Around the NHL 2024-25 regular season Part II - The holidays are upon us

[Satans Hockey]

 

[Zajacs Bowl Cut]

one pending UFA off the board

 

[Zajacs Bowl Cut]

really interesting stuff

 

[TrufleShufle]

Edit: beat me to it lol.

Pretty interesting stuff here, I bet we will start seeing more of it, but at the same time, deferring any amount of money can bite you in the ass if it's too far out and a good accountant could make better use of less now than more later. Who knows.

 

[Zajacs Bowl Cut]

how does that work cap wise? Would they have $900k cap hit for 10 years? I doubt it but who knows.

 

[My3Sons]

how does that work cap wise? Would they have $900k cap hit for 10 years? I doubt it but who knows.

I imagine the cap impact of these deals has already been agreed upon. I guess in theory they are based on a term of play not a term of payout and to avoid circumvention the hit is just the total dollar amount divided by years?

 

[None Shall Pass]

how does that work cap wise? Would they have $900k cap hit for 10 years? I doubt it but who knows.

The cap hit is pro-rated using time value of money stuff. Without doing the math of it: he's getting $3M a year for the 3 years of his contract (So $9M total) but his cap hit for those 3 years is like $4.567M a year or something like that because they're factoring in the future deferred $9M over those ten later years. Using nerd math, $900k a year ten years from now has the same value as some smaller amount of money per year now, for cap calculation purposes.

I learned about this stuff in grad school but there's Time Value of Money calculators to figure it out and I will likely never have to use it.

 

[Cheddabombs]

If only we had deferred a portion of Kovalchuk's 28 year contract, we could've fooled the league!

 

[JrFischer54]

really interesting stuff

Interesting he himself mentions avoiding taxes but I was told that taxes weren’t a factor in decision making or a helping hand in tax free states

 

[njdevils1982]

how is this not cap circumcision?

 

[Zajacs Bowl Cut]

how is this not cap circumcision?

OH GOOD HEAVENS

 

[Bleedred]

Is he doing that so he can still have a decent paycheck coming in for a bit after he’s retired? That seems to be the reason for doing that. Unless it’s just tax related lol.

 

[Dialamo]

Is he doing that so he can still have a decent paycheck coming in for a bit after he’s retired? That seems to be the reason for doing that. Unless it’s just tax related lol.

That would actually be a fairly intelligent decision believe it or not. After these athletes retire the income usually completely dries up. It's tempting for athletes to spend a lot of the money they make during their career. That's why you hear quite a few of them having money issues after they retire. This will give him stable income in retirement.

The cap hit is pro-rated using time value of money stuff. Without doing the math of it: he's getting $3M a year for the 3 years of his contract (So $9M total) but his cap hit for those 3 years is like $4.567M a year or something like that because they're factoring in the future deferred $9M over those ten later years. Using nerd math, $900k a year ten years from now has the same value as some smaller amount of money per year now, for cap calculation purposes.

I learned about this stuff in grad school but there's Time Value of Money calculators to figure it out and I will likely never have to use it.

Yep this is how it works roughly. Going into the nerd calculations (take with grain of salt I may be wrong), assuming a present value of $13.71m ($4.57 AAV times 3) at December 31, 2025 and using the payment schedule Lebrun's tweet has until December 31, 2044 (2029 to 2034 has zero payments), I get a discount rate of 3.7% using the IRR method. That's fairly reasonable considering average long term investment returns minus inflation. Note that a higher discount rate would result in a lower AAV, so if it was like 10% or something the league would have to intervene.

EDIT: Just read the main board thread on Vatrano's contract. There's a lot of detail there on how these are calculated and there is a defined discount rate so teams can't pull off some shady shit. Looks like I was way off on the discount rate.

 

[Incharge1976]

how is this not cap circumcision?

 

[NjDevsRR]

how is this not cap circumcision?

 

[MasterofGrond]

All the deferred money is using a system that has been agreed on by the league and players, and is written into the CBA. It's not circumvention by any metric, and is probably worse for both parties than a regular deal, truth be told, because the discount rate they use is probably lower than I think is fair (this means one or the other party is taking a haircut, either on compensation for the player or cap hit discount for the team).

That said, the difference (for the player) is probably reasonably small enough to be helped by the tax savings of 1) moving outside a high tax locale and 2) spreading out your money across more years

 

[JrFischer54]

if this is allowed in the cba thats fine but to me its definitely suspect the cap hit should be 6 million but its only going to be what 4.5? is it legal? sure i guess but imo its not in spirit of the cba. is there a limit on how big of a defer it can be?

