Weber Offer Sheet: CIRCUMVENTION?

July 20, 2012

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The argument would go like this:

The CBA clearly states that anything that violates the spirit or intent of the CBA is a circumvention of the CBA. It need not be a violation of the letter of the CBA.
The CBA states that a player’s salary in any single season may not be more than 20% of the Upper Limit as set in the year in which the player signed his contract.
Using the signing bonus mechanism to pay Weber $14MM in season one and another $13MM on 7/1/2013 has, literally, the effect of paying him $27MM in season one.
You could argue that paying Weber $27MM between late July 2012 and July 1 2013 violates the spirit and intent of the rule that caps compensation at 20% of the Upper Limit, which, I might add, the contract exceeds by almost 200%.
But that’s not all. There’s also the matter of the “100% Rule.”
Reportedly, the deal is for $14MM for four years, $12MM for two years, $6MM for four years, $3MM for one year, and three years of $1MM. All of that, considered as straight salary, is fine with regard to the 100% Rule.
But the contract pays out signing bonuses in each of the first six years, to the tune of $13MM, $13MM, $13MM, $13MM, $8MM, $8MM. Let’s assume that these bonuses are kosher, too, in and of themselves.
However, if the timing of the bonuses is such that each bonus is paid on 7/1 (except for the first one, which happens sometime in the next week), then the effect of the bonuses is to alter the alter the actual salary totals for several of the seasons over the course of the deal.
Remember that the reported salary numbers are 14, 14, 14, 14, 12, 12, 6, 6, 6, 6, 3, 1, 1, 1.
The effect of paying two bonuses in the first year means that each subsequent bonus “moves up a year.”
As a result — and as a practical matter — the effective salary numbers are: 27, 14, 14, 9, 12, 4, 6, 6, 6, 6, 3, 1, 1, 1.
I put the numbers that are different in red.
The problem is season six. Stripped of its bonus, the effective salary for that season is only $4MM.
The 100% Rule says that after the first two seasons of a contract, the difference from season to season cannot exceed half of the smaller of the salaries for the first two seasons. Half of 14 is 7.
But the effective difference between season five and season six is $8MM.
That’s a violation of the intent and spirit of the 100% Rule.
Signing bonuses were intended — as the name suggests — as bonuses for signing. The CBA allows teams to spread out the signing bonus over several years, and I think it’s safe to assume that the intent of that was to make it easier on teams to pay an otherwise prohibitively big chunk of change.
One interpretation of Philly’s offer sheet is that they’re trying to make it actually impossible for Nashville to come up with the money. They’re not trying to force Nashville into a cap-crisis (which is a strategy the CBA anticipates). They’re trying (if you believe this interpretation) to force more money into season one of the deal than is allowed by the CBA, for the (arguable) purpose of undermining Nashville’s ability to compete.
The CBA makes specific reference to its intention of striking a balance between the cash-rich and cash-poor teams, making it easier for the poorer teams to compete.
Again, we’re talking spirit and intent, not letter.
And if you think all this spirit and intent stuff is a bunch of B.S., check out the Kovalchuk decision.

I’m not saying the league would want to disallow this offer sheet. I’m saying, if they were so inclined, I think those are the grounds for the argument.

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Tags: CBA, circumvention, Ilya Kovalchuk, salary cap, Shea Weber

This entry was posted on July 20, 2012 at 12:20 AM and is filed under Good Stuff You Missed the 1st Time. You can follow any responses to this entry through the RSS 2.0 feed.

https://twitter.com/Forechecker Dirk Hoag

I see where you’re going, but I don’t think lumping July 1, 2013 money into Year One of the contract has any persuasive value. After the Kovalchuk deal the league put some lame language into the CBA about not going past age 41 on deals like this, so this goes right up to that point but no further.

Even coming from a Nashville perspective, I don’t have a problem with the contract as it seems legal under the CBA (the new CBA, however, should surely do more to prevent gamesmanship like this). The Preds’ ownership has been talking about spending more and building a contender for quite a while now, so it’s time for them to put up or shut up.
- http://www.mcsorleys-stick.com/ Quisp
  
  And yet, it must have persuasive value because everyone (especially people who don’t give a shit about the CBA and don’t know that 6/30 and 7/1 are a year apart) already lumps the 7/1/13 bonus in with the first year.
  
  But even if that seems like nitpicking (and nitpicking is allowed when parsing the CBA), look at season six. Clearly, the effect of annual gigantic bonuses that suddenly stop is to create a bigger dropoff than the 100% Rule allows.
  
