Apex Predator
Registered User
- Jun 21, 2019
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Don’t know if this was answered by what if during year 8 he signs a contract extension. Does the deferred money count on the cap hit for that new contract?
Confirmed Signing with Link: [CAR] F Seth Jarvis signs extension with the Hurricanes (8 years, $7.420087M AAV; deferred salary in 9th year)
- Thread starter Lunatik
- Start date
MasterofGrond
No, I'm not serious.
No. Because the deferred money would have already counted on the cap during the years it was deferred from (1, 2, and 7), of course averaged into the AAV like any other compensation
bleedgreen
Registered User
You’re taking the “money on the table” in a way I didn’t mean. I meant he left a lot of money he now can’t touch for the end of the deal 9 years from now, not that he didn’t get as much as he could’ve.
canuckslover10
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- Apr 10, 2014
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uncleben
Global Moderator
It's like, "Hey, I'll pay you $10 to do this job for me... but I'll only pay you $5 now. You can have the other $5 next month"
canuckslover10
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- Apr 10, 2014
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so is it technically a 9 year contract but only shows up for 8 years for the cap hit? and do they count the 9th year to lower the cap hit?
Apex Predator
Registered User
- Jun 21, 2019
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He’s not getting paid till year 9? I thought with them deferring money it would lower the cap hit.
uncleben
Global Moderator
It's only an 8 year deal - he gets paid in the 9th year, but does not play and is free to sign a new contract even.
There's also no cap hit in the 9th year. The reduced cap hit is essentially because a dollar today is worth more than a dollar tomorrow, in theory.
So a conservative estimate on how much the deferral is costing Jarvis.
5m signing bonus right now deferred for 8 years
5m signing bonus next year deferred for 8 years.
Lets use 50% tax rate. 2.5 m in pocket today.
4% on his money through conservative investments , compounded annually for the first signing bonus would create $940,000 of interest over the 8 years.
second signing bonus would have created $800,000 roughly of interest over the 7 years.
Year 7 signing bonus is 5.77 million. Deferred for 2 years that would cost $230,000
So in total the deferring is costing Jarvis roughly 2million dollars.
He signed an 8 year, 63.2 million deal with an AAV of 7.9M. His actual cap hit is 7.42m.
Had he just taken a traditional contract accounting for the lost 2m his aav would have been 61.2m/8 or 7.65 per year.
Seems like an awful lot of dinking around for a roughly 200k per year cap savings.
5m signing bonus right now deferred for 8 years
5m signing bonus next year deferred for 8 years.
Lets use 50% tax rate. 2.5 m in pocket today.
4% on his money through conservative investments , compounded annually for the first signing bonus would create $940,000 of interest over the 8 years.
second signing bonus would have created $800,000 roughly of interest over the 7 years.
Year 7 signing bonus is 5.77 million. Deferred for 2 years that would cost $230,000
So in total the deferring is costing Jarvis roughly 2million dollars.
He signed an 8 year, 63.2 million deal with an AAV of 7.9M. His actual cap hit is 7.42m.
Had he just taken a traditional contract accounting for the lost 2m his aav would have been 61.2m/8 or 7.65 per year.
Seems like an awful lot of dinking around for a roughly 200k per year cap savings.
- Jan 18, 2022
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From Jarvis' perspective, he makes an extra 2m due to accrued interest (not counting inflation) and he saves the Canes a tiny bit of caphit on his contract cap hit. Seems fine, no?
It’s fine but whatever advantage it offers to either side is so marginal I don’t really see this as a thing going forward
The Canes needed it to be exactly at the adjusted AAV so they had roster flexibility this year to either carry a 7th defender or 3rd goalie without tapping into LTIR (Fast). Now they can accrue some space until TDL and add that to the LTIR savings from Fast when they need it to bolster their roster.
The "discounted" value of the contract requires two things to create enough value to be worthwhile to the team: 1) high interest rates and 2) as much time as possible.
The 1 year deferral of Jarvis' July 1 2031 $5.77m bonus until the following year only gains approximately $300k of AAV/8 years = 37,785 per year. It's the two early years that are deferred 8 and 7 years that create the real value to get his into "usable" territory.
Similar to why noone cared about Jaccob Slavin's deferral early this summer; it is a 2 year deferral so it barely affected his AAV by $65k per year so it wasn't "newsworthy".
Almost seems like a one off thing though
As I said earlier Jarvis would have been essentially in the same spot financially if he took a traditional contract with a 7.65 hit
frightenedinmatenum2
Registered User
Most young players who are good enough to attract max-term deals after 2-3 ELC seasons probably do leave money on the table.
A good project for a website that employs analytical models to predict RFA/UFA contracts would be to go through each historical RFA and make a chart that shows what their market value would be each year after their ELC. Taking Erik Karlsson for example, what would he have been worth had he signed a 1 year deal, 2 year deal, 3 year deal, 4 year deal, etc.
I would assume that after crunching the numbers it would determine that for players who are good enough that teams are willing to go 6-8 years right off of an ELC, the rational choice for the player would be to sign a bridge deal. That outside of the flat cap years caused by COVID, which were an act of god and not the norm', players rarely make more by going max-term off of an ELC.
