Jul 022007
 

A lot of the contracts signed yesterday (as well as Timonens) are heavily front weighted with the player making a lot of money in the first few years of the contract and substantially less in the last few years. This is one of the things that big revenue teams are doing to get a competitive advantage. These contracts also could be beneficial to small market teams down the road. The rules are that all teams have to maintain a payroll minimum (currently $34 million) but that is for the average contract salary, not the players actual salary paid for a particular year. Some of these teams can’t make money spending $34 million on players, but if they pick up one of these players late in their contract their cap hit will be much higher than their actual contract.

For example, the Flyers are paying Timonen $3 million in the final year of his contract but his cap hit will still be $6.3 million. The Flyers will have very little interest in keeping him around because his play at age 37 probably won’t be worth a $6.3 million cap hit. But if he can still play at a reasonable level he could be highly valuable to a small revenue team not wanting to spend even the minimum amount, which may be $40+ million 5 years from now. With Timonen on their roster you can meet that $40 minimum but only spend $37 million in actual player salaries because of the $3.3 million difference between his actual salary and his salary cap number in the final year of his contract. It is going to be interesting to see how this plays out 4 and 5 years down the road when these guys enter the last couple years of their contracts.

  6 Responses to “Front weighted contracts”

  1.  

    David,

    I thought that one of the advantages to front-end loaded contracts is that they become increasingly more tradeable as the contract ages. not because of selling artificial salary cap amounts though, as you have described, but because when a team acquires a front-end loaded contract, the salary cap impact on the team is to take the average of the remaining actual salaries payable.

    for example, if Timonen were making $4M and $3M in the last two years and was traded, the team acquiring him would only have a cap hit of $3.5M for each of those two years.

    Please tell me this is true, otherwise I am even more depressed about McCabe’s contract.

  2.  

    No, that is not true. The cap will always be $5.75 million through McCabe’s contract. But, as the cap rises and fewer teams can spend to the cap, his cap number becomes less important than his actual salary to more and more teams.

  3.  

    David, I just came across your site today and I think it is fantastic. You are bang on about the front-loaded contracts. In the last 1 or 2 years of these monster contracts (e.g. Timonen, Briere, etc.) will become valuable commodities to smaller and mid-market teams that are desperate to get up to the salary cap floor amount. This is a fantastic example of how teams with outstanding cash flow can take advantage of the system at the expense of their less fortunate brethren.

  4.  

    Can any1 answer my question. If Briere’s 8 year deal sees him making 6.5a year on average, but he will make 10 million in his first year, does that mean 10 mill will hit the cap next yr, or only 6.5. Any will that mean 6.5 throughout the 8 years? I thought whatever the player made that year hit the cap, with the exception of contracts such as j. jagr, because Washington is still picking up on his salary.

  5.  

    Cap hit is the contract average, not what a player makes in any particular year so in Briere’s case his cap hit is $6.5 million for the next 8 years.

  6.  

    Let’s not forget that a new CBA has to be negotiated between now & the end of these contracts. So we might (or might not) end up with a different formula for calculating salary cap hit on these monster contracts.

    If we get a “negative” salary cap hit due to a buyout — effectively using a buyout to *raise* the cap in one year — people will be clamouring to change the formula. (There’s an example of this in the monster CBA document if you care to read it.)

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