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Friday, September 03, 2010
The Case for Kovulchuk’s (second) contract
Let’s say that Ilya Kovulchuk is worth 5.3 wins in the 2010-2011 season, and that wins cost 2MM$ each. That would put his value at 10.6MM$, a seemingly legitimate figure, in light of being offered a 100MM$ to-end-of-career deal.
Let’s suppose that salaries rise by 6.845% every year and Kovulchuk ages so that he loses 0.4 wins every year. Here is how it looks:
Year Wins $perW Cost Salary
2011 5.3 $2.0 $10.6 $6.0
2012 4.9 $2.1 $10.5 $6.0
2013 4.5 $2.3 $10.3 $11.0
2014 4.1 $2.4 $10.0 $11.3
2015 3.7 $2.6 $9.6 $11.3
2016 3.3 $2.8 $9.2 $11.6
2017 2.9 $3.0 $8.6 $11.8
2018 2.5 $3.2 $7.9 $10.0
2019 2.1 $3.4 $7.1 $7.0
2020 1.7 $3.6 $6.2 $4.0
2021 1.3 $3.9 $5.0 $1.0
2022 0.9 $4.1 $3.7 $1.0
2023 0.5 $4.4 $2.2 $1.0
2024 0.1 $4.7 $0.5 $3.0
2025 (0.3) $5.1 $(1.5) $4.0
Basically, as he gets older, he gets paid less. This is so obvious as to require no mention, but, it must be mentioned.
His salary is intriguing to say the least. It’s got a double back-loaded whammy in there. I’m going to add two more columns, which is the running cost, and the running salary:
Year Wins $perW Cost Salary Running Cost Running Salary
2011 5.3 $2.0 $10.6 $6.0 $10.6 $6.0
2012 4.9 $2.1 $10.5 $6.0 $21.1 $12.0
2013 4.5 $2.3 $10.3 $11.0 $31.3 $23.0
2014 4.1 $2.4 $10.0 $11.3 $41.3 $34.3
2015 3.7 $2.6 $9.6 $11.3 $51.0 $45.6
2016 3.3 $2.8 $9.2 $11.6 $60.2 $57.2
2017 2.9 $3.0 $8.6 $11.8 $68.8 $69.0
2018 2.5 $3.2 $7.9 $10.0 $76.8 $79.0
2019 2.1 $3.4 $7.1 $7.0 $83.9 $86.0
2020 1.7 $3.6 $6.2 $4.0 $90.1 $90.0
2021 1.3 $3.9 $5.0 $1.0 $95.1 $91.0
2022 0.9 $4.1 $3.7 $1.0 $98.8 $92.0
2023 0.5 $4.4 $2.2 $1.0 $101.0 $93.0
2024 0.1 $4.7 $0.5 $3.0 $101.5 $96.0
2025 (0.3) $5.1 $(1.5) $4.0 $100.0 $100.0
We see that he gets all caught up in the 2017 season. That is, until then, the Devils are paying out less than he’s worth. He goes ahead for a couple of seasons, but then, the Devils once more pay out less than he’s worth.
And, in order for Kovulchuk to earn the 7MM$ in his last two seasons (seasons in which he is worth nothing), he has to play at 3 seasons at only 1MM$ each (seasons in which he is worth 11MM$). That’s a huge back-end deal.
All the while, the cap hit is 6.67MM$ a year. The structure of the deal, cost v salary, is perfectly legitimate, reasonable and justifiable.
The problem is the cap issuing. If Kovulchuk retires after 10 seasons, his on-ice cost should have been 90MM$, and his salary paid will be 90MM$. Except the cap hit is going to be 66.67MM$. This is not a Devils or Kovulchuk problem. It’s not even a cap circumvention problem. The cap system itself doesn’t reflect the way players age. That’s the problem.
And the problem itself is easily fixed if you count the deferred cap hit in later years. If Kovulchuk retires after 10 years, that’s 23.33MM$ of deferred cap hit that has been accrued but not yet applied. The Devils got major relief from the cap hit for the first 10 years, and now they have to pay up, just like any Joe American is going to pay taxes on his retirement plan. The Devils simply should be charged that amount as a cap hit, either in the season following the retirement, or spread out evenly over the remaining years of the contract (5 years in this case).
Stop blaming the players and the teams because they see that players lose value as they age. Blame the NHL and NHLPA because they didn’t make sure that the accounting had to eventually catch up at some point. And, I presume in the next CBA they will make sure it catches up, making all these issues completely irrelevant.
I’m sure somebody has come up with this before, but, is it really that hard to just make the cap reflect what you earned that year. If your salary is $7m, you cost $7m against the cap. If there is something like a signing bonus, count it like the NFL does (I believe signing bonuses are evenly distributed over the first 5 years of a deal and admittedly don’t know if they happen in hockey.)