When the hockey season is over my wife always wonders why I still read so much stuff about hockey. I always tell her that the hockey season never ends because the summer is when so many trades and signings happen. An abbreviation that always comes up when a team signs a player to a contract is aav.
What does aav mean in hockey? AAV stands for Average Annual Value and does not apply to a player’s hockey stats but the salary he is making. It is calculated by taking the total value of the contract and dividing it by its length or term, and that number is applied to the team’s salary cap.Embed from Getty Images
How is aav calculated?
AAV is calculated by taking the total value of the contract the player signed and dividing it by the number of years for the contract. In the NHL players can sign a length of contract from anywhere between 1 and 8 years.
Here are a few quick examples:
If a player signs a $15 million dollar contract for 3 years the AVV will be: $15 million/3 years = $5million/year AAV
If a player signs a $25 million dollar contract for 6 years the AAV will be : $25 million/6 years = $4.17 million/year AAV.
The AAV is not necessarily the amount that is actually paid to the player each year, but it is a calculation that gives the average amount per year made over the course of the contract.
Why does aav matter?
AAV matters because it is the salary number that the league uses to be assessed against a team’s salary cap.
The NHL (the owners) and the NHLPA (the players) have a collective bargaining agreement which governs the operations of how the league operates. Within this agreement it states that the league and players will roughly split revenues 50/50 between themselves.
The way this plays out is that each team has to spend a minimum amount of money on salaries but, also, has a maximum amount they can spend on salaries. This is called the salary cap.
For the 2019-2020 season the salary cap floor is $60.2 million and the ceiling is $81.5. Most teams are within a few million dollars of the salary cap ceiling.
In figuring out what a team is spending and if they are within the salary cap range, the league takes the cumulative total of all the AAVs of the player contracts on the team’s roster – this does not include players in the minors, but only the 22 to 23 players that are in the NHL.
A team is not allowed to have a roster of players who cumulative AAVs that exceed the salary cap. If they do a team will be forced to get rid of players through trade, waivers, or putting them in the minors.Embed from Getty Images
So do players get paid another amount beside their aav?
As I have alluded to before the amount of money a player takes home in a given year is not necessarily their AAV. A player will always get the full amount of their contract in the end, but often it is not divided up as neatly as the AAV amount. Why is this?
Well, let’s take a look at a couple of actual contracts and how they are actually paid out compared to their AAV.
We will look at two more recent signings of Mitch Marner and Matthew Tkachuk, both of which are very interesting contract structures.
Below is the the contract that Marner signed for $65,358,000 over 6 years. The first thing to point out is that Mitch is getting paid a larger sum at the start of the contract then at the end.
Why is this? As the old saying goes, a dollar today is worth more than a dollar tomorrow. He can simply get that money and invest it as he deems fit, and doesn’t need to wait 4 or 5 years to get it. As long as he has some good financial people he will be ahead.
Below is the contract that Tkachuk signed for $21,000,000 over 3 years. As you will notice the contract pays more in real cash at the end. Whereas Marner’s contract takes him into his unrestricted free agent years, which allow him to negotiate a contract with any team, Tkachuk’s contract will end while he is a restricted free agent, and he will still have to negotiate with his current team, the Calgary Flames.
This being said, it was smart for Tkachuk to negotiate his contract this way because the Flames will have to ‘qualify’ him when his contract ends to keep him for his last restricted free agent year. Qualify him means that they have to at least offer him a one year contract at his previous year’s salary. So Tkachuk is guaranteed to be offered $9,000,000 for the last year of his restricted free agent status.
AAV used to help teams reach the salary floor
The AAV is also used to help a team pay a lot less money in actual salary than their actual salary cap number.
The most typical scenario is that a team is rebuilding, and they are going with a youth movement. They will be poor for a couple of years, but hopefully they can get a few good draft choices and develop a core that has the potential to win a Stanley Cup. This rebuild model worked for Pittsburgh and Chicago.
When you are rebuilding your team around a bunch of young players it can be difficult to reach the cap floor. Expensive contracts are handed out to talented veterans or superstar youngsters signing their second contracts. Young players and journeyman NHL players which make up a rebulding team are the least expensive players in the league.
So how do you reach the cap floor as a rebuilding team?
You can trade for players from other teams who are in the last year of their contracts who have high aav contracts where most of the money has been paid upfront in the previous years of the deal. Teams who have these contracts are usually desperate to get rid of them because the older player is not living up to the value of the contract or is unable to fulfill it do to injury.
Arizona, a cash strapped team, has pulled a number of these types of trades over the year. The best example is when they got Niklas Grossman and Chris Pronger, who was injured and could not play, from Philadelphia for Sam Gagner and a 4th round pick. Prongers contract had an AAV of 5 million but was only owed 750K in real money. Now that is a large savings!