NHL Salary Cap Circumvention: A Problem Big Enough to Justify Another Lockout? Hell No

Less than two weeks ago Brad Richards was still an unrestricted free agent. There were cameras that tracked his entrance to his agency’s Toronto office, and then sat around to film representatives of various teams shamelessly beg hockey’s best free agent to sign with them. It was all supposed to be the NHL’s version of “The Decision,” except that it was Brad Richards who was the prize, and not a name like Alex Ovechkin. Coverage was beaten to death, and by the time Richards signed where everyone figured he would, it was time for the story to go away.
Except now, the story won’t go away, and it might have repercussions that border on the unspeakable. Actually, screw it. We need to talk about it.
There, I said it. What has up until now been a laissez-faire attitude toward long-term contracts and the CBA in general is starting to become more ominous. People within hockey are talking about the fact that there has become one big problem issue with regard to getting a new CBA done by July 1, 2012: salary cap circumvention.

Take your hands away from your areas, it’s not that. It’s of course the term that relates to these long-term deals that are so front-loaded that they could be objectively described as nothing short of farcical. James Mirtle and Greg Wyshynski both recently wrote articles that detail what cap circumvention is, and why some within the league believe it’s a problem. We all are smart enough to know that paying a guy nine or ten times as much money up front as on the back end is designed for one purpose only: to pay the player enough money up front to lure him to sign, while also lowering his cap hit to a more manageable number. If Christian Ehrhoff’s cap hit to the Buffalo Sabres was $10 million this year and $8 million the next, they may not be able to field a team. But alas, his cap hit is $4 million in each of the next ten seasons, thanks largely to those last three years in which Ehrhoff is scheduled to earn $1 million a piece.
Before I get hate mail, my Detroit Red Wings are guilty of the practice as well. Everyone cites Johan Franzen’s contract as an example of cap circumvention, and while I couldn’t vigorously deny that, I would say that Franzen’s contract is nothing like the ones we’re seeing now. Henrik Zetterberg’s contract has also been cited because of the two garbage $1 million years on the back end. I would offer that at least he gets paid in the same $7.5M range for the first 9 of 12 years. Today, his contract would be considered angelic due to the fact that he isn’t raking 50 percent of the contract’s total within the first two seasons. But, as less wrong as the Wings’ two examples are, they are still clearly some lesser form of cap circumvention given the two back end years.
Regardless of your take on these contracts, the fact remains that the league approved them all. Hossa, Zetterberg, Franzen, Lecavalier, Pronger, Ehrhoff, Richards, Keith, Luongo and all the rest have been allowed to go on the books. Whether they remain there after the signing of a new CBA, only time will tell.
One reason cap circumvention seems to be such a problem in today’s NHL is that there seem to be stark ideological differences within the front offices of the various teams regarding the legality and morality of these foolishly front-loaded contracts. In the link above, Mirtle references Leafs GM Brian Burke, who is morally opposed to offering such contracts despite being in charge of the richest team in the NHL (a.k.a. the team best situated to pay huge money up front). Burke actually states that his refusal to sign what he sees as a dirty contract was a big reason the Leafs were unable to sign Richards.

Photo courtesy nhlsnipers.com
Brad Richards from his Dallas days
Wyshynski also names Capitals owner Ted Leonsis as another who is against circumventing the salary cap. In fact, Leonsis’ two star forwards on long-term contracts, Ovechkin and Nicklas Backstrom, are scheduled to make more money as the contract goes on. Those who oppose front-loading often cite it as in bad faith and not “within the spirit of the current CBA.”
I must agree that these negotiations do make an ass of the salary cap and are all a big farce, but I have to wonder if eliminating them is worth the fight. Unlike the NBA, which needed a lockout much like the NHL needed one in the summer of 2004, the NHL neither needs nor can afford a lockout at this time. The game is growing and succeeding thanks to the changes that were made six years ago. As I wrote yesterday, eighteen of thirty NHL teams sold at least 98% of their tickets in 2010-11. The NHL just signed a huge (by comparison) ten-year television deal that provides a revenue stream that is much deserved after the league had to eat Ramen noodles for a while. Things are going well. Fans are starting to get involved again, and I still have yet to meet a person who gave hockey an honest try and decided it wasn’t something that at least sparked some interest.
Aside from the number one reason that the league shouldn’t fight this too hard — the lockout — I want to ask a few more questions that might devalue this issue.

The rest of this section asks a lot of questions, and I use the word “you” often. It’s not pointed at “you” specifically; it’s supposed to be the royal “you.”

