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.

  • 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…

  • 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…

  • 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.

  • 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 . . ."

  • 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

    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.

  • 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!!!!

  • 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.

  • 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.

  • 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.