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Kovalchuk and "Cap Recapture"


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#1 Daniel

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Posted 28 May 2013 - 01:48 PM

Don't know if this came up for discussion when the new CBA was inked, but I was reading an article about the possiblity of the Rags amnestying Richards, and came across the idea of "cap recapture", which basically imposes a huge cap penalty on teams if one a player with one of those long-term front loaded deals retires before the end of the deal.  Looking for calculations about what Kovy's cap recapture would cost in cap space, I saw one calculation that concluded if he retired with one year left on his deal, the cap hit would be $27 million for a single year, $ 13.5 for two years if he retired two years before the end of the deal, and so forth. 

 

Are these numbers correct, and if so, what are the Devils options.  I mean, I guess the Devils can keep Kovalchuk on the roster sort of like the Bruins/Islanders did with Thomas and take the $6.6 million cap hit.  The cap could reach as high as $90 million by 2019-2020 when you might expect Kovalchuk to be at "retirement" age.

 

Is there also the concept of a prepackaged buy out and resign, where, let's say in Kovalchuk case, he's "bought out" and immediately re-signed to a seven year $65 million deal?  Higher cap hit now, but the Devils can absorb it much more easily than in 2010-2011.  Kind of doubt it though.

 

ADDENDUM:  Went back and searched past posts and noticed Tri mentioned the issue briefly, but didn't address the possibility of the enormous cap hit.


Edited by Daniel, 28 May 2013 - 02:00 PM.

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#2 DevsMan84

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Posted 28 May 2013 - 02:05 PM

Yeah my brother and I talked about this part that was sorta "snuck" into the latest CBA.  This has the potential to cause major headaches down the road for the Devils.


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#3 Triumph

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Posted 28 May 2013 - 02:13 PM

Yes, those numbers are correct.

 

The Devils cannot buy out and re-sign Kovalchuk.  I'm not going to go poking through the MOU but I believe this practice has been outlawed.

 

If Kovalchuk suffers a career-ending injury, the Devils don't have to worry about this.  If he goes to play in Russia for the last several years of the contract, the Devils don't have to worry about cap recapture, only his present contract (under the present rules NJ would be dinged 6.66M-900K, so around 5.76M).  NJ could also buy him out, making a forced retirement - buying out Kovalchuk in 2021, say, leaves a cap hit of 6.4M/6.4M/4.4M/3.4M/750Kx4.  And there's still probably a CBA to go before NJ would have to seriously worry about this.


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#4 ATLL765

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Posted 28 May 2013 - 02:58 PM

Yes, those numbers are correct.

 

The Devils cannot buy out and re-sign Kovalchuk.  I'm not going to go poking through the MOU but I believe this practice has been outlawed.

 

If Kovalchuk suffers a career-ending injury, the Devils don't have to worry about this.  If he goes to play in Russia for the last several years of the contract, the Devils don't have to worry about cap recapture, only his present contract (under the present rules NJ would be dinged 6.66M-900K, so around 5.76M).  NJ could also buy him out, making a forced retirement - buying out Kovalchuk in 2021, say, leaves a cap hit of 6.4M/6.4M/4.4M/3.4M/750Kx4.  And there's still probably a CBA to go before NJ would have to seriously worry about this.

I'm pretty sure it's a full year that must pass before you can attempt to re-sign a player that you bought out.

I agree that this is a problem way down the road and who knows if this rule will exist by the time Kovy is getting too old. I can see this getting nixed next CBA as a way for GMs to weasel out of it.


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#5 DevsMan84

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Posted 28 May 2013 - 03:07 PM

I'm pretty sure it's a full year that must pass before you can attempt to re-sign a player that you bought out.

I agree that this is a problem way down the road and who knows if this rule will exist by the time Kovy is getting too old. I can see this getting nixed next CBA as a way for GMs to weasel out of it.

 

Thing is I can see more GM's wanting this in there than not.


