Friday, July 21, 2017

The Draisaitl Contract: Part 2b - A Bridge Deal and Cap Management

In addition to more time for player evaluation, a bridge contract would give Edmonton salary cap flexibility they wouldn't have with a long term contract for Draisaitl. Before we get to some of the aspects of cap management to consider, we should take a quick look at what might constitute a reasonable* bridge contract for Draisaitl.

Sunday, July 16, 2017

The Draisaitl Contract: Part 2a - A Bridge Deal and Player Evaluation

A long term deal, or a bridge contract?  In answering that question for Draisaitl, the Oilers will have a few factors to consider.  Throughout this series of posts I will look at some of the advantages and disadvantages of each, concluding with my preference (from the outside looking in) were I in Edmonton's position. 

Player Evaluation

Given his age, we know from the outset this contract will be based on projection.  Draisaitl is a young player, steadily improving (hopefully, for both the Oilers and Draisaitl himself). He's not playing at an MVP-level like McDavid already, nor is he (likely) going to be paid like one. The advantage of a bridge contract, from an evaluation standpoint, is having the time to answer any lingering questions about Draisaitl's ability to carry a line by himself. We can debate the extent to which Draisaitl benefited from playing with McDavid, but I've yet to hear the argument that he didn't benefit. The Oilers are in an unusual situation with five RFA years for Draisaitl; gathering more information wouldn't hurt the Oilers prior to signing a longer term contract. The issue at hand is the cost of acquiring that information, should the team decline to sign Draisaitl long term this summer. Part of the difficulty in evaluating this situation from the outside looking in is that we are working with incomplete information.  Presumably, if Draisaitl were willing to sign Scheifele or Monahan's deal, the contract would already be done.  Some speculation puts the number to sign long term around 9M AAV. For argument's sake, let's assume it would actually take 64M over 8 years (8M AAV) to get Draisaitl to sign long term this summer. Forwards in the NHL are largely paid on offensive production.  If Draisaitl, at C during even strength behind McDavid, posts solid, but lesser, numbers the next two seasons, it's unlikely the Oilers would have to pay a significant premium (if any) when compared to the current long term cost*; they could potentially even sign him for less long term than it would cost today. If he produces notably more than expected in that role, and Edmonton has to pay him 9M, even 10M, vs. his cost today, maybe that is perfectly fine?  Yes, they'd be paying somewhat more than if they'd have signed him long term this summer, but (a) they'd be more sure what Draisaitl is on his own, (b) they'd have gained a cap benefit in the short term (much more detail to follow on the cap benefits in Part 2b) and (c) if they get him signed for 8 years 2 years from now, they would have him under contract until 32, instead of until 30.

Thursday, July 06, 2017

The Draisaitl Contract: Part 1 - The "Percentage of the Cap" Argument

In the build up towards Connor McDavid signing his 8 year, $100M contract extension, much has made of McDavid's "percentage of the cap", and how it compares to Crosby's when he signed his post-ELC deal*. While I understand the temptation to look at this situation from that perspective, I don't love the "percentage of the cap" argument, even for McDavid. The idea behind it makes some sense, in theory.  However, in practice, looking at a percentage from 10 years ago is only an appropriate comparison if the general league wide allocation of salaries is the same.  Since Crosby's post ELC contract was signed, the cap has increased faster than the salaries of the highest paid players, as expressed by a percentage of the cap, which in my opinion means that a straight across comparison of percentage wouldn't capture the changing league dynamics.

Monday, September 26, 2016

How Much Leverage Should the Flames Exert?

Drafting a player as good as Johnny Gaudreau in the 4th round is like finding a $100 bill in your winter coat when the weather turns.  Hard to believe, and even harder to believe how happy you are when it happens.  There was some angst and consternation for Flames fans during the "Will he/won't he sign an ELC?" saga that was early-2014, but eventually he did sign with the Flames.  He scored a goal in his first and only game of the 2013/14 season, and was pretty prolific in the final 2 years of his ELC.  Fantastic for the Flames, and for Gaudreau.  But, now it is time for the next contract, and negotations haven't gone as smoothly as a Flames fan might have hoped.

