Recent Deals Demonstrate Need For Cap on Contract Length

Posted by

The Minnesota Wild made waves this offseason by signing Zach Parise and Ryan Suter to identical 13 year, $98 million contracts.  Shortly before that, the Pittsburgh Penguins signed Sidney Crosby to a 12 year, $104.4 million contract extension that will pay him through the age of 38.  These contracts epitomize a problem that has bedeviled the NHL ever since the salary cap was introduced following the 2004-5 lockout: salary cap circumvention.  And, to no surprise, the NHL once again locked out the players when the collective bargaining agreement expired.  These contracts, and others like them, are at the heart of the dispute.

Each of these three contracts contains a common theme: higher annual contract values early in the contract, when the player is still in the prime of his career, lowering steadily as the player’s age advances and (presumably) his production declines.[1]  In a vacuum, this is perfectly reasonable; the contract pays the player pursuant to their expected production.  Indeed, this is how many long term NHL contracts work.  For the purposes of salary cap calculation, teams are permitted to use the average annual value of a contract, as opposed to the actual annual value.  Thus, while the Parise/Suter contracts will pay those players $12 million next year, for salary cap calculation purposes, the contracts will each count $7,538,462 against the $70.2 million salary cap that each team has to work with for the 2012-13 season.  This practice is known as “front loading.”

The problem is that by the time the contracts near their expiration, even if Suter and Parise are still in the NHL, it’s not likely that either will be useful to their team by that time. Crosby’s contract raises a somewhat different issue.  It’s entirely possible that Crosby will still be a useful NHL player at age 38.  However, Crosby has been limited to 63 games (out of a possible 164) the last two seasons by concussions.  While the NFL receives most of the attention with concussions, the NHL has had their fair share of high profile head injuries as well; Bostonstar Marc Savard has likely played his last game as a result of multiple concussions, and future Hall of Famer Chris Pronger may have as well.  There is a definite possibility that Crosby’s career will be shortened as a result of multiple concussions.

So why would teams sign players to these types of contracts?  From the team’s point of view, it’s better for them if the player in question retires prior to the expiration of their usefulness.   The team owner has to pay the value of the contract, but if the player retires, the contract comes off the salary cap.  Thus, the team has a competitive advantage so long as the team owner is willing to spend the money required to sign the player in question. This is the exact opposite outcome intended by the implementation of a salary cap.

The purpose of a salary cap is to ensure a level playing field.  A level playing field ensures parity, parity ensures more fan interest, and more fan interest ensures more league revenue; so goes the theory.  And there is some merit to the theory, since the 2004-5 lockout, in which the salary cap was implemented, the league has had seven different Stanley Cup champions, and 12 different teams have appeared in the Stanley Cup Finals.  TV ratings for the Finals have been impressive, and the NHL signed their (by far) largest TV contract ever in 2011: 10 years and $2 billion.[2]

Leave a Reply

Your email address will not be published.