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#6 Triumph

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Posted 28 May 2013 - 03:26 PM

I'm pretty sure it's a full year that must pass before you can attempt to re-sign a player that you bought out.

I agree that this is a problem way down the road and who knows if this rule will exist by the time Kovy is getting too old. I can see this getting nixed next CBA as a way for GMs to weasel out of it.

 

Some contracts will come due before then (Zetterberg, Franzen, Richards would've, probably Lecavalier too).  But yeah, like DM84 said, more GMs will want it in.  The PA also wants it in.


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#7 insanity_gallops

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Posted 28 May 2013 - 05:15 PM

Does the cap recapture affect buyouts? I know it makes a player like Hossa nearly impossible to trade once he hits the declining salary years because the difference in actual pay versus cap-savings from previous terms is huge...and it's a similar nightmare for early retirement... but for standard (and "compliance") buyouts, it's still just the old standard of salary distribution over years? (2/3s, x2yrs)

 

Sucks that the Devils are the only team to get dinged in this regard and also forfeiture of draft picks.

 

Am I interpreting it correctly that this really wouldn't be an issue for the Devils and Kovalchuk until he hits 2019-2020 season... because every year prior to that is a higher salary than cap hit? Or is that a moot point simply due to the overall value and length of the contract?

 

Lots of specific questions mixed in there, sorry.


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#8 roomtemp

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Posted 28 May 2013 - 07:31 PM

Any player that might be apart of this will get "injured" in those years during retirement.


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#9 Triumph

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Posted 28 May 2013 - 07:57 PM

Does the cap recapture affect buyouts?

 

To my knowledge, no.

 

but for standard (and "compliance") buyouts, it's still just the old standard of salary distribution over years? (2/3s, x2yrs)

 

No, because the cap hits and salaries diverge so much.  Play around with the capgeek buyout calculator.  I don't know the rules that govern it.

 

 

Am I interpreting it correctly that this really wouldn't be an issue for the Devils and Kovalchuk until he hits 2019-2020 season... because every year prior to that is a higher salary than cap hit? Or is that a moot point simply due to the overall value and length of the contract?

 

No.  If Kovalchuk retired this year it would be an issue - the Devils would be charged $360,000 in dead cap space from now until 2025.  The idea is to get back the money lost to escrow by these contracts cheating the salary cap, so whenever a player on one of these deals retires, his team is charged a dead cap hit of the amount by which he should have been paid had his contract paid out exactly the same amount in salary as it did in cap hit.  So as an example, a player on a front-loaded contract with a $5M cap hit over 10 years gets paid out $47M in the first 7 years then retires - his team will be charged $12 million over 3 years, as he should've been paid $35M but was instead paid $47M.


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#10 squishyx

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Posted 29 May 2013 - 08:33 AM

I was looking at that cap recapture calculator and I don't understand it at all. In Kovy's last year he makes $1m, his cap hit is $6.6m, why would there be a $27m cap penalty for that one season if he retired early? Hell that's incentive to push him out the door 4-5 years earlier to get a more even spread.

Using Tri's math i'm still not sure it jives

6.66m cap hit over 15 years, he plays 14 of which so he "should have" been paid 93m. He has actually been paid 99m at this point, so shouldn't the recapture pentalty be 6m? (actual amount paid amount - actual cap hit accrued)

btw I think Daniel is refering to http://www.capgeek.c...ure-calculator/

Which suggests astronomical cap penalties in the last 1-2 years of these contracts. Maybe the formula is just broken?

Edited by squishyx, 29 May 2013 - 08:40 AM.

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#11 John Wensink

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Posted 29 May 2013 - 08:43 AM

Does anyone know if he goes to the KHL that the Devs get out of the hit. If yes, I'm sure that is what will happen after he gets the majority of the NHL contract money.

Edited by John Wensink, 29 May 2013 - 08:44 AM.

