Business of Hockey – Page 3

Like most people I like NFL football. It is similar to hockey in a number of ways - mostly with the physicality and toughness of the players. However, one thing that is not similar is the way the contracts work for players. I can never get over the fact that a player in the NFL signs non-guaranteed contracts and can be cut and receive none of it. How does the NHL work with contracts and guarantees? Are NHL contracts guaranteed? For the most part NHL contracts are guaranteed and the player will get the amount of money they sign for. They cannot simply be cut from a team and lose the contract they signed. However, a player can lose a portion of the contract through a buyout, escrow, or, in extreme circumstances, contract termination. Embed from Getty Images As with all all contracts and sports leagues these things are complicated and have many nuances and exceptions to them. Let’s look at the contracts of the NHL players more closely and see what is guaranteed. Guaranteed contracts in the NHL As I said above, for the most part, NHL contracts that are signed are for guaranteed money. If a player signs a contract for 3 years at $9 million dollars total. The player will get that entire $9 million dollars over the 3 years. The contract cannot be structured so only a portion of the money is guaranteed and another portion of the money is non-guaranteed. What you sign for is what you get! The term (how many years it is signed for) and the dollar amount is a risk that the team will take on. And once you sign the contract it cannot be restructured or changed in anyway in relation to the term or the amount of the contract. The player can end up being a bargain for the team, paid appropriately, or become what is termed ‘an anchor’ of a contract. Each team in the NHL will have players that fit into each category. The role of management is to be able to assess their players correctly and negotiate contracts that they believe will fit both short and long term with the team. Once the player signs not all the risk is gone but, essentially, they do not have to worry about having any non-guaranteed money. They will receive the total money that they have signed. However, in saying that there are a couple of exceptions to this statement, where the player gets less than the total amount. Buyout provision Sometimes general managers sign players to contracts and within a year or two regret it. There really is no general manager in the league that is safe from this. They have all signed players to bad contracts. Is there any way that a general manager can get rid of a player that has a bad contract? Yes, there is and it is called buying the player out. Here is how it works. A team is allowed to buyout a player who is younger than 26 at one third of his salaryA team is allowed to buyout a player who is 26 years or older at two thirds of his salary That seems simple, but there is a catch. For each player that is bought out the money counts against the team’s salary cap over a period that is twice the length of the contract. What this means for this discussion is that the general manager only has so much salary cap space that he can sign all his players too, so he will not want to be buying out players left and right because that does too much damage longer term to the salary cap situation. Often a general manager will wait not buy a contract out due to future cap implications, or only buy out a player in the last year or two of the contract. If we look at the numbers of players bought out each year, it is really not that much. Here are the numbers of players bought out over the last 6 years YearNumber of Buyouts20141320151120161520171420188201912 There are approximately 800 players who play in the NHL, and 1% to 2% of them will be bought out each year. So, it is not a significant amount. Or, another way to look at it, 98% to 99% of the contracts NHL players sign will be paid in full. Escrow Now an NHL player would take issue with me when I said that their contract is paid in full. This has to do with the biggest swear word in the NHL, which is escrow. Now if you say the word escrow in front of your grandma, she will not be offended. But, if you say it in front of an NHL player you will see rage on their face. So what is Escrow? Escrow is a portion of the players salary kept off each players paycheque. Why would the NHL do this? Well, in the last collective bargaining deal between the NHL and the players they decided on a partnership that would split all the revenue that is brought in 50/50. So half goes to the teams and half goes to the players. What is confusing is that the amount (or, the salary cap) that teams are allowed to sign players too is an estimation based on what revenues are believed to be for the year. For example, the salary cap may be set at 80 million dollars for the upcoming year, but after the year is played the revenue that is brought in was only 70 million dollars. What do you do in this partnership? Embed from Getty Images Well, the way they have been handling it is to not pay the players in full, but keep a portion of the money from each cheque in a pot called escrow. And, if the amount of revenue taken in at the end of the season meets projections then the players get their escrow back. If revenue only partially meets the projected amount, then the players will only get a portion of the money back. Escrow has believed to have taken upwards of 10% of a players salary off at the end of the year. The players hate it and want it to get eliminated, and this will probably be the biggest issue in the next collective bargaining session. Players want the amount of money it says in their contract. They want guaranteed money in full! Contract terminated for poor conduct There have been a few instances where a players contract has been outright terminated due to a material breach of contract. This happens extremely rarely. Here are four instances where this has happened within the past decade. Patrick Berglund - This player was simply burned-out from hockey and had personal issues. He did not report to camp, and thus got suspended and had the last 3.5 of his contract terminated.Jake Dotchin - The player came into the start of the season out of shape and not prepared to play hockey. The contract was terminated due to what was called a “material breach of contract”.Slava Voynov -Voynov was accused of domestic abuse, and thus had the final four years of his contract terminatedMike Richards - his contract was a negotiated termination with the league and NHLPA that involved money still being paid out to Richards along with the Kings having to count some salary against the salary cap. It was personal issues that led to the “material breach of contract”. Two-way contracts Some players in the NHL are signed to two-way contracts. This means that they will get one salary if they are playing in the NHL or a lower salary in they are sent to the minors in the AHL (American Hockey League). For example, a typical two way contact would be structured so that the player would receive $700,000 for playing in the NHL or $70,000 for playing in the AHL. However, both of those dollar amounts are guaranteed and a player cannot simply have that contract taken away from them. It is worth noting that a portion of players have a contract where they will be paid less if they are not in the NHL, but will still get paid a salary. Not all players who get sent to the AHL have two way contracts. Sometimes an NHL team will send a player who has signed a full NHL contract to the AHL rather than buy them out. The team is still on the hook for the whole NHL salary. The most notable of this is where Wade Redden of the New York Rangers played four years of his six-year contract for $39 million in the minors with the Hartford Wolf Pack. He got paid $23 million for playing in the minors. How is that for a guaranteed contract!