Have I got a deal for you…

It wasn’t long ago that the rationale for handing out lucrative, long-term contracts to players like the pact the Edmonton Oilers signed Tom Gilbert to was: “It might seem like an overpayment now, but it will be a bargain two years from now.” At the time, it seemed a reasonable argument.

A lot of contracts, Gilbert’s and countless others around the league, were inked with the NHL salary cap spiralling upward with no sign, apparently, it would stop, even though common sense dictated — didn’t it? — there had to be a correction at some point.

Well, as anybody who has watched the value of their stock portfolio and house plummet over the past 18 months or so can attest, the correction is here, even if there’s been a lag in seeing the results of a troubled North American economy come to roost on the NHL’s doorstep.

With projections the NHL salary cap could drop from $56.7 million to close to $50 million for 2009-10 and escrow payments by players set to almost double, a lot of those contracts signed not so long ago will be anything but bargains. Yesterday’s slight overpay becomes a millstone when it comes to general managers, like the Oilers Steve Tambellini, trying to move players.

While you and I can choose to take a $100,000 haircut on selling our house now as opposed to 18 months ago if we really must downsize to make ends meet, Tambellini and his peers don’t have that option in moving players — short of trying to give them away on waivers.

If they have to trade the “bargain” forward they signed to a $24-million deal over six years in July 2007 to clear cap space, they can’t take the same kind of haircut just to move the player. The contract remains. How is Player A, who really isn’t worth a $6-million cap hit when the ceiling is $56.7 million, going to be a bargain if the cap drops by $5 million?

Tough times

The Oilers, for instance, already have about $44 million committed to 17 player salaries for the 2009-10 season, according to NHLNumbers.com. Included in the $43.854 million figure is one bargain — Ales Hemsky’s $4.1 million cap hit. After that? Not so much. Didn’t anybody, specifically former Oiler GM and now president of hockey operation Kevin Lowe, have an inkling a market change was coming?

What teams, for instance, would be interested in Dustin Penner and his $4.25 million cap hit? Or in Shawn Horcoff, who’ll earn $26 million over four seasons starting in 2009-10. Any takers on Gilbert, who’ll earn $3.5 million again next season, then $5.5 million, $5 million and $3.5 million? I can’t imagine those contracts looking any better a year from now. Can you?

That’s not to say the aforementioned players aren’t good players, and I’m no economist — as my wife and banker will confirm — but as any financial analyst with half-a-clue will tell you, when the bottom falls out of any market, yesterday’s bargain can turn into tomorrow’s while elephant in a hell of a hurry. That’s the situation the Oilers and a lot of teams — again, didn’t anybody see this coming? — are going to find themselves in over the next two years.

No bargains

It looks to me like there’s going to be a lot of GMs sitting on assets they can’t move as they try to adjust to a changing salary cap.

One analogy I can draw on based on something I know, even if it is a bit ham-handed, unfolded last summer when I was looking for a car to replace the one that was written off after some dummy ran a red light and T-boned my Escalade at about 60 clicks, doing almost $30,000 damage.

I went to a local dealer. At the used end of the dealer’s lot, there was a like-new 2007 Escalade with low mileage. The sales guy tells me he can make me a smoking deal — if I play my cards right, I can get it for $64,000. Decent value, considering the vehicle stickered at $83,500 new.

The problem is, down at the new vehicle end of the very same lot, I could get a new 2008 Escalade for $59,900. Because of increasing gas prices and a big drop in demand, the market had changed drastically and people weren’t buying without significant factory incentives — incentives that didn’t apply to the previous model year. How are you going to sell that used 2007 Caddy when a new one is cheaper? You’re not.

In today’s drastically different market, a lot of teams, the Oilers included, will be sitting on the equivalent of that big, used gas-guzzling SUV whether they like it or not as they wait to find out what the 2009-10 salary cap will be.

— Listen to Robin Brownlee every Thursday from 4 to 6pm on Just A Game with Jason Gregor on TEAM 1260.

  • Pokie Reddik

    With the tandem of GM, asistants and the Prez, I think the Oilers will do well in restructuring the team and start from scratch to rebuild the Oilers. It's what the Oilers are known for… staying in rebuild mode, trying to find players that MacT can coach, or as in th 06 run, can coach them selves. We have no problems here in Oil Country.

