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Monday, June 22, 2009
Contract Buyouts
Sherman (hat tip Primer):
What we are suggesting the Commissioner’s Office do—to save the trade deadline for gossip junkies like me—is to offer a one-time, one-contract reprieve for all 30 teams. Remember the Allan Houston Rule from 2005 when the NBA allowed every team to release one player so that the player’s contract no longer counted toward the luxury tax. The rule, however, did not remove teams from having to pay the contract, just any luxury-tax obligations.
The NHL lets you buy out two-thirds of the remaining contract. This has been exercised once or twice a year. The players have usually ended up at around break-even on the deal. It usually looks something like this: a player is owed 30MM over 4 years. The team thinks he stinks. They pay him off at 20MM. He then signs a free agent deal for 10MM over 4 years. The player gets his money. The team that loses him get to have his contract reduced on the books because they get to spread the buyout over 8 years for cap purposes. The team getting the player pays fair value for the player. Everyone wins.
I’d be in favor of a buyout at 50 cents on the dollar. This will mean that some players may lose out on the deal. If you make out the buyout too low, say 10 cents on the dollar (a “restocking fee"), then some teams get to get out of really bad contracts and those players will lose out. Not only that, but giving a team this much leeway means they would take alot more chance at big contracts.