The Jarvis contract. Fine until a Canadian team does it.

[Barrie22]

Huh? Why? He'd rather $15M in one payment 9 years from now instead of $5M in 6 years, $5M in 7 years and $5M in 8 years? That makes no sense.

Because 9 years from now is not guaranteed to have a job any more. If the money he is receiving in those 8 years is enough for him and his family to live off at the level they want to live at, then having that guaranteed money for retirement would be handy. And even if he is still in the league that 15 million that year will probably cover the change in salary going into his final years in the league.

There are lots of reasons to defer money when you are that level of salary and in a job that has a low average career lengths and early age of retirement.

 

[Toby91ca]

Because 9 years from now is not guaranteed to have a job any more. If the money he is receiving in those 8 years is enough for him and his family to live off at the level they want to live at, then having that guaranteed money for retirement would be handy. And even if he is still in the league that 15 million that year will probably cover the change in salary going into his final years in the league.

There are lots of reasons to defer money when you are that level of salary and in a job that has a low average career lengths and early age of retirement.

If there are lots of reasons to defer salary, please provide at least 1 single reason. I'm not suggesting it makes no sense at all and there is no reason for a player to do it, I'm willing to admit I'm thinking I must be totally missing something because I can't think of a single logical reason. I can think of some reasons, but not reasons that aren't easily accomplished by simpler means.

So, for example, guaranteed payments is not a reason, a regular contract can ensure the same $$ are guaranteed. I'm going to have to guess at what you are saying here, but are you saying, rather than play for 8 years and get paid for those 8 years, you take a bit less during those 8 years so you can then get paid some more money in the 9th year when you might not have a job anymore, so it will be good to have cash coming in? If that's the case, that certainly isn't a logical reason. If someone really has that concern, take the money you make now and put in a guaranteed investment that matures in 9 years.....

 

[Jumptheshark]

New owner. When you buy a team in the NHL every contract that is on the books gets bought also. And that includes all incentives that are written into them.

I know that... curious to know what the new owner would think. Not saying the canes are for sale but crazier things have happened

 

[Svechhammer]

I know that... curious to know what the new owner would think. Not saying the canes are for sale but crazier things have happened

In the case of the Canes, any new owner at that point would absolutely be buying low on the real estate growth of the arena facility, given the Hurricanes own it all and they're just now embarking on a $1.1 billion redevelopment of the arena and land that will last through the end of the decade.

 

[JPT]

The first thing you learn in any finance class is the time value of money. The very first thing.

Yeah but then you have to take a finance class with a bunch of the types of people who take finance classes.

 

[ottawa]

Given the option, who would choose getting it later? Carolina benefits by the lower cap hit and also by spending their money later. Jarvis benefits by getting more money. I'm sure he and his agent calculated the value lost by deferral before accepting the deal. We don't know what was the alternative contract offered if he turned down this deal.

It's not the agent that needs to calculate it...those guys just want more money and that's all. It's his money guy/financial planner and I'm hopeful it went through him.

 

[CDN24]

How much recapture penalties did they take on it ?


How do you know it isn't inflation adjusted ? Or something to that effect.

It isn't inflation adjusted or there would be no Cap savings. The money paid after the end of the contract counts towards the the Cap hit, it just counts less because it is discounted. Time value of money. If it was inflation adjusted up then there would be no Cap savings. The Jarvis deal includes 3 deferred payments 4.950M each in yr 1 and 2 and 5.77M in yr 7. These amounts will only be paid after the contract expires. The premise is that 4.95M in year one does not all count against the cap as it will not be worth 4.95M in todays dollars when paid.

It is a quirk of the CBA but the money needs to be paid after contract ends. Back loading a contract and paying that 4.95M in yr 8 would not reduce cap hit. To get max cap savings you need to defer the money of early years which means player waits a long time for his $$. Player needs trust that owner will be able to pay in yr 9 as well. Imagine trusting that an owner like Melynck would have the funds to pay up in 9 yrs as a player?

 

[WaitingForThatCab]

Yeah but then you have to take a finance class with a bunch of the types of people who take finance classes.

 

[hatterson]

It isn't inflation adjusted or there would be no Cap savings. The money paid after the end of the contract counts towards the the Cap hit, it just counts less because it is discounted. Time value of money. If it was inflation adjusted up then there would be no Cap savings. The Jarvis deal includes 3 deferred payments 4.950M each in yr 1 and 2 and 5.77M in yr 7. These amounts will only be paid after the contract expires. The premise is that 4.95M in year one does not all count against the cap as it will not be worth 4.95M in todays dollars when paid.

It is a quirk of the CBA but the money needs to be paid after contract ends. Back loading a contract and paying that 4.95M in yr 8 would not reduce cap hit. To get max cap savings you need to defer the money of early years which means player waits a long time for his $$. Player needs trust that owner will be able to pay in yr 9 as well. Imagine trusting that an owner like Melynck would have the funds to pay up in 9 yrs as a player?

In addition to having faith nothing fundamental changes in the CBA or contract status between now and then, the player also needs to forego collecting interest on that money.

If Jarvis had said, I'm not deferring any money at all and in return I'll drop the 5.77M bonus payment in year 7 down to 1.93M, the cap hit would actually be the same and Jarvis would have an extra 4.95 million in his pocket right now, an extra 4.95m next year. If he simply plops those in a fairly safe investment vehicle earning 5% APR (which isn't that hard) then when he's normally be getting a check for 4.95+4.95+5.77 = 15.67m from deferred bonuses, he'd be getting a 1.93M check and have ~14.5M sitting in the bank for a total of 16.43M at the time.

 

[Mortimer Snerd]

It's not the agent that needs to calculate it...those guys just want more money and that's all. It's his money guy/financial planner and I'm hopeful it went through him.

OK, his team then, his camp, his advisors.

 

[Toby91ca]

In addition to having faith nothing fundamental changes in the CBA or contract status between now and then, the player also needs to forego collecting interest on that money.

If Jarvis had said, I'm not deferring any money at all and in return I'll drop the 5.77M bonus payment in year 7 down to 1.93M, the cap hit would actually be the same and Jarvis would have an extra 4.95 million in his pocket right now, an extra 4.95m next year. If he simply plops those in a fairly safe investment vehicle earning 5% APR (which isn't that hard) then when he's normally be getting a check for 4.95+4.95+5.77 = 15.67m from deferred bonuses, he'd be getting a 1.93M check and have ~14.5M sitting in the bank for a total of 16.43M at the time.

That works and gets to the same cap hit and NPV of total payments is actually a bit higher ($500K) even though total payments made are almost $4M less. The only problem with that is the team would be paying $30M in the first 3 years instead of the current structure where they only pay $20M through first three years.....but that's not a cap issue, that's a cash flow issue, which I can't see as a reason for doing this because if they are trying to manage cash, you might want to defer stuff, but not push out a few years and pay more because of it and if you did that, it wouldn't be for cap reasons.