Wednesday, July 21, 2010

Fudging the Numbers: NHL Edition

In the NHL, each player's impact on the team's salary cap is based on the average annual value of his contract. Just as government officials and corporate executives often use creative accounting to meet certain fiscal goals, sports team aren't immune from trying to game the system.

In this case, players want large contracts, but NHL teams don't want large impacts on their salary caps. The New Jersey Devils attempted such a compromise by signing Ilya Kovalchuk to a 17-year deal, which is unheard of in professional sports and has since been voided by the league. Follow the link to the original story for more details, but the gist is below:

The contract was rejected because years of low salary at the end of the deal were added for the sole purpose of lowering the cap hit. The person added that it was determined that neither the Devils nor Kovalchuk believe he will play the final years of the deal at those terms. The All-Star was slated to earn only $550,000 in each of the last five seasons of the contract that was to run through the 2026-27 season, when Kovalchuk will be 44.

Kovalchuk was to earn $98.5 million of the $102 million in the first 11 years of the deal.

...

The Devils would have absorbed an annual salary-cap hit of $6 million - the average amount per season. That number was brought down because of the extended years at low salary at the end.

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