  • Good analogy RobBro. The teams that are at the basement will have an advantage in a couple of years – assuming that they have teams in those markets. Do you think that next time CBA negotiations come around the teams might want to be able to retain salary or be able to trade salary(NBA) to increase player movement? Or even better (not that the players would ever go for it) stopping the guaranteed contracts like in the NFL.

  • Lofty

    Guaranteed contracts would be the best thing that could happen in the NHL. It would never pass the NHLPA but it would make players acountable for all the years of their contract rather than just the season before they become UFA. Yashin would have never gotten the stupid cash he got! How interesting the game would become.

  • Milli

    Crazy times, but anyone that didn't see it coming should be Fired, I mean promoted. Can you imagine your financial advisor (and i'm sure some did) telling you to buy, buy, buy….Don'y worry, everything will be alright? You'd sack his A$$!!!! Here again is the benifit of being broke!!!!

  • RobinB

    Pokie Reddik wrote:

    With the tandem of GM, asistants and the Prez, I think the Oilers will do well in restructuring the team and start from scratch to rebuild the Oilers. It’s what the Oilers are known for… staying in rebuild mode, trying to find players that MacT can coach, or as in th 06 run, can coach them selves. We have no problems here in Oil Country.

    No worries. None. I thought "rebuild mode" was supposed to be a thing of the past after fans were forced to sit around with their thumbs up their backsides during the lockout.

  • swany

    Robin I watched Betman last night with Ron. He stated that this year the rvenue went UP 5% so for next year he doesn't see a drop off in the cap BUT he stated that the next indication for next year would be playoff tickets if they sell great he see a bright future, he expects the cap to fall but not as bad as everyone is predicting. Also the Canadian teams will have to kick in less money for revanue sharing as the Canadian dollar drops.

  • RobinB

    shakey wrote:

    Robin,
    Oilers aside, can you name some players on other teams that fall under the ‘Gilbert rule’ of over-paid now but great deal later?

    Gilbert won't be a great deal at any point in this contract. How'd you get that from what I wrote?

    @ swany:
    As I've argued before, I'd be very surprised if we don't see the cap closer to $50 million than the $56.7 million it's at now when the 2009-10 season begins.
    Remember this with Bettman: he probably doesn't think — or at least won't admit publicly — there's any big problems in Phoenix or other cities where franchises are in trouble. He'll say, "Well, overall attendance is up . . ."

  • Pokie Reddik

    swany wrote:

    Robin I watched Betman last night with Ron. He stated that this year the rvenue went UP 5% so for next year he doesn’t see a drop off in the cap BUT he stated that the next indication for next year would be playoff tickets if they sell great he see a bright future, he expects the cap to fall but not as bad as everyone is predicting. Also the Canadian teams will have to kick in less money for revanue sharing as the Canadian dollar drops.

    Betman is a sales man,thats his history, When he gets an answer he has problems answering his eyes go shifty , he looks away, and doesn't directly answer the question. On the interview, how many questions did he truly answer? 2? Be very wary of this guy, there are teams that should be moved or dissolved, and then revenues will go up, He does not want to look like a "loser" but he is one.Leaving the Coyotes where they are,along with some other teams, will lower the cap.
    he has stepped on a lot of toes, it just a matter of time.

  • Bob Arctor

    Robin,

    Do you think the Oilers would be willing to stash bad contracts in AHL?
    Maybe not so much the younger players they've recently signed to bad deals, but vets who are rapidly declining and nearing the end of their contracts…

  • MattL

    Is it just me, or is Bettman's exit from the NHL loooooooong overdue. He reminds me of that old Iraqi information minister. "The NHL is stronger than ever! We will out-sell the NFL by 2012." Ok, he hasn't gone that far. Still, Bettman needs to go. Why are we trusting a greasy, humourless lawyer to sell a fun game? The NHL has made mis-step after mis-step, including the last minute, mandatory All-Star game attendance rule. How about a little warning, jerk? And US television anyone? Might be an idea to let people watch your game…

    Also, QUESTION: Wasn't there reverse-arbitration in the latest CBA? Why haven't we seen any of that? Surely it will come up if the cap goes down dramatically…

  • Rick

    BUCK75 wrote:

    Or even better (not that the players would ever go for it) stopping the guaranteed contracts like in the NFL.

    Or how about count the post escrow salaries for cap purposes?

    That would account for any down turns in the economy but wouldn't actually cost the players anything additional.

