Salary-cap math

As we commemorate the two-week mark of the Kovalchuk drama — Remember July 1? It was a much simpler time… — let’s look at what seems to be a moderately-held misconception about contracts in the salary-cap era, such as the idea that a contract that pays an average of $8.5 million a year is always, by definition, better than a contract that pays an average of $6.5 million a year. Let’s break it down.

Let’s say — and these are ALL hypothetical numbers — that Team A offered a 27-year-old star player a 13-year, $84.5-million contract. That’s $6.5 million a year. Then let’s say Team B offered the same player a seven-year, $59.5-million contract. That’s $8.5 million a year. Slam dunk, right? You take the one that pays $2 million more per year. No, not necessarily. Not if you’re looking long term and playing it in a more conservative fashion.

Team B’s contract would pay the player big money during his prime years, and he would be a free agent again in 2017, at age 34. Team A’s contract would pay the player essentially for the rest of his career, until age 40. That’s the big difference. In the salary-cap era, a team will often seek to front-load in order to keep the cap number (average salary) down, because the salary cap is based on average salary, not on actual dollars paid per year.

So let’s look at the two offers side by side.

Let’s say Team B structured its offer to include an equal amount of money every year. That’s $8.5 million, every year, for seven years. Assume that, for the first seven years, Team A agreed to pay the player (in actual salary) the exact same as Team B, $8.5 million per year. That would leave Team A paying, in real dollars, $25 million over the last six years of the player’s contract (an average of $4.17 million), which would have made him a free agent at age 40. So, essentially, if he chose Team B’s offer, he would be betting on his own future. He would be betting that, from the ages of 34 to 40, he would be able to make MORE than the $25 million that Team A would have guaranteed him by locking up those years right now.

If you want to break it down further, let’s assume that Team A’s salary structure for the player after the initial seven years might look like this:

2017-18 (age 34) — $6.5 million
2018-19 (age 35) — $6.5 million
2019-20 (age 36) — $4 million
2020-21 (age 37) — $4 million
2021-22 (age 38) — $2 million
2022-23 (age 39) — $2 million

However you want to cut it up, in order for Team B’s offer to be better financially for the player, he would have to make more that total ($25 million) for those six years. Is it a worthy gamble? If, at age 34, the player believed he could get a six-year, $30-million (or more) contract, then yes, it would be worthy. Back in the real world, in Ilya Kovalchuk’s case, the reported issue has his desire for a $100-million contract, which complicates this math even further, because it either means a $10-million salary for a 37-year-old winger or a massive ($13 million?) salary for a 27-year-old winger. Isn’t math fun?