  Look. If the deal was one literal dollar over the allowed literal limits set by the CBA, people would not be saying “hey, close enough, it’s cool.” What I’m demonstrating is that this discrepancy is effectively much bigger than something like that.
  
  Presumably, the CBA has the 100% Rule (and salary ceilings) for a reason that is consistent with the intent and “spirit” of the CBA.
  
  I don’t even think it’s really debatable whether or not this deal violates the intent of the CBA. The only question, by my way of looking at it, is: does the league have any interest in knocking this one down?
  - https://twitter.com/Forechecker Dirk Hoag
    
    The thing is, the 100% Rule clearly (and repeatedly) uses the term “Player Salary and Bonuses” when talking about the allowable dropoff from one year to the next. You can’t just strip away the bonuses and cry foul.
    
    I want to see Weber stay in Nashville, and I enjoy a romp through the CBA as much as the next guy, but I just don’t see this argument going anywhere.
    - http://www.mcsorleys-stick.com/ Quisp
      
      I’m not “stripping away the bonuses” though, I’m putting them where they actually are, in “effect”, for the sake of argument.
      
      The argument is actually not so different from the arguments against long cheap contract tails. In both cases, a loophole is exploited in order to game the system. In both cases, the “letter” of the CBA allows it. But the CBA reserves the right to rule that something that is within the letter of the CBA, but violates the spirit of the CBA, is in fact a circumvention of the CBA.
      
      Just as no one in 2004 foresaw absurd contract tails with no salary in them, no one foresaw using signing bonuses to front-load contracts to this absurd degree.
      
      The CBA reserves the right to double-back on such things, if the league cares to.
      - https://twitter.com/Forechecker Dirk Hoag
        
        I stand partially corrected. You’re not “stripping away” the bonuses, you’re moving them from one season to another for rhetorical purposes.
        
        http://www.mcsorleys-stick.com/ Quisp
        
        I’m not sure I’m making the argument as clearly as I could. I just think there’s something there, even if I’m not putting my finger on it exactly.
      - https://twitter.com/JJfromKansas J.J.
        
        Unfortunately, by the fairly strict letter of the CBA, moving them up a year is not putting them where they actually are. Everything that happens on or after July 1st happens within that league year and the CBA really doesn’t care about defining a year as anything other than July 1st to July 1st.
        
        http://www.mcsorleys-stick.com/ Quisp
        
        Oh, the CBA defines a year in many different ways, depending on the situation. Sometimes, it’s a calendar year. Sometimes, as when determining whether a player is 18 years old, it’s not even 9 months (January 1 to September 15), sometimes it’s 12 months from the date in question, and sometimes it’s July 1 to June 30. But this is not the point.
        
        The point is, by using signing bonuses in a way that was not intended or envisaged by the CBA, it invites the question of whether or not the CBA — had it seen this coming — would have allowed such payments to be crammed into 366 days (or whatever year-like number) in this way.
        
        Because if it’s true that the CBA “would not have allowed it” had it “seen it coming”, it’s also true that the CBA can not allow it in the present, on the grounds that it violates the spirit and intent of the CBA.
        
        https://twitter.com/JJfromKansas J.J.
        
        Right, there are multiple ways to define a year built into the CBA, but for payments given to players, there is one, and that one defines the year as 7/1 to 7/1
        
        The thing is that if we’re going to discuss the spirit of the CBA as being there to punish teams that want to use economic wherewithal that isn’t shared by all 30 clubs, then we’ve got a much trickier situation. Essentially, the Kovalchuk deal as it now stands shouldn’t have been allowed because not every team in the league could have afforded to sign him to the same deal (made extra funny by the fact that it appears New Jersey seems to be having that problem now).
        
        There isn’t an added level of financial responsibility to not be jerks when it comes down to a player having RFA status. If the spirit of the CBA is to make every team perfectly financially competitive, then the entire means by which they set the ceiling and floor violates that spirit.
        
        I don’t feel the league will stop this.
        
        https://twitter.com/JJfromKansas J.J.
        
        I’ll clarify that I feel that the ability to spread signing bonuses out like Philly is doing here should not be allowed to continue going forward. I believe that all signing bonuses should only be payable immediately upon signing the contract and must fit within the other limitations about how much you’re able to pay a player in a given league year.
        
        http://www.mcsorleys-stick.com/ Quisp
        
        I didn’t mean to suggest that they would (stop it). I’m sure they won’t unless it impacts whatever they’re doing with the current (2012 CBA) negotiations in a way that benefits them.
        
