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

[Toby91ca]

I posted the above in the other thread; it might help some understand the concept behind a deferred payment and why it doesn't really game the system. My guess as to why a player would do it? Perhaps tax issues, or perhaps the overall contract looks bigger, and at some point the money is a way players keep score?

I don't think it helps though. I think I understand the concept, but don't understand why it would be done.

Using your example. Someone signs for $5M per for 5 years + $1M signing bonus. Normal contract would suggest $5.2M cap hit. Your suggestion was that the $1M SB be deferred to after the contract and instead of paying $1M, team will pay $1.276M...that's fine....and not going to check all the math, but directly, everything makes sense and now the cap hit ends up being $5.2M. So....why did we structure it this way then....we didn't save any cap hit? The cap hit that could be saved is if you simply deferred the $1M until after the contract ends and it gets paid at $1M, then the cap hit will go down very slightly. Ok, that works, but why would the player want that? They end up getting less value. Which is fine, players take discounts, want to help team etc., but just take a little less money on a normal deal to begin with. I'm not saying it makes no sense at all, what I'm suggesting is I'm probably missing something as I can't see any logic to this type of deal.

 

[Voight]

Did they move New Jersey into Canada? I distinctly remember the Devils filing a contact similar to many other contracts at the time and having only theirs rejected.

Ehh to be fair while it was similar, they ent a bit too far with it. Lou pushed the envelope a little too much.

 

[crowi]

Most, and I do mean like 95%+ of players, would rather take as much as possible RIGHT NOW, instead of waiting to get the same amount of money they could've got earlier.

That alone means teams that can front-load deals with massive bonuses and minimal base salary already have a tool far more powerful than this one. Not to mention the fact that those deals are buyout proof, and as far as I understand, lockout proof as well. Those guys will still get their signing bonus even if there's a stoppage.

 

[HugeInTheShire]

Ehh to be fair while it was similar, they ent a bit too far with it. Lou pushed the envelope a little too much.

He absolutely did, I don't blame the league for cracking down on those dumbass contracts.

 

[Mortimer Snerd]

Because 99% of the players (and agents) want nothing to do with deferred money. It's worth less than money paid upfront. This is why front loaded contracts are a thing.

If I offer a player a choice between 40 mil over 8 years, AAV of 5 mil OR 45 mil over 8 years, with 9 mil deferred, AAV of 4.5 mil is he going to turn down the extra 5 mil?

 

[I Hate Blake Coleman]

The annual average value of the contract would traditionally be $7.9 million, but the Hurricanes will award Jarvis a deferred-money signing bonus on July 1, 2032 - the day after the contract expires - to lower the cap hit. The max-term pact includes a total of $29.24 million in bonuses.

Am I wrong ?

Can someone explain why it took lawyers this far into a CBA to do something like this ?

Because taking deferred money sucks.

 

[Toby91ca]

If I offer a player a choice between 40 mil over 8 years, AAV of 5 mil OR 45 mil over 8 years, with 9 mil deferred, AAV of 4.5 mil is he going to turn down the extra 5 mil?

Huh? What are you talking about? How do you get an AAV of $4.5 million? Are you taking the $45 million, less $9 million deferred = $36 million / 8 = $4.5 million per year? If so, that's not how this works. The cap hit on a $45 million contract with $9 million deferred would be about $5.3 million per year.

 

[LakeLivin]

I don't think it helps though. I think I understand the concept, but don't understand why it would be done.

Using your example. Someone signs for $5M per for 5 years + $1M signing bonus. Normal contract would suggest $5.2M cap hit. Your suggestion was that the $1M SB be deferred to after the contract and instead of paying $1M, team will pay $1.276M...that's fine....and not going to check all the math, but directly, everything makes sense and now the cap hit ends up being $5.2M. So....why did we structure it this way then....we didn't save any cap hit? The cap hit that could be saved is if you simply deferred the $1M until after the contract ends and it gets paid at $1M, then the cap hit will go down very slightly. Ok, that works, but why would the player want that? They end up getting less value. Which is fine, players take discounts, want to help team etc., but just take a little less money on a normal deal to begin with. I'm not saying it makes no sense at all, what I'm suggesting is I'm probably missing something as I can't see any logic to this type of deal.

