Thursday, July 11, 2013
Kovalchuk’s deferred cap hit
If you read any article about the "penalty" that the Devils will have to pay for the cap hit due to Kovalchuk's retirement, then you've read an article by someone who doesn't know what a "penalty" is. This is no different than deferring taxes in a tax-sheltered vehicule.
In his three years on his contract, he earned 23MM$, while getting a 20MM$ cap hit. That means the Devils were able to defer 3MM$, which they have to account for eventually.
I think they get to spread that over the remainder of his original contract (meaning 12 years to go). So, that means a cap hit of 250,000$ a year. Again, this is NOT a penalty. It's simply exists to match the 23MM$ that he did earn to the 23MM$ cap hit that the Devils should eventually pay for.
Hence the official term of "cap benefit recapture". This was such an obvious mechanism that I'm shocked that it didn't make it in the prior CBA. This loophole persisted and was exploited, and it should have been closed immediately.
***
However, something interesting about the lockout: since the players earned 48/82 of their salary, then Kovy's 11MM$ salary this year was actually only 6.4MM$, and his cap hit of 6.67MM$ would similarly count as 3.9MM$. Add in the 12MM$ in the first two years of salary, and that's 18.4MM$ in salary.? Add in the 13.33MM$ in cap hit the first two years, and his three-year cap hit is 17.2MM$.
So, the actual amount of cap hit deferred is 1.2MM$, or 100,000$ a year. Given that teams seem to value each dollar of cap space as 40 real cents, then we're talking about 1.8MM$ in cap space or 720,000$ of value. Somebody get Lou on the phone, and see if he wants to fight the league over Kovy again. Given the penalty he had to pay for to get him signed (that was a real penalty), this certainly turned out to be quite the unfortunate development with his retirement.
Anyway, I didn't read up how the CBA handles the lockout, whether they "annualize" things to 82 games, or they base it on the actual season-length.
Furthermore, I also didn't check to see if it matters if a player's actual received salary doesn't match his contracted salary. As you know, the NHL's contract is really for NHL dollars, not for actual dollars. and whether they pay at 1:1 or 93 cents on the dollar, etc, is all based on their revenue stream. I presume for the sake of simplicity that it's based on the contracted amount.
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