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Tuesday, August 01, 2006
Buyouts
One of the interesting development last year, when the NHL had their new CBA, was that every team was granted the option of buying out a limited number of contracts already on the books. For example…
Bobby Holik had a 13 million, 2 year contract left, which the Rangers bought out at 9 million$. This took the contract off the books, and did not count against team payroll limits.
(Holik subsequently signed for 13 million, 3 years with Nashville. So, he ends up with 22 million, 3 years, all in all, or an extra 9 million on an extra year. Great deal for him.)
I think the two-thirds buyout level is much too high. I’d think anywhere between 20% to 50% would be right. In the Holik case, that would have meant an extra 3 to 7 million$, instead of 9, of buyout.
Just thinking out loud here. How about a a happy medium between the NFL’s policy of no guaranteed contracts (outside of the signing bonus), and the other leagues full guaranteed contracts. A straight “you can buy out the rest of my contact at 25%” would be great.
You get a crazy signing like Guzman of 16 million 4 years. With 12 million, 3 years left, you buy him out at 3 million$, and he’s out of your life. You ended up paying him 7 million$ for 1 year, but that’s better than paying him another 9 million$ for 3 more years. Or Beltre and his 65 million/5 years. You release him after 1 year. Total cost is 26 million$ for 1 year. But, you don’t have to pay another 39 million$ for 4 years. You save the cap room, and Beltre will probably get signed somewhere else for 30-40 million$/4 years. Everyone wins.
If you make the buyout level too low, like 10%, teams will overspend, because they know they have a chance to get out of the deal. Players will ask for more, because of fear of the buyout.
A limit of 1 or 2 buyouts a year, or that you can’t pay out more than 20 million$ in buyouts is probably prudent.
Thoughts?