CBA Debate – The Entry Level Contract

Contract

Over the next few weeks, The Business of Hockey’s Mike Colligan and Jeff Angus of Angus Certified will make sense of the most pressing issues facing the players and owners in this summer’s CBA battle.

Today’s topic: How should Entry-Level Contracts be structured?

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MIKE COLLIGAN: The current CBA requires players under the age of 25 to abide by specific contract limits in their first NHL contracts. Base salary is capped at $925,000 this offseason and the length of these Entry-Level Contracts (ELC) is based on the player’s age when signing the deal:

  • Age 18-21: Three years
  • Age 22-23: Two years
  • Age 24: One year

In the NHL’s initial proposal to the NHLPA, owners want to see the length of these entry-level deals extended to five years. This would have a huge impact on the earning potential for young stars in the game. For example, under the proposed rules, 60-goal-scorer Steven Stamkos would still have one season left on his entry-level deal. Players can currently earn up to $2.85 million in performances bonuses on top of their ELC base salary, but that’s a long way from the $8 million Stamkos made last season.

JEFF ANGUS: I can see why owners would want to do this. The 2005 CBA played a huge part in the death of the second contract. Before it, players would typically sign ‘bridge’ contracts that would bring them from their ELCs to a big pay day. However, now players typically receive big money as soon as their ELCs expire, and teams are being forced to pay for potential and upside instead of proven production.

COLLIGAN: I’ve gone back and forth on that issue. Brian Burke has always blamed the 2007 Dustin Penner offer sheet for the inflation of the second contract, but I think over time a cap system is efficient. If it wasn’t worth paying Steven Stamkos, Drew Doughty, or Erik Karlsson big money for potential, GM’s would resist the temptation and the market would adjust.

ANGUS: This will be an important issue for both sides at the bargaining table. It may be a carrot that the NHLPA dangles to improve some other aspect of the CBA, as the younger players may not be as well represented in negotiations. I could also see ELC terms lengthened and the UFA age decreased, although that is a whole other can of worms.

As you said, this would take away from the earning potential for rookies and young players. It would also give teams incentive to really draft well – imagine having a star forward at the age of 23 or 24 making less than $1 million per season?

COLLIGAN: I’ve always felt that the most valuable contract in hockey is a player on an ELC that can play big minutes and contribute. Look back at the Pittsburgh Penguins. When they won the Cup in 2009, they had Evgeni Malkin and Jordan Staal in the final year of their ELCs. Chicago had Patrick Kane, Jonathan Toews, and Duncan Keith leading the team to a Cup on ELCs in 2010. Neither team has advanced past the second round since then.

ANGUS: It will be interesting to see how hard the PA fights on this issue. The NFL recently cut back significantly on what rookies can earn. It seems in many sports (and many industries) that you have to “earn your way” so to speak. Perhaps the PA is willing to hurt their young players a bit as long as it doesn’t negatively impact more experienced NHL players?

And I agree – having a player on an ELC that can be plugged in to an important role on a roster is a significant, significant asset. Especially if the salary cap drops at all (which appears likely with the NHL wanting to decrease the PA’s share of revenues significantly).

COLLIGAN: What are your thoughts on ELC performance bonuses? Currently, ELCs can include up to $2.85 million in performance bonuses on top of base pay. Schedule A bonuses — thresholds for games played, goals, and other individual statistics — are maxed out at $850,000. Schedule B bonuses — for awards such as Conn Smythe, All-Star, Calder — can add up to $2 million.

Rookies like Ryan Nugent-Hopkins and Nail Yakupov carry a $3.775m cap number, but they’ll never hit all the bonuses and earn that amount. Under the current CBA, the league offered teams flexibility to exceed the salary cap during the season because of these bonuses.

I’ve noticed two problems. Teams don’t know until after the season whether their players will hit most of the Schedule B bonuses. This is why Chicago was penalized over $4 million the year after they won the Cup. Toews, Kane, and Keith all had successful seasons and won a number of individual awards. The Blackhawks have never really recovered from that hit.

The flip-side of that equation is what the New York Islanders have done with Nino Niederreiter and his $2.795 million ELC cap hit. Because the Islanders struggle to reach the cap floor, they decided to bury Niederreiter on a fourth line last season where he couldn’t hit Schedule A bonuses but they could still take advantage of the artificially high cap hit. We complain a lot about the big-market teams playing cap games, but some of the cap floor teams are guilty too.

ANGUS: I think Chicago would take the penalty as they won a Cup because of it, but I see your point. And these top prospects typically get all of the bonuses available to them too – there isn’t really much of a negotiating process – it’s more of a case of “when” rather than “what for” regarding a top rookie signing his ELC.

The Niederreiter example is an interesting one. The Islanders may have found a loophole to get closer to the cap, but they also wasted a year of his ELC, and completely killed his confidence as a rookie. Niederreiter wasn’t ready for the NHL, but he was too young to be sent down to the AHL. The smart hockey decision would have been to send him back, and you’d think the Islanders, who rushed Josh Bailey from junior, would have realized that.

With the new CBA, the loophole will probably be closed. Perhaps if the bonuses go unused they get taken off the cap at the end of the year, and the team would face the penalty of not meeting the cap floor (although the cap floor will likely be much different once the new CBA is ratified).

COLLIGAN: I think you hit the nail on the head earlier. The younger players (and the ones who haven’t even been drafted yet) have very little representation in the PA. Donald Fehr will do his best to protect the earning power of all current and future players, but if he has to squeeze his troops somewhere, entry-level contracts might be the easiest to swallow.

[Click Here to read more of the CBA Debate series]