Will NHL’s move on salary variance still curb cap circumvention?
One of the few clear objectives in the lockout for NHL Commissioner Gary Bettman: Ending the era of cap circumventing contracts; the ones whose annual salary peaks and valleys allow teams to cheat the system with long-term deals.
They were born out of the last lockout and the implementation of the salary cap system. Every new contract that “back-dove” in the final years to bring the cap hit down was an embarrassment for Bettman, who cancelled a season and watched his owners undercut the rules they battled to establish.
Both the NHL and NHLPA knew that term limits on contracts would be in the next CBA; it was then a matter of figuring out what those limits would be, and what kind of controls would be established to ensure the annual value of the deals didn’t dramatically fluctuate in order to get around the cap.
The NHLPA wanted a “cap benefit” provision that would have punished teams whose players retired during the dirt-cheap latter years of their contracts. While it had potential, it didn’t firmly address cap circumvention, or at the very least it pushed the problem down the road.
The NHL wanted “salary variance” restrictions, linked to the highest salaried year of a new contract. Under its plan, the annual salary of a player can’t increase or decrease more than a certain percentage of that highest contract year.
The initial number, on a maximum 5-year contract, was 5 percent of the first season. Then it was bumped up to 10 percent; so if a player made $10 million in base salary (his highest year in theory) in Year 1, he could drop to $9 million in Year 2, $8 million in Year 3 and so on.
This would seem to be a handy way to get rid of cap circumvention. And it might be.
The NHL’s initial offer in the latest round of negotiations offered a maximum contract of seven years for a team to re-sign its own players and six years for free agents. The year-to-year salary variance was no more than 10 percent of the highest contract year.
Michael Grange of Sportsnet reported on Thursday morning that the variance was up to 20 percent in the latest back and forth, which means one can assume it could go even higher, like 30 percent, before this lockout ends.
Now, this is where you enemies of cap circumvention might be freaking out about the new CBA allowing it even with the variance plan. After all, if the rate is set at 30 percent on, say, a six-year deal, you could be looking at $10M-$10M-$7M-$7M-$4M-$1M for a cap hit of $6.5 million.
Ah, but here’s the expected rub: There will be a fail safe if the NHL’s plan is adopted.
It’ll be a percentage of the highest salary year that no other year of the contract can fall under. So let’s say that percentage is 50 percent: That six-year term suddenly looks like $10M-$10M-$7M-$5M-$5M-$5M for a $7 million cap hit.
You wouldn’t be able to bring down the cap hit with B.S. $1 million years at the end.
Again, in theory.
This is one place where the NHL has it right, while the NHLPA is still trying to foster ways around the cap. Its initial plan would have allowed for back-diving contracts in the present with repercussions in the future. I’ve been told that the NHLPA also wasn’t in favor of a variance plan that used the highest salaried year as a basis.
Can a guy like long-term contracts but loathe cap circumvention? That’s where I am on this. It seems like the NHL, despite capping deals at six or seven years, will allow teams to retain their talent while also keeping them honest against the cap. And that's how it should be.