        I especially agree with the “not a circumvention to be a jerk” part of your argument.
- Jeff H
  
  I’m confused on something…if the salary figure is $14 mil for both Year One AND Year Two, why does it matter which year the $13 million bonus applies to? Wouldn’t you have a $27 million payment in one of those two years either way?
  - http://www.mcsorleys-stick.com/ Quisp
    
    Yes, however, consider the domino effect, which most obviously affects season six. Because there is no season seven bonus.
Brady Purnell

The cap was intended to even the playing field for the smaller markets and this definitely doesn’t not comply to that notion.

It bothered me that the deal with bonuses upfront as scheduled was designed with the intent of putting something in front of Weber that the Preds couldn’t match but still gave themselves a reasonable cap it. It’s a great strategy and borderline legal but it’s a big market, big money team using extra cash they have laying around specifically aimed at hurting a small market team that doesn’t have the same assets. The Preds were probably expecting a high cap hit and could pay it without a problem, but the bonus structure makes it especially difficult for a team that is finally starting to come to it’s own in the league. More over, the net results could do significant damage to the franchise.
- https://www.facebook.com/robert.weber.1884 Robert Weber
  
  I agree with your assessment. Don’t think the Flyers should be criticized for pushing it to the limit, that is why teams have attorneys to find those loop holes and exploite them. It is up to the league to close those loop holes if they don’t think it’s fair. I think that the phrase, “The Spirit Of The Rule” is an outdated concept that hasn’t existed in the NHL for sometime now. It’s business, plain and simple! Something that people seem to be forgetting is that Poille could have made a deal but overplayed his hand! The Flyers would have loved to make a deal without all the fuss, they were going to have to pay the 100+ million anyway. He had no leverage but insisted wanting Coutourie and Schenn and pissed Homer off! When the dust settles either the Preds match the offer or a back door deal gets worked out to send somebody down the line back to the Preds along with a pick or 2 coming back to the Flyers.
  - Jack
    
    Completely unrelated, but thanks. Now I’ve this song stuck in my head. http://www.youtube.com/watch?v=BhsTmiK7Q2M
Jeff H

First, credit to you for this blog and the analysis. I’m a Red Wings fan and someone picked this up on one of our fan forums – I haven’t seen this level of analysis even attempted anywhere else, and you answered a lot of questions I had about the expiring CBA.

I had no idea about the 100% rule, but it’s an interesting question.

My follow-up question on the 20% Upper Limit rule would be this – under that same logic, wouldn’t the Parise and Suter contracts also be invalid? I seem to recall they had heavy front-loading with bonuses that essentially paid $26 million for one year of hockey. Of course, the Kovalchuk deal wasn’t THAT different than the earlier deals allowed to remain in place, so…

My take: This absolutely goes against the spirit of the CBA and the intent of narrowing the gap between the richer and poorer teams.

But if the contract were invalidated, could other teams swoop in and do an offer sheet?!?
Block of Salt

Season 1 of this contract is for the 2012-13 season which ends on June 30th 13. Season 2 of this contract starts on July 1st 2013. These are not calendar years they are hockey years/seasons.
- http://www.mcsorleys-stick.com/ Quisp
  
  Yes, I understand that, thank you.
Epison

The only real reason for the huge amounts of signing bonus with this contract is to ensure that Weber gets paid in the event of a lockout/walkout and to counter act salary rollback. Signing bonuses do not get rolled back if/when they happen. If in the new CBA the players took a rollback it would only apply to the $1 million in salary thus protecting Weber’s $13 million dollar pay day.
- http://www.mcsorleys-stick.com/ Quisp
  
  Fine, then why are the signing bonuses as early as possible, instead of as late as possible? That doesn’t affect any potential roll-backs one way or another.
Drew

Yes, hello. I’ll make a comment thank you: The whole thing is A) a joke, B) a rip off and most importantly C) as Quisp says, a complete and utter circumvention of the CBA, but….. worry not Philly fans…… Gary Bettman has nothing approaching the balls necessary to step in and stop this theater of the absurd.
http://www.mcsorleys-stick.com/ Quisp

First of all, Al, thanks for your thoughtful comment(s).

