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Confirmed Signing with Link: [ANA] F Frank Vatrano signs extension with the Ducks (3 years, $4.57M AAV; $9M deferred salary)

Static said:
Ok, I see now that what you and that other person are saying is financially over my head.

Not the inflation part, but the way it is being paid out later.
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It’s essentially a $4.57m contract, but they’re taking $1.57m of that and putting it aside for him at roughly a 7%-8% interest rate and then they’ll pay him that money in 10 years.

It really is no different than just paying him $4.57m now, it’s just more advantageous for him to do it that way and considering the $3m is around his current income, it’s like playing another 3 years at the current income he’s comfortable with but saving him 9-12% on taxes over the next 3 years on that $1.57m.
 
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I just hope they cleared it with the nhl before announcing.

There are positives and negatives to this but I imagine only people who really want to be in California would be willing to do this.

As his video shows he wants to be here and this is a great creative compromise.
 
Frank the Tank!!

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190Octane said:
But it’s not… there’s a reason the cap hit is $4.57m and not $6m.

If he team is basically taking $1.57m for the next 3 years and putting it into a deferred annuity guaranteed to pay out $9m over 10 years in 10 years from now.

For all the people saying this is stupid and Vatrano is missing out by not just investing the money now don’t understand the tax ramifications of this. If he takes that $1.57m in salary over the next 3 years, he’s going to pay over $450k in state taxes on that alone so he’s really investing $4m instead of $4.71m. The rule of 72 says that he would have to earn around 8% to double that money in the next 10 years.

With this contract he’s essentially earning over 8% on 1/3rd of his salary for the next 10 years and not having to pay state taxes on it depending on where he lives when he starts drawing on it. It’s a great idea to provide financial stability down the line and avoid losing 10% of your salary now to taxes.
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This actually makes me wonder how those values are calculated. Turning $1.57 million a year for 3 years into $9 million in 10 years seems like an aggressive conversion that I'm assuming the NHL has a say on.

Just using a rough calculation, investing $1.57 million at the start of a year for 3 years with a 6% return rate ends up with a value of about $5.30 million after 3 years. Add on another 7 years of no contributions but that same 6% return rate has the final value at about $7.97 million.
 
Empoleon8771 said:
This actually makes me wonder how those values are calculated. Turning $1.57 million a year for 3 years into $9 million in 10 years seems like an aggressive conversion that I'm assuming the NHL has a say on.

Just using a rough calculation, investing $1.57 million at the start of a year for 3 years with a 6% return rate ends up with a value of about $5.30 million after 3 years. Add on another 7 years of no contributions but that same 6% return rate has the final value at about $7.97 million.
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Empoleon8771 said:
Because California has insanely high tax rates so most athletes probably don't want to retire there.
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For income over $721k, California's tax rate is 12.3%, which is high, but I still don't think this makes much sense.

The average annual inflation rate since 2000 is 2.7%, so $900k in 2035 will be worth about 70% as much as it is today. His last payment will be about 30%. He'll end up with about 50% less due to inflation to save 13% in taxes up front.

And that's assuming there aren't any major political or economic changes over the next 10 years that drives inflation significantly higher than that average.

:popcorn:
 
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Empoleon8771 said:
This actually makes me wonder how those values are calculated. Turning $1.57 million a year for 3 years into $9 million in 10 years seems like an aggressive conversion that I'm assuming the NHL has a say on.

Just using a rough calculation, investing $1.57 million at the start of a year for 3 years with a 6% return rate ends up with a value of about $5.30 million after 3 years. Add on another 7 years of no contributions but that same 6% return rate has the final value at about $7.97 million.
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At 8 million, but the money that’s still in the holding account will accrue interest over the 10 year payout period. Obviously that interest decreases as the value of the account is drained, but the value of the account in 10 years wouldn’t really be 9 million. I’m just too lazy to do the actual calculations.
 
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IWantSakicAsMyGM said:
For income over $721k, California's tax rate is 12.3%, which is high, but I still don't think this makes much sense.

The average annual inflation rate since 2000 is 2.7%, so $900k in 2035 will be worth about 70% as much as it is today. His last payment will be about 30%. He'll end up with about 50% less due to inflation to save 13% in taxes up front.

And that's assuming there aren't any major political or economic changes over the next 10 years that drives inflation significantly higher than that average.

:popcorn:
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There's a good reason why players haven't really done this before, and it's not because the GMs were stupid and only thought about it this year. The players would prefer most money front loaded and in signing bonuses.
 
