LTI, Insurance & the cap

[Oleg Petrov]

Been wondering about the following over the past little while as a way for clubs to circumvent the cap.

Lets suppose the Cap is at $50 Million. I am team A and currently have $50 million on 20 contracts for the upcoming season. I decide to sign a player who is injured to a 1 year $5 million dollar contract, assuming that he will not play this year and I can then place him on LTI generating $5 million in extra cap space to sign 2 or 3 healthy players to fill out my roster.

I suppose there is no difference between this scenario and burying a contract in the minors, however I imagine that most of these contracts are insured, and if an insurance company is paying for some or all of his salary while he is injured then the team is in the black.

Is this at all plausible?

 

[LadyStanley]

League salary insurance is only (up to) seven contracts per team (and a maximum of seven years of each of those contracts). If a team wants to cover more contracts or longer term, they'll have to find and cover the costs for themselves. (So you'd think that teams might balk at term longer than 7 years, but that hasn't stopped GMs/owners from those "lifetime" contracts, has it. )

And I'm not sure if the insurance carrier might choose to not cover contracts of some players with big $$s at stake and a history of a lot of injuries. (Or require a higher cost.)


As most contracts assume that a player will be healthy, in fact most players are required to pass a medical exam before the start of the season (recall that Bure reported to camp only to be sent home as he was not medically fit to play; contract essentially ripped up), and an insurance company might require an exam prior to providing coverage for a oft injured player.

Recall that Owen Nolan took the 04-05 (lockout) and the 05-06 seasons off due to injury of his knees. (And there was the little issue of misdiagnosis/medical buyout with his contract with the Leafs.)

In summary, if signing a big $$/injured guy and using the LTIR was the "plan", it could be argued that the team planned to circumvent the cap so would be subject to censure, fines and other penalties.

 

[Oleg Petrov]

League salary insurance is only (up to) seven contracts per team (and a maximum of seven years of each of those contracts). If a team wants to cover more contracts or longer term, they'll have to find and cover the costs for themselves. (So you'd think that teams might balk at term longer than 7 years, but that hasn't stopped GMs/owners from those "lifetime" contracts, has it. )

And I'm not sure if the insurance carrier might choose to not cover contracts of some players with big $$s at stake and a history of a lot of injuries. (Or require a higher cost.)


As most contracts assume that a player will be healthy, in fact most players are required to pass a medical exam before the start of the season (recall that Bure reported to camp only to be sent home as he was not medically fit to play; contract essentially ripped up), and an insurance company might require an exam prior to providing coverage for a oft injured player.

Recall that Owen Nolan took the 04-05 (lockout) and the 05-06 seasons off due to injury of his knees. (And there was the little issue of misdiagnosis/medical buyout with his contract with the Leafs.)

In summary, if signing a big $$/injured guy and using the LTIR was the "plan", it could be argued that the team planned to circumvent the cap so would be subject to censure, fines and other penalties.

Let me give you this scenario. I'm any rich NHL club and I tell Joe Blow leading scorer from ECHL the following.
a) I'll pay you $5 million next year to pretend to be injured. No practices, no games, no travel. Just the occasional rehab stint in the AHL, this agreement would be between GM and the player. No one else would know about it.

b) Big presser. Club signs ECHL leading scorer, GM takes a tonne of heat for investing in an unproven guy blah blah blah.

c) Player passes his physical and his contract is insured.

d) Player comes to training camp where he suddenly comes up lame with some injury.

e) Physican results are not conclusive but the doctor signs off on the player being injured.

f) Club places player on LTI and now has $5 million worth of extra dollars that they ordinarily wouldn't have.

g) team wins stanley cup.

h) echl leading scorer gets pay cheque & stanley cup ring.

 

[LadyStanley]

Let me give you this scenario. I'm any rich NHL club and I tell Joe Blow leading scorer from ECHL the following.
a) I'll pay you $5 million next year to pretend to be injured. No practices, no games, no travel. Just the occasional rehab stint in the AHL, this agreement would be between GM and the player. No one else would know about it.

This is cap circumvention. Watch rich NHL club lose some (or even all) of their draft picks, have to pay a multimillion fine, the GM suspended, and/or the franchise even forfeited. (And any other complicit employees, like the the doctors and other staff involved would face fines/censure.)

 

[Oleg Petrov]

This is cap circumvention. Watch rich NHL club lose some (or even all) of their draft picks, have to pay a multimillion fine, the GM suspended, and/or the franchise even forfeited.

I know it is. But I feel you would have a hard time proving it, in addition to dealing with the player's union.

 

[mouser]

Let me give you this scenario. I'm any rich NHL club and I tell Joe Blow leading scorer from ECHL the following.
a) I'll pay you $5 million next year to pretend to be injured. No practices, no games, no travel. Just the occasional rehab stint in the AHL, this agreement would be between GM and the player. No one else would know about it.

b) Big presser. Club signs ECHL leading scorer, GM takes a tonne of heat for investing in an unproven guy blah blah blah.

c) Player passes his physical and his contract is insured.

d) Player comes to training camp where he suddenly comes up lame with some injury.

e) Physican results are not conclusive but the doctor signs off on the player being injured.

f) Club places player on LTI and now has $5 million worth of extra dollars that they ordinarily wouldn't have.

g) team wins stanley cup.

h) echl leading scorer gets pay cheque & stanley cup ring.

It's a zero-sum outcome here.

- The team first needs $5m in cap space to sign your player that's going to go on LTIR.

- If that team had $5m in cap space why not simply sign the replacement players in the first place rather than go through LTIR shenanigans?

- Even if insurance covered the LTIR player's contract it wouldn't cover the replacement players contracts. Again a net zero sum on cash flow for player compensation.

