Per Cap Friendly, Lindholm’s new contract has a rather odd salary structure that may confuse a lot of people:
We have generally grown accustomed to deals that are in some way flat, i.e., they may have a rising salary, uniform salary, or decreasing salary with term. And we have begun to grow used to either a salary drop in 2020-21 or an agreement that places most of that salary in signing bonuses. This latest tactic is “lockout-proofing” of contracts. So what gives with Lindholm’s tumultuous structure?
Variability Rules for Multi-Year SPCs
After all of the front-loaded deals helped set the 2012 lockout into motion, the Collective Bargaining Agreement (CBA), a labor contract between the NHL and the players’ union known as the NHLPA, came to include rules that were meant to eliminate such practices. One such set of rules is found in Section 50.7 of the CBA: Variability Rules for Multi-Year Standard Player Contracts (SPCs).
Paragraph 50.7(a) introduces the idea of “Front-Loaded SPCs.” Front-loaded SPCs are basically those aforementioned contracts that set the lockout in motion. A classic example is Marian Hossa’s contract:
The original intention of these deals was to drive down the cap hit of the contracts by adding on low salary years at the end of the contract that the player would skip over by retiring. The 2012 CBA negotiations sought to eliminate these contracts by (a) limiting contracts to 8 years max and (b) introducing rules for how salaries can be structured on a year-to-year basis.
So paragraph 50.7(a) introduces the following limits on Front-Loaded SPCs:
- Maximum of 35% change from year-to-year.
- Maximum of 50% change from highest-salary year to lowest-salary year.
It’s pretty clear that the Hossa deal would violate this agreement if it were signed today. And it appears at first glance that the Lindholm contract does as well. After all:
- It has a maximum year-to-year change of 50%, and
- a maximum highest-salary to lowest-salary change of 56%.
Then why was this contract allowed to go through? Well, that lies in the definition of a Front-Loaded SPC. The following process for determining if a contract is a Front-Loaded SPC is spelled out in items 50.7(a)(i)(A)-(E) of the CBA:
- Add up the total salary (including bonuses) of the first half of the contract. (Note: if there’s an odd number of years, take half of the “middle year.”)
- Divide the combined salary of the first half of the contract and divide it by half the number of years of the contract.
- Compare against the AAV of the full contract.
- If the “first half average salary” is greater than the AAV, then you have a Front-Loaded SPC.
So let’s go through this process with Lindholm:
- We know he has a 6-year contract with an AAV of $5.25m.
- So adding up and averaging the first three years of his deal: $3.00m + $6.00m + $6.75m = $15.75m.
- $15.75m / 3 yrs = $5.25m / yr
- $5.25m / yr is not greater than the AAV ($5.25m), therefore this is not a Front-Loaded SPC.
Thusly, we need to refer to the next set of rules to see what actually governs the salary structure of Lindholm’s contract. Paragraph 50.7(b) applies to all non-Front-Loaded SPCs and states:
- The difference in salary between the first two of the SPC cannot exceed the lower of those two salaries.
- A year-to-year increase cannot be greater than the lower salary of the first two years of the contract.
- A year-to-year decrease cannot be greater than 50% of the lower salary of the first two years of the contract.
Putting It All Together
It’s clear to see that there are many things going on with Lindholm’s contract here. To quote Walter Sobchak from The Big Lebowski, “It’s a Swiss fuckin’ watch.” Every single year is tangled with a requirement from at least one of the rules.
For starters, the first three years must sum up to no more than $15.75m in order to avoid having an average salary that does not exceed the AAV ($5.25m) of the entire contract.
Next, the first two years are specifically chosen to ensure that all of the year-to-year variability follows suit. The $3.0m and $6.0m salaries set the maximum year-to-year decrease at $1.5m (half the lower of the two salaries) and the maximum year-to-year increase at $3.0m (equal to the lower of the two salaries).
With the first two years set at a combined $9.0m, that means the third year must be $15.75m – $9.0m = $6.75m.
From there, the contract dips down as much as possible year-to-year for two years in order to create the lowest possible salary in the expected lockout year (2020-21). After two straight $1.5m decreases, the contract takes on salaries of $5.25m and $3.75m in the 4th and 5th seasons, respectively.
Finally, the last season is an attempt to have the highest possible salary, which leads to the maximum potential year-to-year increase of $3.0m. This puts the final season of the deal at $6.75m.
Every single year is optimized here. Increasing the value of the first two years results in less lockout protection, no matter how you try to arrange the salary structure within the rules. (E.g., I increased the first two years to $3.25m and $6.5m and ended up with $3.8m in the lockout year, which is $50k more than in the actual contract.) Similarly, dropping the values of the first two years will result in some exceedingly suboptimal salary structures. (E.g., I dropped the first two years to $2.75m and $5.5m, which resulted in a salary of $4.75m in the lockout year, which is not at all desired.)
So ultimately, we see a pretty interesting salary structure that at first glance appears funky. But after going through the applicable rules, we can see that each year is a carefully designed puzzle piece to fit this specific puzzle. Now remains only one question: Why not avoid all this nonsense by just committing all but $1m of his salary in the potenital lockout year to a signing bonus? That would have afforded more protection and without the funky contract numbers.