You're right, I can't see a lot of reasons to do it either, which is probably why it's rarely done. I'm speculating, but some of the reasons I suspect a player might agree to it:

Potential Tax issues? Who knows how a particular player projects his tax situation down the road? Could he envision that he might be moving to a lower tax location? Perhaps spreading out the overall tax load in case his future earnings decrease from the current amount (can't see that for Jarvis), or if his career ends due to injury?

"Christmas Club savings account" principle? Even though it's not the optimal financial strategy, it does guarantee that the player can't do something stupid and that he'll end up with $ in the year after his contract ends. Kind of an enforced savings.

"Keeping score"? Players contracts are typically reported as a total. So even though the overall value of a deferred payment contract might be the same as a lower one with no deferral, that bigger overall number looks better and might be psychologically easier to accept if a player wants to take a team discount in order to boost the team's chances of winning or if they're comparing their contract to other players.

I dunno, I'm thinking for Jarvis the third one might make the most sense. But no, I don't think you're missing anything.

 

[mouser]

If I offer a player a choice between 40 mil over 8 years, AAV of 5 mil OR 45 mil over 8 years, with 9 mil deferred, AAV of 4.5 mil is he going to turn down the extra 5 mil?

First, you’re going to have to defer more than $9m to make a $4m net AAV difference. More like $12-15m deferred depending on how long the money is deferred.

The choice would be more like:
a) We’ll pay you $12m over years 1/2 of the contract, or
b) You can forgo that $12m in years 1/2 and then in year 9 we’ll pay you $16m instead.

Not every financial situation is the same, but I’d guess the majority of players would choose option (a) with $12m rather than wait 7-8 years for their $16m of money in option (b).

 

[Mortimer Snerd]

Huh? What are you talking about? How do you get an AAV of $4.5 million? Are you taking the $45 million, less $9 million deferred = $36 million / 8 = $4.5 million per year? If so, that's not how this works. The cap hit on a $45 million contract with $9 million deferred would be about $5.3 million per year.

Yes, that is what I am doing and that is exactly how it works. Take another look at the Jarvis contract. The amount deferred does not count against the cap. That is the whole reason for doing it that way.

 

[mouser]

Yes, that is what I am doing and that is exactly how it works. Take another look at the Jarvis contract. The amount deferred does not count against the cap. That is the whole reason for doing it that way.

That’s incorrect. The amount deferred counts against the cap, but at a Net Present Value (NPV) discounted rate, which calculates the value of money in the year it was earned vs the value of the money in the year it is actually paid.

Jarvis contract defers approximately $15.6m from years 1, 2 and 7–until year 9.

The NPV of that $15.6m is included in the contract AAV at an approximate total of $12.4m.

 

[Toby91ca]

Yes, that is what I am doing and that is exactly how it works. Take another look at the Jarvis contract. The amount deferred does not count against the cap. That is the whole reason for doing it that way.

No, that's not how it works.......not even close.

 

[dgibb10]

That’s incorrect. The amount deferred counts against the cap, but at a Net Present Value (NPV) discounted rate, which calculates the value of money in the year it was earned vs the value of the money in the year it is actually paid.

Jarvis contract defers approximately $15.6m from years 1, 2 and 7–until year 9.

The NPV of that $15.6m is included in the contract AAV at an approximate total of $12.4m.

The real financial manipulation of being able to "pay players more" without it impacting the cap is that you can FRONTLOAD contracts.

Giving the players the highest actual value of money, while the cap hit is mostly pushed to later years where it's a smaller % of the cap as the cap rises.

 

[jfhabs]

I don't think it has something to do with the location of the team. But more with the owner of said team. Some are part of the cool owners (generally the ones on the board and the ones who just bought a team) and Gary likes them, some are neutral and some are probably in Gary's dog house.

