Around the League Thread | Holiday Season!

[Hodgy]

It’s not cap circumvention because in theory the value of those future payments is accounted for in the NPV’d AAV.

But, ignoring what is or isn't allowed under the CBA, it doesn’t really make sense to me why deferred payments should get NPV’d for the purpose of calculating the AAV but payments within the life of the contract do not. Teams who have front loaded salary/given huge signing bonuses don’t get an NPV based increase to their AAV so the same should be true for deferred payments.

Ya, I just read the CBA provisions. I assume that for simplicity’s sake they didn’t adopt the present value concept for all contracts. It would make cap hits far more complicated to the average person.

 

[ManVanFan]

Lebrun doesn’t actually explain it though.

I read the CBA provisions, and the long and short of it is, if the deferred salary is not payable with interest, then the present value of the deferred salary (to be calculated in accordance with the CBA) counts against the cap. So they still get dinged with a cap hit for the deferred salary.

Breaks the spirit on the cap.

 

[Hodgy]

Breaks the spirit on the cap.

No it doesn’t. It accords with basic accounting principles.

In fact, it actually helps to level the playing field of an otherwise unfair cap system that doesn’t reflect varying income taxes rates.

 

[rypper]

Dirty play.

I don't think he knew that Edmundson was going to do that when he went for the hit.

 

[Mr. Canucklehead]

If the Canucks signed that Vatrano deal, we’d absolutely be hammered by the league for circumvention. How the hell does that shit fly?

 

[ManVanFan]

I don't think he knew that Edmundson was going to do that when he went for the hit.

What kind of hit was he going for gliding in backwards? I'd say the final outcome wasn't intentional but the play by Girgenson's was not right.

 

[krutovsdonut]

It’s not cap circumvention because in theory the value of those future payments is accounted for in the NPV’d AAV.

But, ignoring what is or isn't allowed under the CBA, it doesn’t really make sense to me why deferred payments should get NPV’d for the purpose of calculating the AAV but payments within the life of the contract do not. Teams who have front loaded salary/given huge signing bonuses don’t get an NPV based increase to their AAV so the same should be true for deferred payments.

it seems like they are creating a pension without a regulated properly funded pension plan to back it. i would think it violates labour laws in some jurisdictions.

 

[Hodgy]

The CBA is pretty clear on this:

Look at the illustration.

 

[Nuckles]

Puckpedia has an article with an example on it, as well as a calculator (which I think some people have said isn't 100% accurate)

https://puckpedia.com/salary-cap/deferred

Deferral calculator: https://puckpedia.com/deferred

For example, if Boeser signed for 8x8, but the last 4 years had half of the salary deferred starting 4 years after the deal ends, it could bring the cap hit down to roughly 7.385M

 

[StreetHawk]

Frank Vatrano’s 3-year, $18M extension is an interesting one. He will get paid $3M a year in base salary but then $9M in deferred salary. Starting 10 years from now in 2035, will make $900,000 a year for 10 years, and his plan is to live outside of California (and its tax system) at that point in retirement. Ducks, meanwhile, benefit with deferred payments by having $4.57M AAV (instead of $6M AAV) on the deal. Creative way for both the team and player to make it work. And perhaps show other players in future way to stick-handle around California tax issue.

-Lebrun

It's crap honestly. Fine to defer payments but cap hit should be as is.

Not like Ana needed the cap space. All that to save $1.43 mill va the cap? I would agree that compound interest on investments made now can make up for any tax savings.

 

[Szechwan]

I wonder if we'll see some GM just go hard on the deferred deals, sign all their top players to them and kick the can 10 years down the road for some other sucker GM to deal with.

In for a penny, in for pound. Might as well sewer your future team if you think you can sneak another superstar or two on your contender by deferring everyone.

 

[StreetHawk]

I wonder if we'll see some GM just go hard on the deferred deals, sign all their top players to them and kick the can 10 years down the road for some other sucker GM to deal with.

In for a penny, in for pound. Might as well sewer your future team if you think you can sneak another superstar or two on your contender by deferring everyone.

Type of deal that works best for older players in their 30’s. Was surprised to see Jarvis take it earlier. Slavin made more sense. Jarvis, he would not know where the will be playing in his 30’s.

But flip is is the time value of money. Deferred salary saves on tax but you could take the post taxed money and invest it.

If he takes home only half of the $3 mill annually that he defers that’s $1.5 mill. If you can invest it at 7-8% return. Would be close to doubling that in around a decade or dozen years. But, taking $900k per year from 2035 to 2044.

 

[Coffee]

Horvat two goals tonight including OT winner break away

 

[Szechwan]

Another thing - If I'm an owner that is already considering selling in the next decade, this seems ripe for some classic Venture Capital asset stripping/corporate raider type behaviour.

The money generated today from a 5 year stretch of playoff runs powered by heavily deferred contracts is far more valuable than the unknown possibility of playoff runs in the future.

>Defer all your stars (or sign multiple FAs you wouldn't normally be able to)
>Drive up your franchise value with a half decade of deep runs
>Sell at an even bigger profit.

The deferred salaries won't drive the franchise value down enough to make it not worth it, Sports franchises are a hot commodity regardless of baggage.

 

[Ernie]

Canucks are going to do this with Hughes and then get retroactively punished for it.

I don't see why the league would have any problem with it. Essentially, it is billionaire owners helping multimillionaire players avoid paying high taxes. You'd expect the league and the players to be looking to do more of this type of thing.

