• Pay Gagner $12MM?

    by Tyler Dellow • March 30, 2010 • Uncategorized • 25 Comments

    Confidential to Craig M.: How do you square the fact that you’re taking an MBA that is based, in part, on case studies, which are basically an opportunity to pick apart the decision making of others and learn from what they did, with the following statement about Sam Gagner: “Decisions are never made in hindsight so it’s never really that productive to go back and analyze what we could have done three years ago”?

    * * *

    Imagine, for a minute, that you’re Kevin Lowe. You’ve got six Stanley Cup rings, a bank account, a house and a car. Nine assets? Holy mackerel! Life is pretty good.

    You’ve got a problem though. As a result of your decision to add Sam Gagner to the team in 2007 instead of letting him finish his career in junior and then spend a year in the American Hockey League, Gagner will be eligible for unrestricted free agency in the summer of 2014 instead of the summer of 2017. Moreover, Gagner’s up for a new contract this year. He’s been alright through his first three seasons; he’s established himself as an NHLer, although the jury is probably still out as to whether he’s going to be a star or a second tier guy. While you’re no longer the titular head of the team, shortly after the season ends you’re going to get a telegram from Steve Tambellini asking what the results of his assessment of Gagner are and what he should do as far as a contract for him.

    Here’s where a goofy aspect of the collective bargaining agreement comes into play. When the CBA was negotiated, I suspect that a major concern was teams “cheating” to beat the salary cap. One way to do this would be to pay a guy very little in some years and much more in others, which would let you have years in which a fellow’s salary hit was relatively small, permitting the addition of other players and the stacking of a team to try and win the Cup. The “solution” was the introduction of average annual value – pay a guy whatever you like in a given year but his cap number will be the average of all of the years of his contract.

    As I’ve talked about here before, this has led to a certain form of absurdity, as you now see players signing contracts that have a couple of cheap years tacked on at the end. There’s a tacit understanding on the team’s part that the player won’t be playing in those years. The player effectively gets the lion’s share of his money in fewer years than he’s contracted to play for and the team gets the benefit of the lower cap number.

    That works at the end of a player’s career. What about at the start though? Darryl Katz is required, pursuant to the CBA, to spend a certain amount of money on his hockey team every season. Currently, there seem to be a lot of indications that the 2010-11 Oilers don’t intend to be very good. These are factors that should impact on Sam Gagner’s new deal.

    Assume, for the sake of discussion, that Gagner is willing to agree to a seven year deal with the Oilers, if the numbers make sense. Let’s consider two possible scenarios.

    Scenario A: Gagner signs a three year $7.5MM deal, making him a restricted free agent in the summer of 2013, with one more season owed to the Oilers. We’re pretending to be Kevin Lowe here, so we’ll bless ourselves with omniscience too – in this scenario, we know that he’ll sign a four year, $20.5MM deal with the Oilers in the summer before he becomes an unrestricted free agent, resulting in a cap hit of $5.125MM.

    Scenario B: Gagner signs a seven year $28MM deal with the Oilers in which he’s paid $12MM, $6.5MM, $4MM, $2MM, $1.5MM, $1MM, $1MM, for a $4MM cap hit for cap hit.

    In Scenario A, the Oilers get three years of a $2.5MM cap hit and four years of Gagner at a $5.125MM cap hit. In Scenario B, they get seven years of Gagner, at a cap hit of $4MM all of the way through. In both scenarios, Gagner gets the same amount of money over the next seven years but the cap hits associated with each differ significantly.

    The cap functions, in effect, to prevent teams from making decisions that might be economically beneficial for them. In the case of rich teams, in markets that can support larger payrolls, their ability to spend more is significantly impaired. I assume that there are teams for whom spending more than the cap permits would make financial sense.

    While the cap prevents you from having spending (in cap dollars) more than a fixed amount, it does not currently prevent wealthy teams from making Scenario B type expensive bets on players in the hopes that they will pan out, resulting in the team having the rights to a player at a lower price than they otherwise might.

    The attraction of the Scenario B type contracts is that, in the event Gagner never becomes more than a so-so second line option, the low salary number makes him attractive in trades to smaller market teams that don’t approach the salary ceiling.

    A Scenario B contract is of the type that should be attractive to the Oilers next year. The usual sources have hinted that the Oilers are getting ready to write off next season. They’re required to spend a certain amount on salary regardless. Their goal in spending that money should be to have it pay dividends for them in a year or two, when they’re ready to compete. A contract like this for Gagner seems to me to make a reasonable amount of sense.

    If Gagner turns into a good first line option, the Oilers would have him locked in at a contract he can easily beat going forward while at the same time having additional cap room to add other parts. If he’s never more than a so-so number two, he’s probably pretty easily moved for the final four years of his deal, while also bringing back some value.

