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More on the Dangers of Front-Loading LT Deals

January 31, 2009, 1:49 PM ET [ Comments]

To continue from my posting last night, there’s been a lot of discussion recently about the ramifications of these long-term, front loaded contracts signed by certain Superstars. As I wrote last night (below), buying out the final two years of the Lecavalier and Zetterberg deals really isn’t a viable option.

Before I get into additional options, it’s certainly worth noting that nobody knows what the economic landscape of the National Hockey League will look like in the Summer of 2018. However I would be very surprised if:

1. Teams are given an easy out from these deals they’ve committed to.
2. NHL contracts will not be guaranteed.

In my opinion the current system works quite well and the major issues in the league are team-related or league-related, not CBA-related. Sure there are things that could/should be changed or tweaked but fundamentally the checks and balances are in place to ensure that player salaries are tied to league revenues, which in theory should work.

So under the huge assumption that we’re still operating under a similar playing field, there are essentially four scenarios for players like Lecavalier and Zetterberg:

* Voluntary Retirement
* Involuntary Retirement (assigned to AHL)
* Playing for minimal salary and huge cap hit (re-entry waivers is an option here too)
* Traded to low-revenue team who would be thrilled to take on a huge cap hit to get to the league floor, while paying out a minimal salary.

While the NHL is becoming more of a young man’s league, there are still twenty-five players in the league who are 38+ this year, some of whom have made great contributions to their teams to date:

At the surface, it sounds great that the lower cap hit allows their team more flexibility to add more talent. But there may be ramifications to how they finish their careers that the players may not be considering at this time.

By signing these long-term deals with additional years tacked on to lower the total cap hit, these players are actually increasing the changes that they may be forced out of the game before they are ready and/or will be forced to finish their careers elsewhere in a weaker market.

With a $13.8 million combined cap hit and $2 million in actual payout, I wonder if the odds are better of Lecavalier and Zetterberg finishing their careers in their current cities or in Kansas City?

Danny – [email protected]

PART ONE: Front-loaded, Long-term Deals Not Buyout Friendly

Despite what some have written, the long-term deals signed by Henrik Zetterberg and Vincent Lecavalier are not structured for a buyout in those final two seasons.

Here’s how the cap would be impacted in the event of a buyout – look at those huge cap hits that would compensate for the cap savings over the earlier portion of the contracts:

In Zetterberg’s case, the Wings would be saving $10,166,667 over the first ten years of the deal (the accumulated difference between the cap hit and salary). So if Zetterberg was bought out with two years to go, those ‘savings’ would count against the cap spread over the next two seasons.

With Lecavalier the savings are even more substantial - $12,954,543 over nine seasons would be added to the buyout amount that would count against the cap, spread over those two seasons.

More to come on Saturday,

Danny – [email protected]

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