Johnny Gaudreau is in a somewhat unusual position for a player who has finished his ELC, in that he's not eligible for an offer sheet.  The CBA requires a player his age to have "3 years professional experience", and Gaudreau does not due to his 1 game pro season in 2013/14 not qualifying* as "a year of professional service".  With no arbitration rights and no opportunity to sign an offer sheet, he has no way to leverage himself a deal outside of "holding out".  Certainly there is an amount of leverage there, but it's not the same as going to arbitration, or signing an offer sheet with another club.  Calgary, on the other hand, might think to themselves "You know, we've got a ton of leverage here.  We can theoretically say to Gaudreau ' Here are your options.  A 1 yr deal at your QO, or an 8 year deal at 6.75M.  You can hold out if you want, but we're not moving and if you don't sign this year, you're in the exact same situation next summer.  Do you really want to go play in Russia for a couple years just to be in the same place?'"

Are they going to overtly state this to Gaudreau's camp?  Probably not - if I were in Treliving's position, I wouldn't count on such a statement to not create hard feelings.  Besides, there is no real need to be explicit; they know it, Gaudreau's representation is almost certainly aware of it as well.  A reminder probably only agitates the situation at this point; perhaps they feel differently if he's still unsigned on November 15th.

So what do the Flames want to do?  The difference between 6.75M and 8M on an 8 year deal is 10M - not the kind the money a businessman would necessarily want to spend on goodwill, particularly if they don't think their offer is unfair, and don't think Gaudreau has a significantly better alternative.  I wonder if the Flames and Gaudreau look at a one year deal?  The Flames get another year of relatively cheap information before they commit long term, and Gaudreau would have a stronger bargaining position going forward.  The Flames would also then have the opportunity to trade for, or sign a guy like Rakell** to an offer sheet, a RH F that would fit well with CGY, while fitting under the cap.  When Gaudreau gets a big pay bump in 17/18, they'll have cleared a bunch of cap space via Smid/Engelland/Wideman (~11.7M) to make room for Gaudreau's raise.  Is it worth having to deal with the potential of a somewhat higher cap hit for Gaudreau in 17/18 if there is a chance to get a player like Rakell signed long term? Or are they better off trying to get a good long term deal now, while they hold relatively more negotiating clout?  Tough questions, and it will be interesting to see how the Flames handle this situation.

* The CBA also defines a year of "professional experience" as a year played under an SPC, which as I understand it would mean that if Gaudreau went to Europe to play this season, he still wouldn't be eligible for arbitration or an offer sheet next summer.

** Or maybe Trouba, with the recent news of his trade request becoming public.

Tuesday, June 21, 2016

Potential Offer Sheet Target - Seth Jones

Offer Sheets.

Arguably the most underutilized way for an NHL GM to acquire players.

At this point, I'm sure many are tired of hearing me talk about the lack of offer sheets in the NHL, and my surprise that we don't see more of them. That said, I think there are a confluence of factors this summer that may increase the chances we see an offer sheet, perhaps even involving the Oilers. The UFA pool is lacking in top end RH D, and with a few of the more obvious trade options seemingly, potentially, falling away in the past few days (Hamonic, Barrie, Vatanen), there aren't a lot of quality options for Peter Chiarelli.  There are, however, a few teams with promising RFA RH defencemen that might be attractive for a team to acquire via offer sheet, for one reason or another.  Ideally a team might prefer to acquire them via trade, but if a deal can't be made, it's not impossible a team looks at the more rare option of an offer sheet.  All of Jones, Dumba, Lindholm (LH D, but good enough to be under consideration anyways), Barrie and Trouba are players who may be good acquisitions for the Oilers in the right circumstance, but I'm going to focus on Seth Jones for this article as he probably fits best in terms of being a player of interest to the Oilers while also being part of a team in an unenviable cap situation.