    In essence, this type of deal involves the Oilers making a bet. I am assuming that there is a rational basis for the bet, on the premise that there are teams for whom spending more money on payroll than the cap permits makes economic sense, in that the expected return on the investment of more dollars into payroll exceeds the cost and that the Oilers are one of those teams. Alternatively, I think you could also argue that the Oilers are better off running with Gagner at a $4MM hit next year and some AHL scrubs than they are to have Gagner at $2.5MM and then run out some proven veterans with him, if the year is to be a rebuilding year.

    To be clear, I’m not arguing for a specific number here, only making a point about how teams wealthy teams should possibly act where good cap hits are assets to the franchise. The current CBA punishes teams that behave responsibly when they’re terrible and wait to see what they have on their hands before making a commitment of the type that I’m suggesting, in that they end up with a lower cap hit when they aren’t very good and then a higher cap hit when the team is (oh god please) better.

    If you can afford the risk inherent in a contract like I’m suggesting (in the sense of it still making business sense once you allow for the various potential outcomes), superior financial resources will effectively let you buy a bit of an advantage. It strikes me as a bit of a bug in the CBA but then the CBA wasn’t really designed with parity in mind – it’s more of a hash of various subrules in support of one central rule: the players never get more than their designated percentage. If there’s an advantage to be had by taking advantage of the solutions to the problems that were foreseen by creating ones that weren’t, the Oilers should take advantage of it.

    Glovetap to kris, a commenter at Lowetide’s, who got me thinking about this in detail.

    About Tyler Dellow

    25 Responses to Pay Gagner $12MM?

    1. Quain
      March 30, 2010 at

      Great post. I’ve always loved this idea for creating value to (certain) other franchises and it always seemed preferential to me for the players as well, on a net present basis.

      It even works both ways, if Gagner is just a slightly better Nilsson then after two years you can probably get a Phoenix or Nashville to take on his $2.5MM a year actual cost contract, but if he turns into a guy who (and let’s say we can measure this exactly) is worth $4.0MM wins a season then for the Oilers he’s a guy who helps them win consummerate with the cap hit, they don’t get the extra value from his actual dollar discount… whereas a non-cap team sees a guy who is going to cost $2.5MM for $4.0MM worth of wins. Hell, he costs even less, on average, if they move him the year before his last $4.0MM salary year.

      Makes a ton of sense to me, which means we’re signing Gagner to a two year contract so we have the cap space to give a $3.0MM a year, five year contract to Brule.

    2. godot10
      March 30, 2010 at

      The Senators did that with Dany Heatley. They ended up with 1 year of bad hockey from Heatley for $14 million dollars.

      The trouble with your seven year deal is that is expires when Gagner is 27 o 28, which is when he is likely to be at the peak of his game. I think you want to avoid having players becoming UFA’s at 27 or 28 if you can help it.

      I think the best thing to do is to sign Gagner for 2 years, and if things work out, then 7 or eight years, which would take him to past 30.

      A 3-year contract is no good because Gagner can opt for arbitration for the 4th and become a UFA in 4 years. i.e. the Oilers lose control with a three year contract.

      Is Gagner going to run away from you in the next two years in terms of his value? I don’t think so. And in two years, one will be able to look the all of the centres in the organization, Seguin, Nash, Lander, Vande Velde, Gagner and make a more intelligent decision about which ones one wants to pay.

      At 22 or 23, is a better time to sign that 8 year deal for the team, than at 20.

      But a good point overall.

    3. dawgbone
      March 30, 2010 at

      the counter to that godot is you could probably get him signed to that deal right now (at about the cost Tyler is suggesting).

      If you wait 2 years, that 7 year contract might cost you 5.5 or 6 (depending on how he performs).

    4. lowetide
      March 30, 2010 at

      My bet is that the Oilers qualify him and Gagner signs a one-year deal. I think the Oilers will now spend the next few seasons overreacting to the long term deals Lowe signed 2006 summer.

      Sublime, meet ridiculous.

      And another thing: can we say with any authority that we believe MC’s thought process in this post has been duplicated in Oilers offices?

      Be honest now.

    5. R O
      March 30, 2010 at

      Possible caveat: Can you even pay Gagner $12M? I thought the 20% clause applied to salary in each season, not cap hit.

    6. mc79hockey
      March 30, 2010 at

      I think the Oilers will now spend the next few seasons overreacting to the long term deals Lowe signed 2006 summer.

      Oh this is almost certainly true. The Oilers management style could be summed up well by that part of the Bible with all the begats.