1.  Who cares? Why is front-loading a contract for a star player and adding a few joke years on the back immoral? Is it because that allows only the richest teams to land these players by offering them $9+ million early? We all know that nobody can carry a player with a cap hit of $10 million, so obviously the number has to be lower. So does that mean that we cannot allow an NHL star to make that kind of money in a season? Here’s the thing: the St. Louis Blues weren’t going to sign a player that had to be front-loaded whether it was legal or not. Even if rules required the cheapest year of a contract to payout half the amount of the most expensive year, the teams that aren’t capable of signing overpriced stars aren’t going to anyway. These teams aren’t paying $10 million this year, and they aren’t paying $7 million for seven years. Yes, these contracts cheat the salary cap and also shouldn’t be able to come off the books later, but in the end if everybody is allowed to do it, what’s the difference?

2.  If the NHL becomes contract police, will star players leave for the KHL? My gut tells me that not many would, at least not yet. By all accounts, the NHL is still where most players want to play. The facilities are better, the level of play is higher, and the championship trophy is constantly cited by foreign players as the holy grail of hockey. But still, the key for any league’s continued success is being understood as the best in its sport. Americans don’t watch MLS, but they do watch the English Premier League. Why? Because the EPL is a far better product. Some big name hockey players, including Jaromir Jagr, have left the NHL for greener pastures in Russia. While the KHL is still regarded as the second best professional league, the question is really whether the elimination of all circumventing contracts would push the early player payments down enough to have them choose to leave for Russia. I don’t know enough about the salaries of entire KHL teams to wisely predict how this would go, but I think all parties should be aware of this question before they crusade to limit how much dough a star player can bank, especially when teams are willing and able to pay it.

3.  Isn’t front-loading a contract the fiscally responsible thing to do? Stop me if I’m making stuff up, but aren’t the L.A. Dodgers bankrupt and close to being unable to pay their players because they back-loaded every contract of financial consequence? They still owe Manny Ramirez approximately $25 million, despite the fact that he played for two MLB teams more recently than the Dodgers and is now retired. The Dodgers were allowed to defer payments and end up owing lots of money way later than it should have been due. This is a recipe for disaster, as anyone who has ever gone to school on loans can attest. I understand the time value of money should indicate that it is always better to pay someone as late as possible, because a dollar today is worth more than a dollar tomorrow. But this ignores a couple key mantras that any debtor can attest to: 1) don’t go into debt over your head, and 2) pay your damn debts. If the Sabres want to be owing Christian Ehrhoff $40 million over a 10-year period, why is it a bad thing that they want to get 45% of that total paid off within the first two years? Yeah, yeah, they can invest the money and make interest on it that covers inflation blah blah blah. Have you ever heard of Bernie Madoff? Or market volatility in general, especially recently? Ask the N.Y. Mets about Madoff, and then preach to me something out of an ECON 201 textbook. If the teams have the means to pay the front-loaded salaries today, and it appears that all of these teams do, then why on earth would we want to mandate a culture that makes it illegal to make damn sure that teams aren’t going bankrupt in the future based on years 7 through 9 of some horrible contracts that force them to write checks that will bounce?
To continue off Question 3, don’t you think the teams and players factor the structure of the contract into their negotiations? So we see that Ehrhoff (and I don’t mean to pick on him, Richards’ deal was just as “circumventing”) agrees to get paid $40 million over a 10-year period, with $18 million of that coming in the first two years of the deal. Don’t you think he factored the front-loading in when he agreed to the deal? Don’t you think he (or his agent) understands the time value of money? Of course he does, and he agreed to this deal based on getting that much money early in the deal. If we took a hard line on cap circumvention, the Sabres would have had to do one of two things to get Ehrhoff signed while still staying under the cap. Either they would have had to chop off the last three years of the deal while also lowering the dollar figures per year, unless they were cool with a $5.3 million cap hit for seven years for not the best defenseman in the league, or they would have to raise the back end of the deal a lot while also lowering the front, in order to keep the cap hit in check. There’s no way on earth Ehrhoff would prefer this setup, since again, money ten years from now isn’t worth nearly what it is today. And then there’s the risk of a Dodgers situation, which no player wants to be a part of.
To finalize, I get that these deals are a farce. I understand the idea that shouldn’t be allowed to be dropped so substantially based on the tacking on of bogus years that players don’t intend to play anyway. I even get how it is technically unfair to the teams that operate within the cap, but don’t bring in the kind of local television / sponsorship money that the bigger clubs do. But to me, the risk of downgrading the level of play of the NHL to the benefit of domestic leagues in Russia, Sweden, or anywhere else doesn’t make sense for the NHL. Additionally, I’m not convinced that these offers are patently immoral, since the player ends up signing where he wants to play, and by all accounts most teams try to lure the same free agents with the same front-loaded deals. Lastly, it makes fiscal sense to pay your debts earlier so that you can be assured of a brighter financial future. Who can fault these clubs for not wanting to be $21 million in debt for the last three uninspired years of some aging former star? I won’t fault them on those accounts, but I agree the whole thing is a joke. It might need fixed, but not at the expense of a new CBA getting done. Not even close. Because remember, that means a… luh… lah… lockout.

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