Wednesday, February 03, 2010

The down side of big contracts under the NHL salary cap

The standard procedure in the NHL these days is to lock up your big stars to long term contracts. The Islanders got the ball rolling in 2001 by signing Alexei Yashin to a 10-year, $87.5 million contract. That was eclipsed in 2006 n 2006, when they signed Rick DiPietro to a 15-year, $67.5 million contract. There was Mike Richards' contract at 12-year, $69 million, Vincent Lecavalier received an 11-year contract worth $85 million, Roberto Luongo got a 12-year, $64 million contract, but the wopper goes to Alex Ovechkin at 13 years and an incredible $124 million.

The thinking among GMs is that you can't afford to lose a franchise player and if you don't pay your star big bucks then someone else will. With players becoming eligible for free agency at much younger ages, these players are being locked up for 10 years or more. However, not only are the risks high if you don't lock your stars in to long term contracts but they are also high when you do sign them. Players get hurt (DiPietro), their production can decline earlier than anticipated (Lecavlier) or they just don't develop into the player you were expecting (Spezza).

The NHL has only had three 50-goal scorers over the age of 30 - Johnny Bucyk (35), Jaromir Jagr (34) and Joe Mullen (32). Goal scorers decline considerably after age 30. But all of these star players will be pulling in big salaries well into their 30s. Should you be stuck with a contract that goes bad or that you can no longer afford, dropping that salary will be a challenge.

The two big contracts that Brian Burke recently picked up are classic examples. J-S Giguere in 2007, signed a 4-year, $24 million contact with Anaheim at the age of 30. Not a huge contract for today's standards. But shortly afterwards, his production began to decline and by the end of last season he had lost his starting job to Jonas Hiller. But no one was interested in picking up a goalie with declining skills that would be paid $7 million next season. That would place him tied for second among the highest paid goalies. In the end they had no choice but to accept two toxic contracts from the Leafs because they perceived that to be a preferable situation to carrying Giguere for another season.

As for Dion Phaneuf, the Flames signed him to a 6-year, $39 million contract at the age of 23. They were expecting him to develop into a franchise player and were paying him accordingly. But it never happened so they found themselves stuck with the 8th best paid defenseman who possessed very ordinary statistics. But with a contract like that you can't expect to trade Phaneuf for Ilya Kovalchuk. Instead the best the Flames could do was a package of players from one of the worst teams in the league. If they had no impact in Toronto, nothing is going to change in Calgary.

As they say in the securities world, buy low and sell high. Nothing could be truer in the NHL today.