      The drawn out Comrie saga begat the “ALL PRONGERS MUST GO NOW” summer of 2006. The failure of Conkannen begat an above market deal for Roli and (arguably) one for Khabby. The Smyth fiasco begat the curiously early Horcoff signing. The shunning of Edmonton by prominent free agents begat the fire hose of money aimed at anyone who could be knocked unconscious and dragged home with it. Etc etc.

    7. mc79hockey
      March 30, 2010 at

      I’m just assuming a $60MM cap next year. No idea what it will actually be.

    8. Traktor
      March 30, 2010 at

      Great idea, MC.

      If Gagner was Bobby Ryan.

    9. March 30, 2010 at

      As a result of your decision to add Sam Gagner to the team in 2007 instead of letting him finish his career in junior and then spend a year in the American Hockey League, Gagner will be eligible for unrestricted free agency in the summer of 2014 instead of the summer of 2017.

      Isn’t it 2016? Or does Gagner’s late birthday (8/10) bugger the age calculation?

    10. dawgbone
      March 30, 2010 at

      Isn’t it 2016? Or does Gagner’s late birthday (8/10) bugger the age calculation?

      I think it’s the 7 pro seasons needed… 2013-2014 would be the end of his 7th pro season.

    11. dawgbone
      March 30, 2010 at

      Traktor… how good was Bobby Ryan at 20 years old again?

    12. mc79hockey
      March 30, 2010 at

      You have to have 7 NHL seasons or be 27 on June 30 to be a UFA. Gagner’s birthdate knocks him back a year.

    13. Traktor
      March 30, 2010 at

      “How good was Bobby Ryan at 20 years old again?”

      Not as good as Pat Falloon.

    14. MattM
      March 30, 2010 at

      Traktor:

      Bobby Ryan’s first 3 years
      GP G A P
      23 5 5 10
      64 31 26 57
      74 31 25 56 (in progress)

      Contract TBA

      Phil Kessel’s first 3 years
      GP G A P
      70 11 18 29
      82 19 18 37
      70 36 24 60

      Contract 27/5, cap hit 5.4

      Bobby Ryan is already at the point MC is looking at 2 years down the road where he’s going to be north of 5. Coincidentally, he’s also 2 years older than Gagner, although he’s the same distance from UFA (Thanks Kevin!).

    15. Quain
      March 30, 2010 at

      Now, when Bobby Ryan gets his $5.4MM a year, does he have to give some of that to Randy Carlisle and Ryan Getzlaf or no? How does that work?

    16. MattM
      March 30, 2010 at

      I think he has to promise pay the next year of Getzlaf’s membership dues in the Hair Club for Men.

    17. YKOil
      March 30, 2010 at

      Thanks for continuing the thought process on this Tyler. Tying the overall contract math (salary by years) to the inflation effect/risk of the second contract over the same time frame was/is a necessary next step.

      Now I just have to wait for someone to do the percentage/predictability math. :-)

      When I talked about this stuff, when the new CBA first came about, I was dismissed as a crank* by some and didn’t hear at all from others. When it didn’t make any noise in the greater sphere I just kinda shut up about it all. Then the GM’s finally figured it out and I knew it was just a matter of time.

      Grade school math… complicated shyte I guess.

      * crank eh? you know what bugs me? when people make the response “this isn’t a make believe game” or “GM’s aren’t that stupid” to people’s, usually horrible, trade suggestions. then we see a decent – but no where near ready Gagner get a couple of years of burn early and hear that Gilbert and a 2nd would get you a 7th… fun fact kids… it’s ALL make believe… if it’s a horrible trade suggestion just leave it at that

      grrrr… I think I’m just going to go eat this here onion I found on my belt and go to bed… anger is bad for the digestion

    18. Chris
      March 30, 2010 at

      Gagner: 21 years, 57M. Cap hit: 2.71M.
      11M
      11M
      11M
      3M
      3M
      3M
      3M
      1M/y for next 10.
      .5M/y for final 4.
      He gets 45M over the next 7 years, which is about Crosby money. He gets it all at the beginning which allows it more time to compound until he retires.

    19. Vic Ferrari
      March 31, 2010 at

      YK:

      The whole “GMs aren’t that stupid” argument dies a thousand deaths every time Doug MacLean opens his mouth on SportsNet.

      Good Christmas, the guy is a clinical idiot. Search his interview with Lombardi from a few months ago. It’s discouraging and comical.

      Prior to Doug’s transition to sports media I’d always disargreed with Tyler and suspected that GM’s were smarter than we supposed. MacLean smashed that to hell. In large part that’s why I can’t find reason to believe in Lowe and Tambellini. The strange thing is, in the Oilers case it’s acceptable, they have a huge combined “degrees of separation from Roger Neilson” total. But sweet baby Jebus, Doug rode a lucky streak in FLA from the team the team that Roger built from nothing … and Doug seems to think he deserves the credit. He didn’t learn a freaking thing.

