THE BOOK--Playing The Percentages In Baseball

Tuesday, July 10, 2007

Would you pay a non-free-agent free-agent money?

This happens in the NHL all the time.  It’s really quite shocking.  The latest recipient of this largesse is the NHL’s MVP, Sidney Crosby.  Crosby is this generation’s Wayne or Mario.  In his second season, at the age of 19, he was the league’s MVP. 

The NHL has a rookie cap, meaning that for the first three years, a player caps out at 850,000$ per year for 3 years.  (And there’s no signing bonuses either.) In the NHL, you become a free agent at the age of 27, or if you have 7 years under your belt.  In Crosby’s case, that means playing just 5 more years.  In short, something like A-Rod went through in Seattle.

The NHL cap is 20% of the team payroll cap, which is currently 50MM.  Between the rookie cap and free agency, you have restricted free agency (meaning arbitration, or if some other team signs your player, you give up draft picks… topping out at four 1st rounders in the case of Sid).  Crosby signed an extension of 5/45 (meaning 1 year of free agency has been bought out).  This is a free-agent deal, for a guy who is still under the rookie cap.  How does this make any sense?  Crosby has no leverage.

Also note that the salary cap has been jumping like crazy each year, since the lockout.  It started at 39MM, then jumped to 44MM, and now at 50MM.  As you can see, the NHL is swimming in cash.  If they keep increasing at say 5MM per year, the salary cap would go to 11MM next, 12MM after, 13MM, then 14MM.  So Crosby, who as a free agent would have been able to sign single year 5yr deals totalling 65MM, or a 5yr next year at 60MM signs an extension for 5/45. So, he’s not getting the full free agent deal, but that’s awfully close for a guy with two years under his belt.

This causes problems for the rest of the league, since now Crosby can be used in arbitration for the elite players.  And even if not, it sets the trend for other players to get near-free agent deals, and those deal will be used in arbitration.  (Unless the arbitration process isn’t what I think it is.)