 

[MadLuke]

First thought, was New-York/New Jersey has one of the highest tax in the US, maybe there a change that he move before the bonus (trade, FA somewhere else, retirement, etc....) and there some chance the bonus kick in a lower tax jurisdiction ?

Though that because that what Ohtani did when he signed in California I think, not sure if it will work, but can be worth the chance.

 

[Toby91ca]

First, you’re going to have to defer more than $9m to make a $4m net AAV difference. More like $12-15m deferred depending on how long the money is deferred.

The choice would be more like:
a) We’ll pay you $12m over years 1/2 of the contract, or
b) You can forgo that $12m in years 1/2 and then in year 9 we’ll pay you $16m instead.

Not every financial situation is the same, but I’d guess the majority of players would choose option (a) with $12m rather than wait 7-8 years for their $16m of money in option (b).

There really isn't any logical scenario that gets the $45 million to a $4.5 million cap hit....as noted, deferral of the extra $5 million puts you well above $5 million per year cap hit. Increasing deferral to $12-15 million won't do much. If you suggest $17 million is earned 1st year, but it's fully deferred to after the contract with $4 million being paid in years 2-8, that only gets you down to $4.9 million cap hit. To get it down to $4.5 million you'd have to do something like defer the entire $45 million to after contract, that gets you to $4.5 million, but you could structure by front loading the earned amounts and therefore deferring those longer, but it's still a much more significant amount, as noted, deferring $17 million from year 1 doesn't get you close to the $4.5 million.

I don't think it has something to do with the location of the team. But more with the owner of said team. Some are part of the cool owners (generally the ones on the board and the ones who just bought a team) and Gary likes them, some are neutral and some are probably in Gary's dog house.

What does this mean? I'm guessing wrong thread, but not sure. Also, when you say part of the cool owners (ones on the board)....every owner is represented on the Board. Sometimes it's the actual owner and sometimes the owner will send a delegate in their place.

 

[jfhabs]

There really isn't any logical scenario that gets the $45 million to a $4.5 million cap hit....as noted, deferral of the extra $5 million puts you well above $5 million per year cap hit. Increasing deferral to $12-15 million won't do much. If you suggest $17 million is earned 1st year, but it's fully deferred to after the contract with $4 million being paid in years 2-8, that only gets you down to $4.9 million cap hit. To get it down to $4.5 million you'd have to do something like defer the entire $45 million to after contract, that gets you to $4.5 million, but you could structure by front loading the earned amounts and therefore deferring those longer, but it's still a much more significant amount, as noted, deferring $17 million from year 1 doesn't get you close to the $4.5 million.


What does this mean? I'm guessing wrong thread, but not sure. Also, when you say part of the cool owners (ones on the board)....every owner is represented on the Board. Sometimes it's the actual owner and sometimes the owner will send a delegate in their place.

It means that there are probably some governors/team owners that sometimes express critiques and are not in the circle of trust. While some others, put in place by Bettman himself, will follow almost everything he says.

Just like a coach/GM has players he prefers over others, Bettman probably prefers owners over others.

Looking how sanctions have been applied very arbitrary in the past, you have to wonder if this could have an impact.

It's pure speculation, but it seems to me like the NHL is managed like a company from the 1980s.... So, I would be surprised if it were the opposite.

 

[chaz4hockey]

As in moving to some lower tax state than Carolina in 8 years, when he's 30 and probably trying to get another contract? What if he ends up in a higher tax state? He's losing even more money.

NC moves to a 3.99% tax rate in 2026 (4.5% today) which would place them at 11th lowest in the US. Jarvis is getting paid a guaranteed interest rate plus paying lower taxes.

 

[Dfence033]

It means that there are probably some governors/team owners that sometimes express critiques and are not in the circle of trust. While some others, put in place by Bettman himself, will follow almost everything he says.

Just like a coach/GM has players he prefers over others, Bettman probably prefers owners over others.