There are the players like Josh Norris, who if he signed a bridge deal would have probably lost 10's of millions of dollars. Or, Jared Cowen, who could have signed an 8 year deal but chose to bet on himself, and was bought out before the end of his bridge deal. Those situations seem to be less common than players signing and quickly becoming bargains.
A good project for a website that employs analytical models to predict RFA/UFA contracts would be to go through each historical RFA and make a chart that shows what their market value would be each year after their ELC. Taking Erik Karlsson for example, what would he have been worth had he signed a 1 year deal, 2 year deal, 3 year deal, 4 year deal, etc.
I would assume that after crunching the numbers it would determine that for players who are good enough that teams are willing to go 6-8 years right off of an ELC, the rational choice for the player would be to sign a bridge deal. That outside of the flat cap years caused by COVID, which were an act of god and not the norm', players rarely make more by going max-term off of an ELC.
There are the players like Josh Norris, who if he signed a bridge deal would have probably lost 10's of millions of dollars. Or, Jared Cowen, who could have signed an 8 year deal but chose to bet on himself, and was bought out before the end of his bridge deal. Those situations seem to be less common than players signing and quickly becoming bargains.
North Cole
♧ Lem
- Jan 22, 2017
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It counts against the cap on the 8 years of the contract, so it doesn't need to count in year 9. It's just a PV that counts so it's technically lower, which makes sense cause the player is losing money by waiting longer to get paid.
LakeLivin
Armchair Quarterback
I suspect a lot of the confusion around the deferred SB comes from the way it's reported. Think of it this way:
Let's say there's a contract negotiation where both parties agree in principle to $5m in salary for 5 years and a one time $1m SB up front.
The cap hit for that $26m contract would be $5.2m per year.
The team says that instead of paying you that $1m SB now, if you let us defer it to year 6 we'll up it to $1.276m (I compounded $1m at 5% interest per year for 5 years as a guess, but I'm sure there's a generally accepted accounting formula that's used). For some of the reasons outlined above, the player agrees.
It's reported as the player receiving a $26.276m contract which includes a $1.276m deferred SB. But while $1.276m is the deferred payment, it was only $1m that was actually deferred, with the extra $276k being the difference in the value of receiving $1m now vs. 5 years down the road (let's call it interest). The cap hit on this new contract would be $5.2, same as if they didn't defer the $1m SB. The $276k "interest" part of the new SB payment doesn't contribute to the team's cap hit at any point, and even though the $1m part is paid in year 6, w.r.t. the salary cap, the league averages it over the 5 years the player is active, so it is accounted for.
tldr: the deferred SB payment can be thought of as being comprised of 2 parts, the amount of the SB actually deferred and "interest" that was added on to make up for not paying the SB earlier. The amount actually deferred is included in a team's cap hit over the time the player is active, the "interest" part isn't, nor should it be.
[@mouser : please correct me if I've misinterpreted how this works]
Let's say there's a contract negotiation where both parties agree in principle to $5m in salary for 5 years and a one time $1m SB up front.
The cap hit for that $26m contract would be $5.2m per year.
The team says that instead of paying you that $1m SB now, if you let us defer it to year 6 we'll up it to $1.276m (I compounded $1m at 5% interest per year for 5 years as a guess, but I'm sure there's a generally accepted accounting formula that's used). For some of the reasons outlined above, the player agrees.
It's reported as the player receiving a $26.276m contract which includes a $1.276m deferred SB. But while $1.276m is the deferred payment, it was only $1m that was actually deferred, with the extra $276k being the difference in the value of receiving $1m now vs. 5 years down the road (let's call it interest). The cap hit on this new contract would be $5.2, same as if they didn't defer the $1m SB. The $276k "interest" part of the new SB payment doesn't contribute to the team's cap hit at any point, and even though the $1m part is paid in year 6, w.r.t. the salary cap, the league averages it over the 5 years the player is active, so it is accounted for.
tldr: the deferred SB payment can be thought of as being comprised of 2 parts, the amount of the SB actually deferred and "interest" that was added on to make up for not paying the SB earlier. The amount actually deferred is included in a team's cap hit over the time the player is active, the "interest" part isn't, nor should it be.
[@mouser : please correct me if I've misinterpreted how this works]
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Yes you got it nailed. One of the reasons we haven't seen this used much in the past is that interest rates were so low that it didn't really add any value to being deferred (with rates in 3% range the players might as well take the money now and the team doesn't get much value in AAV reduction to make it worthwhile).
PuckPedia now has a Deferred Comp contract calculator so people can play with it and see how it works. It's a little glitchy right now
elmaco
Registered Hockey Fan
- Feb 1, 2017
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Its negligible. Even if you had 10 players do it you're only saving 2m on the cap.
Worthy of a mid-2nd round pick according to PuckPedia's calculator.
If players focus on getting 1% better at every little thing then this is the executive's version of that too: every little improvement around the margins can have an impact in the aggregate
This isn’t better. Not even 1%. It’s just different.
Carolina isn’t really saving 500k on the cap because Jarvis isn’t really making 6.9 per year average
Nobody has done this before because it’s not really an advantage for the team or the player
Jarvis is grossing $63,200,000 over the next 8 years and a day. Without the deferral that would be $7.9m AAV. There is no "year 9" cap hit for the bonuses paid on 7/1/2032
By deferring some of the bonuses it is $7,420,087 AAV over 8 years that would be $59,360,695.
That is 6.47% "better".