  • Travis Dakin

    MattL wrote:

    The NHL has made mis-step after mis-step, including the last minute, mandatory All-Star game attendance rule. How about a little warning,

    This is actually one move of his that I applauded. Forget the warning… how about doing your damn job which is to work for the NHL. It's not overtime, it is during the season and if you want the big paydays that the nhl provides for you by giving you a forum to earn your living, well you better well show up and earn it.

  • MattL

    @ Travis Dakin:

    I think the move was right, but the timing was ridiculous. If he had announced it at the start of the season, or in the off-season, or even like, two months before the game, it wouldn't have been an issue. But if it's in the news in the days leading up to the game, I think it's bad publicity. "Everyone, come watch our crappy, boring game, that the players REALLY don't want to participate in, but we make them."

    Makes a guy like Lidstrom look bad, after putting in all kinds of hours for the league over the years.

    Like I said though, I like the move itself. It's a good way to stop teams from telling their stars that the team is more important than the league as a whole.

  • Robin, you should probably re-think your life choices if you don't think Gilbert is a $4mil/year defenceman based on what he's done.

    There are currently 62 defencemen in the NHL that are paid either more than Gilbert or within $500k under him.

    The names in that range includ guys like Salo, Clark, Finger, Hatcher, Mitchell, Ohlund, Phillips, Poti, Rathje, Rivet, Seabrook, Suter, Schultz, Burns, Sarich, Brad Stuart, Orpik, Bieksa, Commodore, Martin, Wideman, Morris, Meszaros, Pitkanen, McKee, Aucoin, Regehr, Streit, Liles, Kaberle, Brewer, Weber, Hannan, Hainsey, Johnsson, Bouwmeester, Kubina, Blake, Gonchar, Rozsival, Green, Zubov, Souray, Hamrlik, Visnovsky, Schneider, Markov, McCabe, Rafalski, Pronger, Timonen, Jovanovski, Phaneuf, Redden, Boyle, Niedermayer, Campbell, Lidstrom, Chara.

    Out of that list of 62, there are 15 guys who are clearly better than Gilbert, a bunch of guys who are in his range and another group that are much lower.

    In terms of quality of competition, he's exactly in the range of a player making his amount should be plus he's outscoring them. There are only 25 defencemen in the NHL who have faced a similar Qualcomp or tougher that have also managed to do a better job than Gilbert at outscoring.

    Are there better deals out there? Sure, there always is. But this one is pretty damn good, especially with what he's shown he can do up to this point.

  • oilerdago

    Robin, hindsight is 20/20. I don't think anyone saw last summer how bad the Canadian dollar or the US stock market were going to drop. So what looked good 9 months ago, looks very different today.

    If the reverse had happened, what would we all be saying now about how the Oilers blew it by not locking up Gilbert when they had a chance too.

    Also, if I'm not mistaken, the salary cap for 09/10 is going to be based on this year's revenues, most of which were booked before the stock market plummeted. So if I'm not mistaken, the cap for next year if it falls, may only drop to around $54-$55 million.

    It's still going to be a challenge because you've got Cole/Smid/Grebs and a couple of bad contracts (Staios/Moreau) but the real day of reckoning is not until 2010/11 when Gagner/Cogliano come off their rookie deals.

  • jdrevenge

    How does the Escrow work within the CBA. Based on the collective thought process theres going to be a lot of middling players that are forced out of the league due to teams being unable to sign anybody but the Mcintyres of the world. This I would imagine would have been something that the PA wouldve forecast. There must be some sort of provisioning that in the event of a serious downturn wages are scaled back. This is what i thought the escrow did, effectively…

  • Rick

    jdrevenge wrote:

    This is what i thought the escrow did, effectively…

    That's the way I understand it but that is only for how the actual dollars change hands.

    How the cap is managed isn't factored in though.

    So based on league revenues you could reach a situation where the salary cap drops by say 5 million dollars, due to escrow you are only paying out 90 cents on the dollar (or whatever escrow is) for existing contracts but for cap purposes you are handcuffed at 100 cents on the dollar.

    I don't know how the fine print would shake out because I am sure it wouldn't be that simple but it only makes sense to me that if the players are getting less on their paycheques it would be reasonable for the cap number to reflect the lower amount.

  • shakey

    @ RobinB:
    That's not at all what I meant. I was meaning in the spirit of the contract when it was originally completed where we were told it was going to be a good deal down the road. Similar to Penner's deal where it was admitted that it looked like an over-pay in the beginning but could be a deal down the road.
    I was just looking for other examples of other players on other teams that are in this same position.