Friday, February 05, 2016

Performance Bonuses and Their Impact on Edmonton's Deadline Transactions

This past summer, I wrote an article about the cap consequences of the Reinhart trade.  I thought it might be worth taking a look at how things have played out to this point for the players with bonuses, and how that might impact Chiarelli's thought process heading into the trade deadline.  Now, without seeing the actual contracts it's difficult to know exactly which bonuses each player is eligible for, and exactly what the triggers are, but I'll list the bonuses it looks like each player has a reasonable chance at hitting.  It's not impossible that others could be hit, but this is a look at those more seemingly attainable at this point in time.

Klefbom - max 350K in performance bonuses:  He has a very good chance at hitting the TOI/game threshold provided he gets healthy enough to play in 42 games this year, and a half decent chance to achieve either of the plus minus bonus or the 0.49 points per game bonus. Could potentially max out his 350K, depending which bonuses he's eligible for.

Nurse - max 850K: Has a reasonable chance at plus minus bonuses and TOI.  I don't think he would be voted for the all rookie team ahead of Gostisbehere or Parayko. Maybe 425K?

Reinhart - max 2.35M:  He is unlikely to receive any performance bonuses.

McDavid - max 2.85M and Draisaitl - max 2.475M:  Both of these players are grouped together as they have pretty similar outlooks relating to their bonuses.  Both McDavid and Draisaitl look reasonably well positioned to achieve 3 or 4 of their Schedule A bonus triggers, with 4 likely hitting the limit of their 850K .  The Schedule B bonuses are of particular interest.  The only bonus that either player looks like they have a chance at hitting is top 10 in points per game among forwards BUT both have a decent chance.  There is a minimum of 42 GP required, so McDavid in particular has to stay healthy, but McDavid is currently 2nd among forwards in points per game. Draisaitl is 12th and only 0.01 points per game behind 10th (Hall, interestingly enough).  It's possible both could hit all their bonuses, which would be 5.325M combined.

There is a reasonable chance 6.1M in bonuses could be earned between the five players.  So what does that mean?  Well, that means the Oilers are looking at the potential for a significant overage penalty on their 2016/17 cap.  According to general fanager, the Oilers are ~2.8M below the cap at the moment, so assuming that to be accurate, that nothing changes on the roster, and that those 6.1M in bonuses are indeed achieved, the Oilers would have a performance bonus overage of ~3.3M for the 2016/17 season.  I would argue it doesn't make a lot of sense to keep an unlikely playoff team together if it results in carrying an overage penalty forward into a potential playoff season, so I think it would be a good course of action to dump as much money as they can prior to the deadline to avoid as much of that potential as possible*.

In terms of the deadline, the two players seemingly most likely to be on the potential trading block (making significant money) are Schultz and Purcell.  It sounds like Edmonton will look to move Schultz, and assuming no money is retained that will save them some money against the salary cap. There has been some talk of keeping Purcell and signing him to a new contract for less money.  In a vacuum I don't think that's a horrible idea, but the potential of a bonus overage charge changes the picture.  It's not just choosing between keeping/re-signing Purcell and trading Purcell for a pick.  If the Oilers move Purcell now, it probably saves them something like 1.3M against the cap, so keeping him and re-signing him for 2M (not a given he'd sign that, but let's assume he does for the sake of argument) might have an effective cost of 3.3M factoring in the potential bonus overage penalty that could have been reduced by moving him at the deadline.  I think that means the best approach would be to move both Schultz and Purcell by the deadline. The earlier they are moved, the more cap space saved, and while retaining money to improve the quality of pick might ordinarily make some sense, I don't see that as being the best option here if either/both player can be moved without retaining salary, even if the quality of return is somewhat reduced.