Looking how sanctions have been applied very arbitrary in the past, you have to wonder if this could have an impact.

It's pure speculation, but it seems to me like the NHL is managed like a company from the 1980s.... So, I would be surprised if it were the opposite.

Gary doesn’t have the power you assume he has here. He answers to the owners (ALL of them), and doesn’t install owners he likes. He doesn’t have the authority to force a sale of a team by an owner who “expresses critiques,” to an owner he wants to “put in place.”

I’m still surprised that in 2024, the intentionally designed scapegoat of the league’s owners (Bettman) is talked about like a devious and deceitful emperor god-king forcing his thumb on the scales to spite his bosses - the owners - without being unceremoniously terminated immediately after trying.

 

[Toby91ca]

It means that there are probably some governors/team owners that sometimes express critiques and are not in the circle of trust. While some others, put in place by Bettman himself, will follow almost everything he says.

Just like a coach/GM has players he prefers over others, Bettman probably prefers owners over others.

Looking how sanctions have been applied very arbitrary in the past, you have to wonder if this could have an impact.

It's pure speculation, but it seems to me like the NHL is managed like a company from the 1980s.... So, I would be surprised if it were the opposite.

Who knows....I haven't bothered reading much or commenting on the Cdn team thing either in this context as it doesn't seem to make any sense. People are talking about this loophole (which gives a team almost no cap savings in situations that are very unlikely to happen to begin with)....but a Cdn team tries it and it will be a problem?

It makes 0 sense to me that anyone would ever care about these types of deals and whether it's cap circumvention. You would have to come up with some ludicrous structuring before you are going to get any meaningful cap savings......such deals have no chance of being attractive to a player, so while it's possible for a team to do this, it's not something that ever happens anyway unless a player decides they don't want to make any money for now, happy getting it in the future....if a player is somehow tricked into thinking that is better for them, that's when the league steps in and denies the contract.

Use John Tavares contract as an example. It's already stupid enough with $873K per year as salary + $10.1M in bonuses each year on average, but this doesn't matter, nothing strange to impact the cap hit here.....other than the majority of the cash coming in the early years (so opposite of what we are dealing with here.). Let's say you take the same contract, $873K in salary each year for 7 years, but then take the $71M signing bonus and defer payment of that until 8 years from now. Yes, this would have a significant impact on the cap hit, taking it from $11M per year down to ~$7.8M.....but for a player to accept that, they would have to be the type of person that would want a $1 bill instead of a $100 bill because, hey #1.....in other words, very low intelligence. If a player somehow lost his mind and decided to accept such a contract, the league would then (with 100% certainty here) step in and not approve the deal.

 

[Toby91ca]

NC moves to a 3.99% tax rate in 2026 (4.5% today) which would place them at 11th lowest in the US. Jarvis is getting paid a guaranteed interest rate plus paying lower taxes.

1 - what guaranteed interest rate is he getting? The way I see it, he's getting 0% interest, so I guess the rate is guaranteed at 0%? But there isn't $ he's getting now to apply that rate, so there really is no rate. Or are you looking at this as, instead of giving you $1 today, I'll give you $1.3 9 years from now? If that's the case, it's just made up numbers and if that was actually reality, it doesn't save any cap at all.
2 - how would the player know where he's going to be in 8-9 years. He may think he'll be in NC, for example, but that doesn't mean much, nor does it guarantee what the tax rate is in NC 8 or 9 years from now? He knows what the tax rate is now though....benefit of receiving cash 9 years from now instead of today or next year?

 

[Mortimer Snerd]

That’s incorrect. The amount deferred counts against the cap, but at a Net Present Value (NPV) discounted rate, which calculates the value of money in the year it was earned vs the value of the money in the year it is actually paid.

Jarvis contract defers approximately $15.6m from years 1, 2 and 7–until year 9.

The NPV of that $15.6m is included in the contract AAV at an approximate total of $12.4m.

Alright. I oversimplified. But the result is still a substantial reduction in cap hit.

