Friday, August 10, 2007

Front Loaded Issues

There's been much discussion this off season about the front loaded contracts that have been very popular among NHL teams and free agents who get more $$$$$ up front but less in the out years of the contract. The teams love it because they get "extra cap space" early on in the contract at the cost of "dead cap space" at the end because the salary cap figure is the average value of the contract, not the actual year-to-year salary.

Take for instance, Michael Nylander of the Caps. The Caps will have a "cap savings" of $625K for each of the first three years of his four year contract. That isn't a lot of $$$$$ but in his fourth an final year of the contract, the Caps are hit with $1.875 million of dead cap space should Nylander still be on the roster because his actual salary will be lower than his cap number.

However, one of the reasons the Caps gave Nylander a front loaded contract was to decrease his buyout number. Now the CBA's buyout provision is rather murky. From what I can tell if I am reading it right, a player is entitled to at least 1/3 of his remaining actual salary and 2/3's if he is over the age of 26 when he signs the original contract which is the case with Nylander. All buyouts remain on the team's cap number for twice the remaining years on the contract. So if a player has one year left, he remains on the cap for two. If he has three left on his contract, he remains on for six and so on. Alexi Yashin had four years left on his nine year contract with the Islanders and his buyout means that the Islanders have his "dead $$$$$" on their cap for the next eight seasons.

So let's say that the Caps want to buy out Nylander in year four of his contract. The Caps can then write Nylander a check for $2 million and Nylander is gone. However, if I read the example in the CBA correctly, the Caps get a $2.875 million salary cap hit for Nylander in the final year of the bought out contract and have another $1 million cap hit the next season as well. While the Caps would "save" $2 million of overall cap space, they increase their "dead cap" space in the process for 2010-2011 and create "dead" cap space for themselves in 2011-2012.

Now the Caps aren't alone, the New York Rangers have big issues of dead space in 2011-2012 themselves. If they buyout Scott Gomez's final year 2013-2014, they'll "clear" about $3 million in cap room and suffer an increase in their "dead cap space" for one year along with putting Gomez onto their cap for an additional season. And as mentioned before, the sooner you buyout the contract, the longer that player occupies your salary cap and the more misery you have with your salary cap.

As a matter of fact, the Caps buying out Nolan Yonkman last year in his the final year of his contract created dead cap space for the Caps last year and again this year. Though the $75K charge to the Caps salary cap won't hinder the team a bit. However, with Nylander and the extension for Captain Chris Clark, the Caps have just over $2 million of dead cap space already built into the 2011-2012 season. While I understand and accept that the Capitals aren't likely to spend the maximum amount; if they wanted to, that $2 million could very well end up being the difference between getting a player they need to compete for a Stanley Cup and not getting him.

It looks to me that this "loophole" teams and players are trying to exploit is actual a big vat of quicksand that can very easily consume a team if they aren't careful.

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