 

[God]

the cap hit calculation of these deferred deals is so stupid and the nhl might as well just remove the salary cap if they're gonna let stuff like this happen

 

[Ernie]

the cap hit calculation of these deferred deals is so stupid and the nhl might as well just remove the salary cap if they're gonna let stuff like this happen

Can you explain to me what issue you have with it? Not sure how the Canadian tax authorities would assess it but it could help the Canucks compete with low tax jurisdictions in the future. Could be the difference between Quinn having a $14m vs an $18m cap hit etc.

 

[Diablo2020]

Can you explain to me what issue you have with it? Not sure how the Canadian tax authorities would assess it but it could help the Canucks compete with low tax jurisdictions in the future. Could be the difference between Quinn having a $14m vs an $17m cap hit etc.

Lets be reality. As soon as Vancouver signs one its banned and we're penalized for trying.

 

[Hodgy]

The deferred salary thing is explicitly permitted in the CBA.

Can you explain to me what issue you have with it? Not sure how the Canadian tax authorities would assess it but it could help the Canucks compete with low tax jurisdictions in the future. Could be the difference between Quinn having a $14m vs an $18m cap hit etc.

The irony is, the deferred salary is actually a good thing because it partly (barely anything at all) offsets the advantage low income tax states have.

 

[Ernie]

Lets be reality. As soon as Vancouver signs one its banned and we're penalized for trying.

That only happened after the league made a big stink about it, but so far it hasn't because it's actually good for the league.

I would expect they'll tweak things a bit but no reason not to embrace the concept.

 

[Diablo2020]

That only happened after the league made a big stink about it, but so far it hasn't because it's actually good for the league.

I would expect they'll tweak things a bit but no reason not to embrace the concept.

We will not tempt Gary.

After like 30 of these...

"Sorry, for the first time ever we've decided to ban this, void Hughes' deal, and he becomes a UFA today immedietly, and Van loses a 1st"

- love Gary

 

[LemonSauceD]

Can you explain to me what issue you have with it? Not sure how the Canadian tax authorities would assess it but it could help the Canucks compete with low tax jurisdictions in the future. Could be the difference between Quinn having a $14m vs an $18m cap hit etc.

It would be more along the lines of $14-18M to like $8M.

 

[God]

Can you explain to me what issue you have with it? Not sure how the Canadian tax authorities would assess it but it could help the Canucks compete with low tax jurisdictions in the future. Could be the difference between Quinn having a $14m vs an $18m cap hit etc.

i think it's good regarding the tax part, particularly for teams to compete with low tax jurisdiction teams as you've pointed out.

the issue i have is that a team is promising (for example, using puckpedia's interest rate) 100 million dollars to a player, deferring 5 million dollars of that as payment in year 9, and the books will say $12,284,893 AAV instead of $12,500,000. to me, that is insanely stupid for a league with a hard cap.

just to be even more ridiculous, let's say you and the player agree that 1 million/year is enough to live off of. so you defer 92 million dollars to year 9. then the cap hit is $8,542,027 AAV. it's not a hard cap anymore if you keep doing this. and if the league calls it cap circumvention if it's a big amount but not a small amount... that doesn't make any sense to me - a team is gaining a competitive advantage for each year of the contract, whether it's by 100k or 1m.

edit: i missed that vatrano's 3 year 18 million dollar deal with an expected AAV of 6m becomes 4.57m. so any team that gets that contract instantly saves 1.43m in cap hit. that's a ridiculously good advantage. if i offer a player a 1 year deal at 10m dollars, defer 9m to year 2, the cap hit is $9,537,708. it's stupid.

 

[Ernie]

edit: i missed that vatrano's 3 year 18 million dollar deal with an expected AAV of 6m becomes 4.57m. so any team that gets that contract instantly saves 1.43m in cap hit. that's a ridiculously good advantage. if i offer a player a 1 year deal at 10m dollars, defer 9m to year 2, the cap hit is $9,537,708. it's stupid.

The reason the league calculates it as $4.57m is because that's what it's costing the team.

Essentially they throw $1.57m for every year of his contract into a savings account which accrues interest.

Then he starts withdrawing from the principal and the accumulated interest in 2035 well after he's retired - basically it's set up as a pension. However, at this point, he's going to be living in a low tax jurisdiction, so will be keeping much more of it than if he was still living in California.

It doesn't cost the league a penny but substantially increases the amount of money a player receives after taxes and levels the playing field (a bit) between franchises in high tax and low tax jurisdictions.

 

[God]

The reason the league calculates it as $4.57m is because that's what it's costing the team.

Essentially they throw $1.57m for every year of his contract into a savings account which accrues interest.

Then he starts withdrawing from the principal and the accumulated interest in 2035 well after he's retired - basically it's set up as a pension. However, at this point, he's going to be living in a low tax jurisdiction, so will be keeping much more of it than if he was still living in California.

It doesn't cost the league a penny but substantially increases the amount of money a player receives after taxes and levels the playing field (a bit) between franchises in high tax and low tax jurisdictions.

yeah. i understand the specifics of deferral and i'm fine with it if the player feels like it makes sense for them with respect to the tax jurisdiction they are playing in. none of that has anything to do with the league calculating the cap hit in a stupid way for a "hard salary cap".

if i sign three frank vatranos to the same contract, i'm saving 4.29m in aav on my projected cap hit (and i can pretty much sign a fourth frank vatrano). i'm pretty sure that isn't in the spirit of a hard salary cap.