Jarvis contract - 63.2 mil over 8 years, AAV of 7.9 mil. Without the deferral that would be the cap hit. 15.67 deferred and the cap hit is reduced to 7.42 mil. That is .48 x 8 or 3.84 mil.

No way Jarvis gets the same total dollars without the deferral. He was given additional money to get him to sign but at a lower cap hit and with (presumably) less valuable future dollars.

No, that's not how it works.......not even close.

You are right. I oversimplified. Point is the same though, just different arithmetic.

 

[Toby91ca]

Alright. I oversimplified. But the result is still a substantial reduction in cap hit.

Jarvis contract - 63.2 mil over 8 years, AAV of 7.9 mil. Without the deferral that would be the cap hit. 15.67 deferred and the cap hit is reduced to 7.42 mil. That is .48 x 8 or 3.84 mil.

No way Jarvis gets the same total dollars without the deferral. He was given additional money to get him to sign but at a lower cap hit and with (presumably) less valuable future dollars.

Ok, if we use the Jarvis contract as an example....pretty sizeable deal and at the end of the day, there is only a cap saving of less than $500K per year year....close to nothing.

I know you suggest there is no way Jarvis gets the same total dollars without the deferral, which may be true, but it doesn't benefit him in any way whatsoever. Example....if someone is willing to give me $10 day, but no more, but offers me $14 in 10 years instead...I would say, yes, there is no way I'm getting that $14 today, but I'd prefer to get the $10 today and wait 10 years and get $14. I could take the $10 today, invest it and get a modest 5% return and it would be worth $16 in 10 years.

My main point on this has always been this:

1 - there is literally ZERO benefit to the player. I haven't seen a reasonable scenario yet as to why it benefits the player to defer. Tax situation has been thrown out there, but there isn't really any validity to that. I think some might suggests it protects them from themselves, forced savings as example, but they can easily get paid now, buy a Canada savings bond or someone other GIC that matures in 10 years and you'll be further ahead.

2 - there really isn't any meaningful cap savings. The Jarvis example you can show the $3.8M, but you can't look at it on a total contract, people only care about the cap on a year to year basis, so it's less than $500K per year, which gets even less significant as the cap increases

 

[jfhabs]

Gary doesn’t have the power you assume he has here. He answers to the owners (ALL of them), and doesn’t install owners he likes. He doesn’t have the authority to force a sale of a team by an owner who “expresses critiques,” to an owner he wants to “put in place.”

I’m still surprised that in 2024, the intentionally designed scapegoat of the league’s owners (Bettman) is talked about like a devious and deceitful emperor god-king forcing his thumb on the scales to spite his bosses - the owners - without being unceremoniously terminated immediately after trying.

IIRC he only needs 16 votes to be re-instated and within the board of governors there's an executive committee and chairman of the board. There's not full transparency on the votes and functions, so it's a bit hard to tell.

Some things are voted, like expansion teams, Olympic participation, lock out, etc.
But, the NHL (Gary Bettman) choses and elect the owners of the new teams and teams on sale.
It was quite clear with the Jim Balsillie situation and more recently the sale of the Coyotes and Senators.

I never said he was devious or anything like that. He does what he thinks will be more profitable for the league. He has a ton of power too, once elected.

 

[ottawa]

If I offer a player a choice between 40 mil over 8 years, AAV of 5 mil OR 45 mil over 8 years, with 9 mil deferred, AAV of 4.5 mil is he going to turn down the extra 5 mil?

Assuming that 500k results in 300k after tax, and is invested and compounded annually at 7% which is arguably even conservative but probably a fair average over 5 years since there will be ups and downs in the market. The result of the extra 300k each year up until 2032 would be

Year 1: 215k
Year 2: 181k
Year 3: 160k.
...
Year 8: 21k

I'd still imagine the 5m (3.1m after tax) would come out slightly ahead but not as much as you're making it out to be but the overall net would be probably under 1.5m when you factor in inflation. So it depends if you want that money now or later.