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#12 Chuck the Duck

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Posted 29 May 2013 - 08:47 AM

Just another penalty for "circumventing the spirit of the cap" on top of what we've already received.  I understand the logic behind the "recapture," but it unfairly penalizes teams that signed players under the terms of the last poorly written/thought out CBA by having a retroactive effect.  If the numbers stated by others are correct, it could be particularly harsh on the Devils based upon the structure of Kovy contract.


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#13 Daniel

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Posted 29 May 2013 - 09:25 AM

I was looking at that cap recapture calculator and I don't understand it at all. In Kovy's last year he makes $1m, his cap hit is $6.6m, why would there be a $27m cap penalty for that one season if he retired early? Hell that's incentive to push him out the door 4-5 years earlier to get a more even spread.

Using Tri's math i'm still not sure it jives

6.66m cap hit over 15 years, he plays 14 of which so he "should have" been paid 93m. He has actually been paid 99m at this point, so shouldn't the recapture pentalty be 6m? (actual amount paid amount - actual cap hit accrued)

btw I think Daniel is refering to http://www.capgeek.c...ure-calculator/

Which suggests astronomical cap penalties in the last 1-2 years of these contracts. Maybe the formula is just broken?

 

Yeah, the incentives are a bit weird.  Plus, if you're allowed to keep a player on your roster and get the same cap hit even if he isn't playing, like Tim Thomas, I can't see how a team could force itself into a situation where the astronomical cap hit would apply.  I mean, if you find yourself in that last two years of Kovalchuk's deal where you would have a $13 million cap hit if he "retires", you could just as easily pay the guy $3 and $4 million in his last two years to be a healthy scratch every night.  That's enough money on the table for him to play ball. 

 

Or maybe we're missing something.


Edited by Daniel, 29 May 2013 - 09:25 AM.

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#14 Triumph

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Posted 29 May 2013 - 09:26 AM

I was looking at that cap recapture calculator and I don't understand it at all. In Kovy's last year he makes $1m, his cap hit is $6.6m, why would there be a $27m cap penalty for that one season if he retired early? Hell that's incentive to push him out the door 4-5 years earlier to get a more even spread.

Using Tri's math i'm still not sure it jives

6.66m cap hit over 15 years, he plays 14 of which so he "should have" been paid 93m. He has actually been paid 99m at this point, so shouldn't the recapture pentalty be 6m? (actual amount paid amount - actual cap hit accrued)

btw I think Daniel is refering to http://www.capgeek.c...ure-calculator/

Which suggests astronomical cap penalties in the last 1-2 years of these contracts. Maybe the formula is just broken?

 

For all existing SPCs with terms in excess of six (6) years (“long-term contracts”), a “Cap Advantage 
Recapture” provision will become applicable. Specifically, for years in which the Player under a 
long-term contract is no longer playing in the League by reason of retirement, “defection” from the 
NHL or otherwise (such that he is not playing and is not receiving Salary pursuant to the terms of 
his SPC), any “Cap Advantage” that may have been gained by a Club during the time the Player 
was playing in the League under his SPC (defined as the amount by which a Player’s actual cash 
compensation exceeds his full Averaged Amount (“AA”)), both annually and in the aggregate, will be 
“Recaptured,” and charged against the Club’s Upper Limit from year-to-year in equal amounts over the remaining term of the SPC.
 
This is the wording in the MOU.  I'm sure that capgeek has talked to people in the league about this.  My only guess about the nature of recapture is that the league assumes that players will simply retire rather than collect $1M checks - but you're right, the calculator does not give you credit for years where the contract is below cap hit.  Kovalchuk's contract structure is unique in this regard.  
 
Daniel:  It's exceptionally unlikely that Kovalchuk plays 3 seasons with $3M as compensation then retires.

 

Just another penalty for "circumventing the spirit of the cap" on top of what we've already received.  I understand the logic behind the "recapture," but it unfairly penalizes teams that signed players under the terms of the last poorly written/thought out CBA by having a retroactive effect.  If the numbers stated by others are correct, it could be particularly harsh on the Devils based upon the structure of Kovy contract.