 

[Devils731]

if this is allowed in the cba thats fine but to me its definitely suspect the cap hit should be 6 million but its only going to be what 4.5? is it legal? sure i guess but imo its not in spirit of the cba. is there a limit on how big of a defer it can be?

No limit because the deferral is always brought back to today’s dollars. The is the time-value of money.

For example, if I offered you a $1,000 now or $1,000 in 10 years, which do you want? Obviously you want the money right now so you can do with it what you want immediately.

Additionally, with inflation, the $1,000 in 10 years can buy less stuff so it’s been devalued compared to today’s dollars.

So the league has a formula so that the cap hit for the $1,000 today and the $1,000 in 10 years reflect the time-value of the dollars and not the raw dollar total.

—————-

This is a reasonable way to have deferrals in a cap situation as it makes sure all payments are treated equally as to the value to the player.

Some complications are this is much harder to casually understand and it creates future liabilities for franchises, which generally will suppress franchise value until they’re paid out.

All the deferred money is using a system that has been agreed on by the league and players, and is written into the CBA. It's not circumvention by any metric, and is probably worse for both parties than a regular deal, truth be told, because the discount rate they use is probably lower than I think is fair (this means one or the other party is taking a haircut, either on compensation for the player or cap hit discount for the team).

That said, the difference (for the player) is probably reasonably small enough to be helped by the tax savings of 1) moving outside a high tax locale and 2) spreading out your money across more years

The tax savings from very high tax states isn’t something I had thought of when discussing deferrals in the past and is a really good reason to do this.

The tax avoidance is good for the team and the player, as the player will lose less compensation in taxes. The only loser is the state and the states where this matter could fix that by having more competitive tax policies.

 

[NJDfan86]

No limit because the deferral is always brought back to today’s dollars. The is the time-value of money.

For example, if I offered you a $1,000 now or $1,000 in 10 years, which do you want? Obviously you want the money right now so you can do with it what you want immediately.

Additionally, with inflation, the $1,000 in 10 years can buy less stuff so it’s been devalued compared to today’s dollars.

So the league has a formula so that the cap hit for the $1,000 today and the $1,000 in 10 years reflect the time-value of the dollars and not the raw dollar total.

—————-

This is a reasonable way to have deferrals in a cap situation as it makes sure all payments are treated equally as to the value to the player.

Some complications are this is much harder to casually understand and it creates future liabilities for franchises, which generally will suppress franchise value until they’re paid out.


The tax savings from very high tax states isn’t something I had thought of when discussing deferrals in the past and is a really good reason to do this.

The tax avoidance is good for the team and the team, as the player will lose less compensation in taxes. The only loser is the state and the states where this matter could fix that by having more competitive tax policies.

I would be surprised if their end up being any long term benefits for tax reasons unless the NHL explicitly weighed in as a way to help high tax states be more competitive for certain workers (pro athletes).

CA is not going to be thrilled with accounting tricks to avoid paying taxes long term, especially from multiple millionaires - they will figure a way to close that loophole. (Edit only referring to state taxes)

 

[Devils731]

I would be surprised if their end up being any long term benefits for tax reasons

How not? Signing bonuses are taxed at the person’s living location and not state the team plays in, so I would imagine deferred compensation will be the same.

So if I go from a high income tax state to a no income tax state, my tax savings should be pretty large on a raw basis.

 

[TheBeerNerd]

People realize state and provincial taxes are more than just income, right? They get you in other ways. Except Florida, I've heard.

The entire issue is simplified to hell and probably disseminated to the media from outside interests.

 

[dgibb10]

So the league has a formula so that the cap hit for the $1,000 today and the $1,000 in 10 years reflect the time-value of the dollars and not the raw dollar total.

—————-

This is a reasonable way to have deferrals in a cap situation as it makes sure all payments are treated equally as to the value to the player.

Some complications are this is much harder to casually understand and it creates future liabilities for franchises, which generally will suppress franchise value until they’re paid out.

The real cap circumventio, if any, is FRONTLOADED deals, not deferred/backloaded.

It allows cash rich teams to give players more value while keeping the AAV constant over the life of the contract.

 

[Devils731]

People realize state and provincial taxes are more than just income, right? They get you in other ways. Except Florida, I've heard.

The entire issue is simplified to hell and probably disseminated to the media from outside interests.

Yes but California’s top end income tax goes all the way up to 12.3%.

So if I can avoid paying ~7% of my contract money to California(and other states) and pay no income taxes in another state, that’s a nice benefit; assuming my present value of the future funds is similar in either case.

 

[Zajacs Bowl Cut]

Rangers claimed Kaliyev lol

 

[Devils731]

This is a worthwhile gamble for the Rangers and also seemingly a good bet to have a situation where the coach and player won’t like working together.

But maybe that’s what Kaliyev needs, we will see.