  • jdrevenge

    @ RickSo based on league revenues you could reach a situation where the salary cap drops by say 5 million dollars, due to escrow you are only paying out 90 cents on the dollar (or whatever escrow is) for existing contracts but for cap purposes you are handcuffed at 100 cents on the dollar.:

    Ya, you would think that it would reflect the change in percentage of player salaries over the league. Shouldnt be able to say that the players only get a percentage of whats owed to them but the teams are free to spend 100 cents on some and 90 on others. The math would just get too confusing wouldnt it?

  • Darcy

    Robin,

    You repeatedly say "didn't anyone see this coming?" in your article.

    Most economists and business forecasters, whose job it is "to see things coming", didn't see this quick hard recession.

    You're holding a bunch of hockey people accountable for not seeing what professional forecasters didn't see?

    Do you want Loweballini to tell us when to buy and sell our stocks too? It amounts to the same thing you are blaming them for in the article.

    Your comments regarding their "not seeing this coming" is unfair.

    Dawgbone also shows your evaluation of Gilbert's fair price is probably off as well.

    I usually like reading your stuff, but this is not your best effort.

  • Fiveandagame

    @ dawgbone:

    Nicely done DB. My thoughts exactly.

    You want to talk about overpaid d-guys.

    Wade Redden, the 24th most expensive player in the league. Making 8 mil this year and 6.2 per year for the ramainder of his 5 year contract.

    Dan Boyle 6.67 mil for 6 years.

    On the forward front, Scott Gomez at 7.3 mil for the next 6 years.

    The Oilers are average in their overpay. I would rather have Penner at 4.25 that Daniel Briere at 6.5 over 7 years or Brad Richards at 7.8 for 3 more years.

  • Travis Dakin

    @ Darcy:

    It didn't take a rocket scientist to see that the caps rise from 39 million in 05/06 to 56 in 08/09 was unsustainable growth. The point he was obviously making was that making the 12 year deals based on the assumption that it would steadily rise was a bonehead move. There is ALWAYS a market correction. And the question was asked, "Didn't ANYBODY see this coming." Shame on all those in charge that failed to be prepared just in case.

  • Rick

    jdrevenge wrote:

    Ya, you would think that it would reflect the change in percentage of player salaries over the league. Shouldnt be able to say that the players only get a percentage of whats owed to them but the teams are free to spend 100 cents on some and 90 on others. The math would just get too confusing wouldnt it?

    Way more confusing than I am capable of working through but on the surface from the PA's perspective what is better for them;

    Having all the teams bumping up against the cap even before free agency and having their players taking 50 cents on the dollars compared to past years or;

    Having all the teams having an additional 10 or 15% cap space headng into free agency and having their players taking 65 cents on the dollars compared to past years?

    Considering existing contracts would already be devalued in real dollars by 10 or 15% I would think option 2 would not only be more appealing but the so called market values ends up being fairly close.

    I would suspect that either way one thing that will be drastically different should be that the terms will be much shorter, which Robin already touched on.

  • swany

    It's a fact that all clubs have bad contracts and on the other hand we have some good ones to Hemsky at 4 mil when he should be getting 6-6.5 Grebs deal this year you could say he's a 3- 3.5mil a year D-man and what's he getting 1.5 or something like that. My point is yeas we have some bad contracts but we do have some that point the other way.

  • Rick

    Travis Dakin wrote:

    … making the 12 year deals based on the assumption that it would steadily rise was a bonehead move.

    I don't know if this is a fair comment.

    The 12 year deal comment is fair because that kind of term really is rediculous but signing guys to 6 year deals wasn't all that irrresponsible at the time.

    Anyways my main point is that those contracts weren't necessarily done on the assumption that the cap would continue to grow at the rate it was.

    The expectation could very well be that the so called market correction would merely be that the revenue would plateau in which case the teams have some key guys locked up long term under contracts that fit within an established salary structure.

    If during the those contracts the cap did rise, even marginally, then the contracts become a greater bargain. If the cap drops slightly then they are less of a bargain but not necessarily an albatross.

    What ended up happening and the direction that things are headed are pretty much unprecedented in modern times though.

    Some of the best economists in the world didn't anticipate the bottom dropping out of the economy the way it did or for the reasons it did.