEARS
Wisniewski 5.5 6
Ehrhoff 4.0 10
Cole 4.5 4
Jovanovski 4.1 4
Ericsson 3.25 3
Souray 1.65 1
Hejda 3.25 4
Leino 4.5 6
Fleischmann 4.5 4
Kopecky 3.0 4
Montador 2.75 4
Laich 4.5 6
Pardy 2.0 2
Belanger 1.75 3
Fiddler 1.8 3

 

Now, I didn't want to critize all of those contracts, the point is that they are being paid too much in my opinion.

The fact of the matter is that free agency can be a gold mine for players. Look at Joel Ward and Sean Bergenheim. They got hefty raises and it was because of their playoff performances. So in essence, to get a FA to sign, you need to overspend a little bit. That's understandable and it happens all the time. You see the Brad Richards bidding war? Whoever went the highest got him.

As for everyone else, it might be the simple matter of supply and demand. The free agent crop was at best mediocre. The only big-big name of the year was Richards and he got what he deserved.

Because the cap went up, it only makes sense that player salaries will go up. Agents have obviously noticed that if a team has a little more cap space, take a bigger piece of the pie. And why not? Their job is to get thier client the highest amount of money possible. At the end of the day it's a business.

I'm okay with teams overspending a bit, but my worry is that in time it will catch up to them. Teams like Detroit and Buffalo and Toronto won't be affected that much because of the billionaires running the show. It's teams like Florida and Phoenix who will meet their downfall. Florida is overpaying just to get to the cap floor (which by the way is almost 10 million dollars higher than the original 39 million dollar cap floor from 2006). 

The current CBA is set to expire on September 15, 2012. This is the final year of the current CBA as the NHLPA will no longer have the option of to extend the current CBA. Should neither side reach an agreementprior to the start of the 2012-13 season the rules of the current CBA wil be grandfathered in until anew settlement is ratified, which could mean another lockout (potentially).

With Atlanta already biting the dust, more teams could be on the way. The point of the salary cap was to decrease the NHL's percentage of spending on player salaries (which is at about 75% of league revenues). The current cap is so high that the number of player salaries outdoes the league's revenue, which would not be good. With the NBA and NFL already going through CBA related issues (both are locked out for now), the NHL can not afford to lose another season due to legal squabling. The NBA and NFL can recover from it because of the huge American fanbase, but hockey suffered in 2005 and it would suffer in 2012-13.

The 2005 lockout started the same it is now; with teams overspending. Remember Bobby Holik's monster contract? It probably kick started the debate back then. Ville Leino's contract should raise some eyeborws, as his career high in goals is 19. And Buffalo will pay him 4.5 million dollars for next season. That's $236,000 for every goal. Seems pretty steep to me.

Hopefully the league can do something about these skyrocketing salaries before it's to late.

Kyle Busch

www.twitter.com/KyleBusch11 

7 Comments

nowhere's picture

In a way it's all Ken Hollands fault, as Detroit was one of the first teams to sign players to long term contracts for the purpose of softening their cap hit. While these more recent contracts (Kovalchuk/Richards/Ehrhoff) may not appear very different of the surface, when just looking at the term and overall contract value, the extremely front loaded nature of them makes the intent of them very clear. With the two Red Wings' contracts, the payout over the term of contract is more evenly distributed, and the ratio of maximum annual salary to cap hit is not excessive (~1.25). Compare this to Ehrhoff's contract, which pays him $10M in the first season, yielding a salary to cap hit ratio of 2.5, while the second year of of the contract adds an additional $8M at a salary to cap hit ratio of 2. I would propose the concept of utilizing a moving average, or something other than AAV for determining the cap hit. This value would no longer be constant throughout the life of the contract, but would help to address the front loaded cap issue and also provide some cap relief in the final years of the contract.

Kyle Andrew Busch's picture

To be honest this front loaded contract stuff is the problem. If it was average throughout do you think teams would be handing out these deals? But Holland never signed a free agent in the salary cap era to a monster contract. I can't even think of one. Hossa was only a year. He gives his deals to players they develop like Datsyuk, Zetterberg, and Franzen.

George Prax's picture

I know you said you didn't want to criticize all the contracts on there, and the truth is a lot of them have other circumstances than just the cap, but I don't think Belanger and Cole belong on there. Belanger's deal is a decent number considering how useful of a player he can be, and it's in Edmonton which has to overpay to get anyone to sign there. Cole probably gets more because of Quebec taxes which take away nearly half your salary.

Otherwise you're pretty much right, especially when you consider teams like Florida have to take out second mortgage just to get to the cap floor. I doubt Tallon would have signed and traded for half a roster if it wasn't for the cap floor, and it's pretty ridiculous. We're probably not too far away from another lockout because of this. All it's going to take is one season where profits aren't so great (and I'm sure there's some creative accounting going on there to begin with).

nowhere's picture

A couple additional comments...
1. There's no way to legislate stupid behavior by the GM's
2. The current 35+ rule is a major loophole which allows these long term contracts

The basics of my tweaks to the current CBA & contract structures are as follows:
- All years of a contract which start when a player is 35 years of age or older will apply to the salary cap even in the event of retirement by the player
- From year to year, the salary of a contract shall not decrease by more than 50%
- Any contract having one or more years which exceeds the AAV by more than 33% will have the cap hit calculated using a 3 yr moving average

My proposed 35+ rule should limit long term deals to older players, as clubs would be on the hook for the full cap hit in the event of retirement.
The 50% rule helps to even out the contract, and helps to limit the number of $1M years
The use of a moving average is to combat the heavily front loaded contracts by enforcing cap hits which are in excess of the AAV.

Chuck Gaston Jr's picture

I wrote not too long ago how the new cap was going to change the way trades are going to be made. No with the free agency period showing a similar trait, things are definitely changing. The terrible choices that GM's make are now forgiven through this large gap in payments from teams that do well to teams that do not. I think as the NHL continues its growth this issue might start to resolve itself. By that I mean teams in the lower payment areas will not willingly take these contracts to reach the floor, because they will be able to spend closer to the cap.

The new CBA discussions are going to take a hit because of this and lets hope with the recent lockouts of NFL and NBA, and of course our lockouts of the past, the NHL starts early on figuring out what they need to do.

Kyle Andrew Busch's picture

I like nowhere's idea about the 35+ rule, especially the 50% part. It would limit these long deals that are front loaded. I put Cole in there because 4.5 is a bit much for a guy that's injured all the time (playing with Staal helps too), and Belanger really doesn't strike me as a 1.8 million dollar guy. I'd rather take Drew Miller and Patrick Eaves than him, and they make way less. Hopefully they can get some ideas going to stop these contracts from happening.

nowhere's picture

Thanks Kyle! I still think that the cap hit needs to be something other than simply the calculated AAV. The use of AAV allows the front loaded contracts to exist. Altering the 35+ rule is key to reigning in the contract term given to older players. I have no problem in principle with players in their mid-twenties being given 10 year contracts, but clubs need to reserve this type of deal to franchise type players. The owners & GM's are their own worst enemy in this regard.