 

It doesn't unfairly penalize them.  They knew penalties were coming.  I don't think it'll be harsh on NJ at all because there's no way Kovalchuk is retiring with a $4M salary due to him in 2025 - basically if he's made it that far, he'll keep going.  And NJ's probably not a cap team in the years ahead.


Edited by Triumph, 29 May 2013 - 09:28 AM.

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#15 Daniel

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Posted 29 May 2013 - 09:37 AM

 

 

 

It doesn't unfairly penalize them.  They knew penalties were coming.  I don't think it'll be harsh on NJ at all because there's no way Kovalchuk is retiring with a $4M salary due to him in 2025 - basically if he's made it that far, he'll keep going.  And NJ's probably not a cap team in the years ahead.

 

In other words, you're saying this:

 


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#16 Triumph

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Posted 29 May 2013 - 09:56 AM

Meh, it's a shame no one in the East really gets nailed by this besides Tampa (who like NJ might not care once the bill comes due), but out West, the Wings and Hawks will have some issues, the Canucks will struggle with Luongo,etc.  If the Rangers weren't going to buy out Brad Richards they'd have this problem too.

 

Edit - oh right, the Wings are going to be in the East, but not in this division.


Edited by Triumph, 29 May 2013 - 09:58 AM.

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#17 squishyx

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Posted 29 May 2013 - 10:19 AM

For all existing SPCs with terms in excess of six (6) years (“long-term contracts”), a “Cap Advantage 
Recapture” provision will become applicable. Specifically, for years in which the Player under a 
long-term contract is no longer playing in the League by reason of retirement, “defection” from the 
NHL or otherwise (such that he is not playing and is not receiving Salary pursuant to the terms of 
his SPC), any “Cap Advantage” that may have been gained by a Club during the time the Player 
was playing in the League under his SPC (defined as the amount by which a Player’s actual cash 
compensation exceeds his full Averaged Amount (“AA”)), both annually and in the aggregate, will be 
“Recaptured,” and charged against the Club’s Upper Limit from year-to-year in equal amounts over the remaining term of the SPC.
 
This is the wording in the MOU.  I'm sure that capgeek has talked to people in the league about this.  My only guess about the nature of recapture is that the league assumes that players will simply retire rather than collect $1M checks - but you're right, the calculator does not give you credit for years where the contract is below cap hit.  Kovalchuk's contract structure is unique in this regard.

Capgeek is deriving $27.3m by looking at just the years where Kovy's contract is above his cap hit, years 2013 - 2019. He's roughly paid $74.m and only charged a $46.2m cap hit, the difference is about $27m. (you probably knew this, but it took me a while to figure out where it was coming from). CP is then charging that 27.3 evenly over the remaining years.

But it totally ignores the first 2 years, and last 6 where we get hit for a higher cap hit then money spent. Capgeeks does note this:

 

"Teams do not receive a credit for seasons with negative cap benefit (where cap hit exceeds salary)"


 

But I just don't get the same reading from the rule as they are. I'd agree that those guys are more knowledgeable then I, but they can be (and hopefully are) wrong...From my reading the formula looks something more like this:

Total dollars spent - Total cap charged = Cap Advantage,  that CA is spread over X years remaining on the contract.

To me that makes a lot more sense, you are "recapturing" the cap savings that you once gained but aren't getting a chance to get charged for by the player retiring early. Instead, they way capgeek is interpreting the rule teams are just going to get slammed in the last year or two of these contracts, contracts that probably wouldn't be signed if they knew that they could get dinged.

 

Another way to look at this under capgeek rules, if Kovy retires one year early, We will have spent $96m over 14 years, but a total cap hit of $120.5m over 15 years, including a crippling $27m penalty in that last season. That's not cap recapture, it's punishment imo. 

 

*note, I know Kovy is a somewhat special case because he'll either be out 5-6 early or see the whole thing through, but his salary was good enough for my example. If this really is the way the rule is going to be enforced it's absolutely ridiculous for other teams.


