Fun with Salary Cap Numbers

In the new Salary Cap era general managers are going to have to do some interesting accounting to get the maximum benefit of salary cap dollars as they can. The GMs who do the best managing of the salary cap should have the biggest advantage. I say should because money didn’t help the Rangers in the pre-cap era. So far we have seen a couple tricks used.

1. Sign young players to long term deals with escalating salaries. An example of this is the contract that Rick Nash signed in Columbus last year in which General Manager Doug Maclean got widely criticized for. The deal was a 5 year, $27 million dollar deal paying Nash $3.5 million in 2005-06, $4.5 million in 2006-07, $5.5 million in 2007-08, $6.5 million in 2008-09 and $7 million in 2009-10. What Maclean was criticized for was giving so much money to a young player and yes, it was definitely a risk because he only really had one good season. But the risk could pay off big time down the road because they will be getting a star player on their roster for a salary cap hit of something much less than most other star players will. In 2009-10 he might be an MVP candidate making $7 million but the salary cap hit will only be $5.4 million. That extra $1.6 million if spent right could allow the Blue Jackets to added some depth to their roster which in my mind is vastly overlooked in terms of importance. Carolina didn’t win the Cup because they had a bunch of superstars, they won because they had depth. Edmonton didn’t win the west because they had several superstars, they won because they had depth. The Nash signing means that down the road the Blue Jackets might have the possibility of having both stars and depth. It’s a risky move but if Nash develops as everyone expects, it could be a smart move.

2. The other strategy which we have seen utilized a few times this summer is the exact opposite. That is signing older players to longer term contracts in which the pay decreases over time. Bryan McCabe signed a 5 year $28.75 million dollar contract for an annual average of $5.75 million. That $5.75 million average is the salary cap hit. But in fact, according to the NHLPA website, Bryan McCabe is set to earn $7.15 million this season. Now I haven’t seen a break down of what McCabe is getting paid each season but if we assume that his contract is symmetrical (i.e. the average of the first and last years is $5.75 million) then his final year under the contract he would get paid $4.35 million. So what is the big deal about that? Well, what if McCabe’s play degrades significantly over the course of the next four years and the Leafs decided to buy out his contract? The buyout rate is 2/3rds of the remaining salary spread over twice the number of years remaining on the contract. So if McCabe’s final year of the contract was bought out the price tag would be 2/3 of $4.35 million or $2.9 million. That $2.9 million would be spread out over 2 seasons for a salary cap hit of $1.45 million. Had his contract paid him $5.75 million in the final year the buyout costs would be 1.92 million for 2 years. Not significant but not peanuts either. The other advantage of doing this is that the player (though not in McCabe’s case since has a no-trade clause) can more easily be traded to a smaller market team without salary cap issues down the road since smaller market teams are more worried about not going over their internal budget rather than not going over the salary cap.

This article has 7 Comments

  1. The one thing we’ll also be seeing is younger players getting bigger paydays since they can achieve UFA much quicker and teams don’t want them to sign 1-year deals and bolt.

    To me, that makes a lot more sense than paying 31+ year olds big dollars. Why pay a player based on past performance? Paying a guy like Rick Nash during his younger, peak years is much better than paying a 31-year old Rick Nash big dollars when the return on investment will likely decline over time.

    Still, we’ve seen many bad looking contracts signed this summer. Too many older players are getting too many years.

  2. To your point… players will now be paid their big dollars through their prime years instead of just once they become UFAs.

    Veteran players will now be scrutinized and signed to incentive laden deals usually on a short-term basis – or possibly just for a play-off run.


  3. Excellent post Dave.

    I think your farm team and drafting will become even more important in hte “new nhl” cuz you can sign potential superstars for such low money and they can grow into stars for a cheap price.

    Old veterans will be less likely to be dealt at the deadline cuz giving up draft picks for them might not be worth it.

  4. Great points. Just as an fyi Marc Savard did actually sign for $5M a year (4 year/$20M). TSN originally mis-reported this contract as 5 year/$20M on 7/1.

  5. Thanks Jim. I have removed the Savard reference in the post and also updated Boston’s salary commitment table.

  6. So let me get this striaght… Bryan McCabe is making 7.15 Million this year…but, does that mean 7.15 Million goes against the Maple Leafs Salary cap for 06/07. If this is so, then the Leafs are a Million over the cap!

  7. No, the average annual value over the term of the contract is what counts, not what he actually makes this season. The advantage for the Leafs comes down the road if they have to buy out his contract since the buyout cost will have a smaller salary cap hit since presumable the final year of his contract he will be making less money.

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