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190Octane said:
At 8 million, but the money that’s still in the holding account will accrue interest over the 10 year payout period. Obviously that interest decreases as the value of the account is drained, but the value of the account in 10 years wouldn’t really be 9 million. I’m just too lazy to do the actual calculations.
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Yeah that's another complicated part here, it's not "$9 million in 10 years" it's "$900k a year for 10 years starting in 10 years".

Using today's SOFR rate (4.40%) plus the 1.25% buffer, I believe they're interpreting that $4.71 million deferred is worth $7.1 million in 10 years. Withdrawing $900k a year out of that account with maintaining that 5.65% interest rate for 10 years ends up with a zero balance.

He turned $4.71 million in salary today to $4.71 million in salary plus $2.5 million in interest over the first 10 years and $1.8 million in interest over the next 10 years.
 
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wow they knocked off around 1.5 million per season

this deferred salary stuff is pretty crazy

good deal though
 
So he’s deffering cash from 41-51 years old?

Sorry I say this, but what if death happens? Does it go to his estate? Or does death terminate the contract and he doesn’t get the money?
 
This has probably been answered in one of the other threads about this type of contract, but who pays the deferred years if he gets traded mid-way through? I would assume it's one of 3 possibilities

1) the ducks are on the hook because it's a special contract and they are the one that signed it (least likely)

2) it works like cap recapture and it's done as a percentage based on who benefited from the cap savings for however long the held it (most likely)

3) whoever ends up holding the contract when it ends would still be considered the holders when it's time for his deferred money (unlikely)

If 1 is the case the ducks would really be dissuaded from trading him as they have to pay for him anyway. If it's 3 he would be extremely difficult to move as a rental as his deal would be incredibly back loaded and no acquiring team would want him as a rental when they would need to fork over an additional 9M long after gaining any short term benefit from him.

Tact said:
So he’s deffering cash from 41-51 years old?

Sorry I say this, but what if death happens? Does it go to his estate? Or does death terminate the contract and he doesn’t get the money?
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An interesting question. I believe gaudreau's estate was entitled to one year's value of his remaining contract, but for vatrano it would be for services already rendered, so you'd think it would need to be paid out in it's entirety.
 
The title should be changed because it’s not really 3 years at 4.57m + deferred salary, it’s basically 3 years at 13.5m with 4.5m of the 13.5m deferred.
 
When the nhl inevitably bans these deals, they better punish every team that took part on them after the fact.

Vancouver and Chicago got screwed over for signing Luongo and Keith to extremely long but completely legal deals and then the NHL threw a hissy fit after the fact.
 
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Hattrick Kane said:
When the nhl inevitably bans these deals, they better punish every team that took part on them after the fact.

Vancouver and Chicago got screwed over for signing Luongo and Keith to extremely long but completely legal deals and then the NHL threw a hissy fit after the fact.
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Difference is, teams had been told "don't do these deals because we are going to change the CBA and it could come back to bite you", and then these two proceeded to do it anyway.
 
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The Crypto Guy said:
What the f***? lol. Okay. Well congrats to him.

edit - just looked at this contract structure, he's a smart man! That's how you plan for the future. But at the same time he could have just invested that money all now and in 10-20 years it would be worth much more than the 9M. But either way, I like it.
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Keep in mind that money wasn't necessarily on the table in a normal contract structure. Is Vatrano a $6m player? It's not necessarily like the team/player agreed on a $6m aav contract and then the player said, "hey what if you pay me later?".

Realistically, it can be thought of as a $4.6m aav contract, that's effectively the value he'll receive "today" (or during the contract). It's the same math as how his cap hit is calculated. Whether that's team friendly or not depends on what you think Vatrano is worth (which really depends on whether or not you think he'll replicate last year).
 
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Hattrick Kane said:
When the nhl inevitably bans these deals, they better punish every team that took part on them after the fact.

Vancouver and Chicago got screwed over for signing Luongo and Keith to extremely long but completely legal deals and then the NHL threw a hissy fit after the fact.
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Those deals were meant to circumvent the cap, how does this deal circumvent the cap? There’s nothing here to lower aav.
 
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LOFIN said:
Difference is, teams had been told "don't do these deals because we are going to change the CBA and it could come back to bite you", and then these two proceeded to do it anyway.
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Even if that's the case is that how contracts work lol?

If it was legal based on the current CBA at the time then it was legal.
 
MMC said:
Why are people in this thread acting like the NHL would ever outlaw this?
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Not sure how the NHL sees who benefits or why the league would prohibit but they did stop the long term deals and punish teams in the Kovalchuk and Luongo deals no? What was the thought process behind that because that seemed as harmless as this.
 
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