* It would also save some money to carry 7 defensemen instead of 8. The combination of extra playing and development time in the minors with some cap space saved probably makes it prudent to demote either Nurse or Reinhart.

If money has to be retained in Purcell and Schultz trades, the Oilers might well choose to look at moving other players in addition to those two, at least partially in an effort to reduce potential bonus overages.

Sunday, June 28, 2015

Cap Consequences of the Reinhart Trade

Ordinarily, it is an enormous positive for a cap team to have a number of players on Entry Level Contracts (ELC), as their relatively small salaries give the team an opportunity to spend more money elsewhere on the roster.  However, an issue arises when a team has a number of players on an ELC with significant performance bonuses.  Teams are only allowed to exceed the cap via performance bonuses by a maximum of 7.5% of the Upper Limit, which for the 2015/16 salary cap of 71.4M works out to a 5.355M maximum. The combined bonuses for Nurse (0.85M), Reinhart (2.35M), Draisaitl (2.475M), Klefbom (0.35M), and McDavid, not signed yet, but assuming a max deal (2.85M) total 8.875M.  So what does that mean?  In a nutshell, should the Oilers start the year with all five of those players on the roster, the team will have an effective salary cap of 67.88M in order to preserve the required room for bonuses.1

 A few thoughts:

  • The impact this has on Edmonton's summer plans is hard to know, but it may have repercussions for free agent spending.
  • This is a not really an issue if both Reinhart and Draisaitl are in the minors, as the remaining bonuses wouldn't exceed the overage.  If one of them is in the minors at any given time, the Oilers would exceed the overage maximum, but only by about 1M instead of ~3.5M if both are in the NHL.
  • We don't know exactly what Marincin will cost, but for the sake of argument let's say he signs a one year deal for the same money as Reinhart.  In comparing the cap hits head to head, we might ordinarily say they cost the same, while noting that Reinhart has bonuses available that could result in a higher cap hit for the current year if Edmonton were not at the cap, or a cap penalty the following year, if achieved, were the Oilers at the cap - the overage talked about earlier.  However, assuming Edmonton would have already used all their overage room on the other four players, Reinhart carries an effective cap hit of the combined 3.21M vs. the 0.86M of Marincin. That is not the case if Draisaitl and Nurse, for example, are in the AHL - only if the bonus overage has already been exceeded.
  • There is a consideration for Draisaitl that does not exist for Reinhart.  If Edmonton leaves either Reinhart or Draisaitl in the AHL all year, an ELC year would be burned.  However, with Draisaitl, a year in the AHL vs. a year in the NHL results in him being a UFA in 2023 instead of 2022; Reinhart's UFA status is not impacted by whether or not he plays in the NHL.  When you combine that with Draisaitl having an effective cap hit of 3.4M (again, assuming the bonus overage is already maxed out), is it that hard to argue that Edmonton would be better off to sign a UFA W for 2.5M, save some cap space, save a year towards UFA status for Draisaitl, and let him play a full year as the #1C in the AHL?
  • For 2016/17, the Oilers would need to remain 3.17M under the cap2 once Klefbom's bonuses are off the books, with the potential for a bigger number if other players with bonuses were to crack the roster (for example, Slepyshev).

I don't want to get too far into the weeds here, regarding things like LTIR consequences and "impossible to earn" bonuses - perhaps that will be something to look at as the summer progresses and we get a better sense of any UFA's EDM has added, any trades/buy-outs, the contracts/cap numbers of any RFA's. But the quick takeaway is that the Oilers may not have as much money to spend in free agency as some might have hoped, or been expecting, depending on the number of players with significant ELC bonuses on the roster.

1 The calculations, to the dollar, are pretty complicated and beyond the scope of this article, but what it means, more or less, is that EDM has to stay at least 3.52M below the cap this year if all these players are on the roster.

2 This assumes that the 2016/17 cap is identical to the 2015/16 cap.  If the cap increases, so does the size of the bonus cushion.