 

[Oleg Petrov]

It's a zero-sum outcome here.

- The team first needs $5m in cap space to sign your player that's going to go on LTIR.

- If that team had $5m in cap space why not simply sign the replacement players in the first place rather than go through LTIR shenanigans?

- Even if insurance covered the LTIR player's contract it wouldn't cover the replacement players contracts. Again a net zero sum on cash flow for player compensation.

Aren't clubs allowed to go 20% over their cap in the off-season?

 

[mouser]

Been wondering about the following over the past little while as a way for clubs to circumvent the cap.

Lets suppose the Cap is at $50 Million. I am team A and currently have $50 million on 20 contracts for the upcoming season. I decide to sign a player who is injured to a 1 year $5 million dollar contract, assuming that he will not play this year and I can then place him on LTI generating $5 million in extra cap space to sign 2 or 3 healthy players to fill out my roster.

I suppose there is no difference between this scenario and burying a contract in the minors, however I imagine that most of these contracts are insured, and if an insurance company is paying for some or all of his salary while he is injured then the team is in the black.

Is this at all plausible?

To clarify my earlier post: your hypothetical team here does not end up with $5m in additional cap space due to LTIR--they'll have to burn it all to satisfy the cap limit.

a) Cap is $50m
b) Team payroll is $55m [$50m + your $5m new contract]. This is okay during the offseason but on day one of the regular season the team payroll has comply with the cap.
c) On day 1 of the season, the team places the new player on LTIR, the team is allowed to exceed the cap by up to $5m.
d) Team is already exceeding cap by $5m, hence no extra room has been gained. Full use of the LTIR exception was consumed simply fielding the 20 player roster you had prior to signing the to-be-injured fellow.

Aren't clubs allowed to go 20% over their cap in the off-season?

Yes, but they have to be fully in compliance starting on day 1 of the regular season.

edit: btw it's 10% over in the off-season

 

[Oleg Petrov]

To clarify my earlier post: your hypothetical team here does not end up with $5m in additional cap space due to LTIR--they'll have to burn it all to satisfy the cap limit.

a) Cap is $50m
b) Team payroll is $55m [$50m + your $5m new contract]. This is okay during the offseason but on day one of the regular season the team payroll has comply with the cap.
c) On day 1 of the season, the team places the new player on LTIR, the team is allowed to exceed the cap by up to $5m.
d) Team is already exceeding cap by $5m, hence no extra room has been gained. Full use of the LTIR exception was consumed simply fielding the 20 player roster you had prior to signing the to-be-injured fellow.




Yes, but they have to be fully in compliance starting on day 1 of the regular season.

Ahhh. I see, so if in this example a $7 million dollar player got injured during training camp and the "injured" player was deemd fit to play. Then they would only be allowed to replace the $7 million player with $2 million dollars in trades, signings & recalls.

 

[mouser]

Ummmm. I think you just validated my point. By signing this player they gain $5 million in cap room during the season. So as of day 1 of the regular season they can make trades, signings or recalls that will allow them to go to $55 million. If they had never signed this "injured" player they would have had to deal with their regular roster at $50 million.

Yes, but that LTIR player they signed counts as $5m in cap space making the situation a wash.

 

[LadyStanley]

A few other issues, WRT cap circumvention scenario....

First, $5m for the ECHL's best scorer is suspect. The guy may be would be worth $1m (perhaps $5m for a three year deal).

Second, the GM, all team staff, the owner, player, agent, and families of all of the above would be scrutinized "under a magnifier" and questioned. Telephone records for all of the above, as well as notes about every meeting they've *ever* had would be scrutinized.

The player is risking the rest of his career as a hockey player (as in all likelihood he'd be black listed by every league/union) as well as the backlash of fans. And as most players come from a Canadian background, it's just not in the nature of players do do something so stupid, much risk their livelihood.

The GM and any staff are also risking their livelihood.

And the other players risk being ripped from their homes by having to endure dispersal draft when franchise is forfeited.


I really doubt any of the hockey folk I've ever encountered would be party to such deception.

 

[mouser]

Ahhh. I see, so if in this example a $7 million dollar player got injured during training camp and the "injured" player was deemd fit to play. Then they would only be allowed to replace the $7 million player with $2 million dollars in trades, signings & recalls.

Yes, assuming the team payroll was still $55m as in the previous example they would have $2m in space if a $7m player went onto LTIR because they can spend up to $57m total.

Of course, if they had never signed that $7m player during the offseason and made no other moves their team payroll would be $48m, also leaving them $2m in space under the $50m cap.


p.s. assuming you mean the injured player was deemed unfit to play, i.e. injured.

 

[kdb209]

A few other issues, WRT cap circumvention scenario....

First, $5m for the ECHL's best scorer is suspect. The guy may be would be worth $1m (perhaps $5m for a three year deal).

Second, the GM, all team staff, the owner, player, agent, and families of all of the above would be scrutinized "under a magnifier" and questioned. Telephone records for all of the above, as well as notes about every meeting they've *ever* had would be scrutinized.

The player is risking the rest of his career as a hockey player (as in all likelihood he'd be black listed by every league/union) as well as the backlash of fans. And as most players come from a Canadian background, it's just not in the nature of players do do something so stupid, much risk their livelihood.

The GM and any staff are also risking their livelihood.

And the other players risk being ripped from their homes by having to endure dispersal draft when franchise is forfeited.


I really doubt any of the hockey folk I've ever encountered would be party to such deception.

And, the league is allowed to have the player on LTIR examined by an independent physician who will have the final determination whether the player is fit to play or not. Pretending he's injured is not going to cut it.