 


Edited by squishyx, 29 May 2013 - 10:22 AM.

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#18 Daniel

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Posted 29 May 2013 - 10:25 AM

Meh, it's a shame no one in the East really gets nailed by this besides Tampa (who like NJ might not care once the bill comes due), but out West, the Wings and Hawks will have some issues, the Canucks will struggle with Luongo,etc.  If the Rangers weren't going to buy out Brad Richards they'd have this problem too.

 

Edit - oh right, the Wings are going to be in the East, but not in this division.

 

I don't have the inclination to do the calculations, but Detroit might not get it so bad even in the worst case scenario.  Zetterberg and Franzen were front loaded, but the drop off at the end isn't nearly as bad as Kovalchuk and Hossa.


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#19 Triumph

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Posted 29 May 2013 - 10:35 AM

To me that makes a lot more sense, you are "recapturing" the cap savings that you once gained but aren't getting a chance to get charged for by the player retiring early. Instead, they way capgeek is interpreting the rule teams are just going to get slammed in the last year or two of these contracts, contracts that probably wouldn't be signed if they knew that they could get dinged.

 

 

That's the idea.  Now if you thought that these contracts have bogus years, how would you go about penalizing those years?  If the penalties went down as a player came closer to finishing the contract, no one would finish them, so you've kind of screwed yourself there.  Let's remember that absent the CBRF teams don't have incentive to finish these contracts either because they'll have large-ish cap hits for players who don't really merit them anymore given their performance (the cap will have gone up substantially but I doubt 3rd line players will be making $5M).  Players don't either because their salaries will be low.  So what'll happen?  Buyouts.  Which take care of cap recapture on their own, and technically fulfill the contract.

 

Again, I only have appeal to authority here, or I could email the NHL and ask (they answer these sorts of questions).  But capgeek probably already did that.  Once the full CBA comes out, I imagine this will be cleared up somewhat, as they tend to provide examples.


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#20 squishyx

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Posted 29 May 2013 - 12:03 PM

That's the idea.  Now if you thought that these contracts have bogus years, how would you go about penalizing those years?  If the penalties went down as a player came closer to finishing the contract, no one would finish them, so you've kind of screwed yourself there.  Let's remember that absent the CBRF teams don't have incentive to finish these contracts either because they'll have large-ish cap hits for players who don't really merit them anymore given their performance (the cap will have gone up substantially but I doubt 3rd line players will be making $5M).  Players don't either because their salaries will be low.  So what'll happen?  Buyouts.  Which take care of cap recapture on their own, and technically fulfill the contract.

 

Again, I only have appeal to authority here, or I could email the NHL and ask (they answer these sorts of questions).  But capgeek probably already did that.  Once the full CBA comes out, I imagine this will be cleared up somewhat, as they tend to provide examples.

There's nothing wrong with long term contracts if players play them out. You are basically trading cap space "now" for "later". If a team wants to gimp their future by squeezing a little extra in now, that's their choice. And teams do this all the time in other ways too so it's not like we really need to punish them for it.

It's only a problem if players don't actually play those years, and that's were the "recapture" thing applies. If you accrue some 25-30m in cap savings then yes, that should be held against clubs later even if the player retires. But you shouldn't get hit for the entire amount without factoring in how much cap space you've paid out. The "penalty" is that you still have to pay the cap difference that you were trying to save.

If Kovy retires at the end of 2020, with 5 years remaining, he's missing out on $10m from those 5 years. His cap hit over that term is 33.3m, so the Devils basically got 23.3m of cap advantage, and we should rightfully be charged $4.66m each of those years. Then in aggregate Kovy's total pay = his actual cap hit for the term, no more, no less. We should not be charged $27.3m if he retires one year early as capgeek is stating as a) it's ridiculously destructive to teams and b) costs in this case 25% more in cap space then was actually spent in dollars. It creates an inverse problem of too much cap being spent vs dollars.


Edited by squishyx, 29 May 2013 - 12:05 PM.

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