      With that guy, it’s like looking into the eye of a chicken.

      As I’m at it, and Scott commented somewhere the other day on O’Sullivan (I read a tiny fraction of the Oilogosphere nowadays, so forgive me if this has been covered already) … but for you and speeds: Let go of the “pump and dump” idea. For one, it doesn’t actually happen in baseball to a significant degree, Beane’s bragging aside. And in hockey, it happens all the time, but the Oilers will forever be the victim and never the instigator.

      O’Sullivan (who I don’t mind, but he has to break the habit of trying to beat guys 1 on 1 without speed, imo, and like almost every other Oiler, the contract is too rich) were put in a situation before the deadline last year where he must have looked terrific on the ice. As a consequence he had terrific underlying numbers. Only Kyle Quincey looked better, and had better underlying numbers, but presumably there wasn’t a good offer at the deadline, so Lombardi moved him in the offseason.

      That`s the way you do it. But if the Oilers had a coach clever enough to make guys look good, to cover the weaknesses in their game … Lowe+Tambellini would sign them to long term deals. D`Oh!

      And it`s not my fault that this is true.

      Brace yourself YK, these guys are here for the long haul now.

    20. Bohologo
      March 31, 2010 at

      I find this post to be depressing as hell. There is no way that Oilers management is smart enough to come up with the sort of resourcefulness and adaptability required for this kind of approach.

      VF, Lowe and Tambo may not be dumb, but they sure as hell are not educated. I am not convinced either have a firm grasp of the inner workings of the CBA, nor are they listening to anyone working for the Oilers who might have a clue.

      Shouldn’t finishing DFL be sufficient pretext to tie a can to these people?

    21. April 1, 2010 at

      Bohologo, I fully anticipate “it’s the injuries” spin control. That may not be what the front office *really* thinks, their unloading of guys like Vis seems to point to a rebuild, despite the “look at how many games we didn’t have Khabi, Pouliot, and Pisani” spin that’s been coming out, but you still wonder if sometimes Tambo doesn’t believe that the only thing between them PICKING 30th and BEING 30th is a goalie who played for the Winnipeg Jets, and a slow but aggressive defenceman who can shoot the puck really really hard.

    22. Vic Ferrari
      April 1, 2010 at

      Ya boho, I’ve lost faith in management, too.

      But now we can read YK, Tyler and speeds and have our tongues cocked for clucking when the Oilers make their next bad decision.

      All of which would be funnier if they weren’t acting as free consultants for smarter folk. It’s even worse with guys like Dennis and Scott. Mike Smith and his cohorts could spend a lifetime and they’d still be chasing clouds … leave them to it. I know that some of the the folks who blog dream of one day being paid a pittance to be an ignored consultant for a hockey team. They should let that dream die, and we should all dummy this down.

    23. YKOil
      April 1, 2010 at

      Brace yourself YK, these guys are here for the long haul now.

      Yeah. That’s my conclusion too.

      Rebuilds can hide a lot of sins and I don’t think these dogs will be seeing heaven any time soon. There will be bright spots but they’ll be more of the “Don’t go to the light*” variety than anything else imo.

      * which, with our luck, will happen in 2013 after Katz goes on a massive, inconsolate, bender and – when he finally opens his eyes – he’ll hire the first ‘hockey’ guy he sees… Doug MacLean with a flashlight

    24. Vic Ferrari
      April 1, 2010 at

      Yeah, the Doug MacLean thing has me spooked. We may well see Lowe on SportsNet or TSN one day educating the unwashed masses … and maybe we will all realize that it was even worse than we thought.

      Milbury is every bit as entertaining as I expected, and far more clever. I was dead impressed with Bobby Clarke as well, though it would be hard to imagine a more miserable bastard, and he has aged horribly. Keenan and MacTavish were good as well, though you really see the player bias with both.

      The guy who really impressed me, and I very rarely watch sports analysts on tv … Mike Peca. Seriously. He always struck me as a complete douche when he played here, but he was hitting nails on the head all over the place on deadline day on TSN IMO. Might have been a one off thing for Peca, or maybe I just kept catching him at good moments, but that’s an interesting dude. If you had to wager on the assertions of anyone on TV that day … Peca was the guy. Woulda thunk it?

    25. YKOil
      April 2, 2010 at

      Milbury was a clever dude – too clever for his own good. Had the Leeson mindset going on (just one more deal!) – not too different from Lowe’s Mocha Dick* setting but enough so that it is different.

      Peca will be an interesting case. Can he pull the Ferarro and then the MacKenzie? I hope so. Would be nice.

      *Yes, I could have said ‘Ahab’ there but ‘Mocha Dick’ is a far better combination of words in my estimation

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