Tuesday, January 15, 2008

Extra Longterm Contracts

One recent development under this CBA is the signing of young players to very longterm contracts. It started when the New York Islanders signed Rick DiPietro to a 15 year $67.5 million contract. This year the Philadelphia Flyers signed Mike Richards to a 12 year $69 million contract and the Washington Capitals signed Alexander Ovechkin to a 13 year $124 million contract. The lengths of these contracts are unprecedented in the NHL.

It was expected that the new CBA would lead to more player movement. So far it has. The addition of a salary cap and liberalized free agency rules has led to more player movement. This player movement has happened at younger ages in a player's career. It was not possible to buy a player as a free agent for the best years of his career (he didn't reach UFA status until age 31) under the old CBA. Under this one, a player can reach UFA status by age 26 and can be signed as a restricted free agent more easily since the compensation for such players has been reduced. This has forced teams into a situation where they risk losing their young stars before they play the best years of their career. Obviously teams do not want this and will do anything within reason to prevent this.

It was expected by many that this CBA would allow the big markets a chance to buy the best players in the NHL while they are still at the top of their game. If the best players were in the flagship markets, that would help to sell the game. Rick Westhead of the Toronto Star is arguing that keeping Ovechkin in Washington is bad for the overall NHL marketing and he is correct. At the same time it's not a relevant issue. It is best for the hockey fan if there are 30 markets that all have a chance of winning. It is best if there is no systematic reason why your team cannot win. Of course, the reality is there will always be some of these reasons, but the CBA should not add more by trying to shepherd the stars to the elite markets.

Of course the less than elite markets want to keep their stars. Under the CBA there is only so much they can do. They can offer them large amounts of money (up to 20% of the salary cap), but any team can do that. A truly elite player would command significantly more money in advertising and other promotion in a large market even given the same salary as he would otherwise get to stay in his smaller market. The only thing a non-elite market can offer that likely won't be matched by an elite market is the security of a longterm deal. The security comes from a ridiculously longterm deal that basically covers the player through his entire career.

From the standpoint of a GM, what does George McPhee have to lose in signing Alexander Ovechkin to a thirteen year deal? McPhee's job is in jeopardy now. He could very possibly be fired this season or this summer. If he loses Ovechkin, the likelihood of that is increased. Ovechkin is one of the top players in the game and will in all likelihood be worth a huge salary - at least as long as he can stay healthy. If the time comes that Ovechkin is no longer worth his salary cap hit or is no longer healthy, George McPhee knows he will likely be long gone from the Washington organization. It is somebody else's problem. There is little downside to him personally.

To the Washington organization, Ovechkin may be underpaid in the latter part of his contract if the salary cap continues to rise (which it most likely will) and if he continues to be an elite player. The question is how likely will he hold up that long? James Mirtle attempts to answer this question. Although it's possible that Ovechkin could last as an elite player his entire contract, it seems more likely that he won't. Most 50 goal scorers have shown significant signs of decline (and often even retired) before hitting age 35, when the Ovechkin contract ends. It is a risk that Washington is willing to make. It is a risk that they may have to make in order to attempt to compete in the NHL. Should Ovechkin falter, this is a problem that can be solved with even more money. Ovechkin could be bought out. He could be put on a longterm injury list (and paid to not play). He could be sent to the minors and paid at his NHL rate but not count against the salary cap. This contract, should it go badly, will likely keep Washington from competing for years. It would significantly reduce the resale value of the team, should Ted Leonsis decide to sell. It is a risk, but one Washington feels they need to make. It may be the only way to ensure that Ovechkin has the best years of his career playing for Washington.

The Mike Richards contract in Philadelphia is not so cut and dry. Richards is not an elite player in the NHL. He does not have the track record Ovechkin has. Before this season, his career best was 34 points (a total he has already exceeded this season). Richards is off to a very good start this season. He has been the best player on the Flyers. He is going to the All Star Game. He is living up to his potential as a 2003 first round draft choice. For this, Philadelphia signed him up for twelve years. It is quite possible that this is a career best season. If it is, this contract will go on to hurt the Flyers. They are a big enough market team that they have the financial resources to buy themselves out of trouble, but it would be better off not to risk getting into it in the first place. I don't think they needed a twelve year deal to keep Richards. It was a move made by an over-exuberant inexperienced GM in Paul Holmgren to keep his young emerging talent. If Richards stays injury-free and continues to develop, this contract could look good in the future, but those are big ifs. Again, Holmgren sees little downside on the deal. If it fails, he won't be around to pick up the pieces.

The Islanders signing Rick DiPietro to a fifteen year deal was not pushed by a GM trying to save himself in the shortterm and pushing any potential problems onto his successor. It was pushed by Islanders owner Charles Wang. I think at the time, Wang overrated DiPietro thinking he was a star because he had been the 2006 US Olympic Team starting goalie. The reality was that the US Olympic Team had no goalie stars at the time to choose from. DiPietro was the best of a mediocre bunch. Lucky for Wang, DiPietro continued to develop. I think hew was the most improved goalie in the NHL last season by a significant margin and this made him worth his contract ... at least for now. Who knows how DiPietro will age? Who knows if he can remain injury free? If DiPietro does not age well or he runs into injury problems, he will be a significant financial problem for the New York Islanders. This is all the more likely because his contract runs until he is 40 years old (though it is front loaded financially). Rick DiPietro could be stuck in the minors at the end of his contract because his salary cap hit would be unreasonable should he be a backup goalie at that time. His contract will almost certainly be a problem for the Islanders in the next decade.

The CBA was designed to increase player movement. It was designed to allow the NHL's top markets a chance to acquire the league's biggest stars while they are still in their primes. Some teams are trying to prevent this by signing up their young talents to unprecedented longterm contracts. This may limit the availability of star players to free agency in some cases, though likely many stars will still become available over time. These contracts work to the advantage of the signing team if the player they sign can remain a healthy star for the lifetime of the contract. The salary cap will go up in the meantime, and the price for a star player will have gone up around the league, while the contract in question is locked in value. The problem is what happens if the player gets hurt or doesn't work out? Won't the contract cripple the team? It will either force even more money to be thrown at the problem to fix it or it will keep them out of contention for a long time. Either way it's a hard position for a team to be in and it is a reasonable bet that it will happen with any team making an extra longterm signing. When that happens, the GM who has to pick up the pieces will most likely not be the guy who made the mess. It has little shortterm downside to a current GM.

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