I don’t know why I would cry into a beer since I have to stake in this one way or another. It’s better for the Kings if Weber goes somewhere else. I actually like Philly, as anyone who reads this blog knows.

My numbers are not “doctored.” They are adjusted to take into account a specific effect. You’re stuck in a literal-minded interpretation of the CBA in a conversation that is entirely about the intent of the CBA, not the letter of it.

There is no question that, when looked at purely in terms of the letter of the CBA, the contract is within bounds. BUT THE CBA ALSO PROHIBITS ACTIONS THAT VIOLATE THE INTENT OF THE CBA. And that intent is open to interpretation.

That is what Kovalchuk was about. And you can look at Weber this way to. You don’t want to. So you’re stuck in literal-land. That’s fine. It’s a valid way to look at things. If you look back two summers ago, New Jersey fans adopted your point of view also. “The contract follows the letter of the CBA, so it’s allowed.”

Yes, it follows the letter of the CBA. No, it’s not necessarily allowed. As the saying goes, “it’s necessary but not sufficient.”

Before the Kovalchuk amendment, the CBA never said that you couldn’t sign a hundred year long contract. People took advantage of that and stretched the loophole until the league finally put its foot down. New Jersey fans kept saying “there’s nothing in the CBA that says you can’t have a contract that takes a player to 44.”

Now, similarly, people are saying, “there’s nothing in the CBA that says you can’t have a $1MM salary with a $13MM signing bonus.” However, this particular situation illustrates exactly why the CBA might had had something to say about such things, had it in fact anticipated these events. And THAT’s why the CBA reserves the right to rule that actions which violate the intent and spirit of the CBA are in fact circumventions.

All that’s required for the Weber contract to be disallowed by the league is for the league to decide that what Philly is doing is in fact contradictory to the intent of the CBA.

Also, they could simply decide that such bonuses threaten the integrity of the CBA, and that also is a reason to disallow the contract.

But, hey, you stick to your letters.
http://www.mcsorleys-stick.com/ Quisp

Salary is the common term for the amount paid to a player in a given year, although technically the term is “compensation”, which itself includes salary plus bonuses. I was using the word salary in its commonly understood sense of “all the money paid.” The 100% Rule, as you appear not to understand, applies to salary in that very same sense (i.e. compensation). I assumed that people reading this post knew that.
BringBackTheShieldJersey

Disagree, ok, but don’t be such a dick about it.
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Chez

The NHL season begins every July 1st, so this offer sheet is not a violation of the current CBA. The Flyers are paying out 27MM in one calendar year not in one season. Please get your facts straight.
- http://www.mcsorleys-stick.com/ Quisp
  
  Learn to read.
  
  p.s. the Flyers aren’t paying out $27MM in one calendar year.
  - chez
    
    Yes they are. Maybe you should learn to read. I’m not going to argue with someone that doesn’t know what they’re talking about.
    - http://www.mcsorleys-stick.com/ Quisp
      
      A calendar year comprises 365 days beginning with January 1 and ending with December 31. Which calendar year are the Flyers paying out $27MM to Weber?
      - Chez
        
        There’s only one July 1 in a calendar year. That’s when the Flyers will be paying Weber every July 1st. Wow. You don’t understand or get it. The Flyers have to pay Weber $13MM plus this year’s salary of $1MM right away which would be July 25th if the Preds refuse to match it. Then the Flyers have to pay out $13MM sign on bonus the beginning of next season which is July 1st. There is your $27MM paid out which is not a violation of the CBA because its being paid out in 2 seasons but less than 365 days (but as the media has put it in 1 calendar year).
        
        http://www.mcsorleys-stick.com/ Quisp
        
        Oh, I get it all right. You said the the contract would pay Weber $27MM in one calendar year, but you meant to say the contract would pay Weber $27MM in one 12 month period. Then you explained that the media has “put it” in one calendar year. Which actually proves my point. The payment is, to quote you, “paid out in two seasons but [in] less than 365 days,” which has the effect of paying it in one season, even to the point that the media continually refers to it as one year’s payment (and, according to you, referring to that as a calendar year, when it’s not a calendar year at all, but actually “a year’s time”). When I say “effect”, you get confused and think I don’t understand the letter of the CBA. As far as that goes, I’ll just let my batting average speak for itself.
okto

hey quisp. hows the blog going?
ha. lotta anger over contracts.
- http://www.mcsorleys-stick.com/ Quisp
  
  That’s what happens whenever a post gets more traffic than usual.
AJ

The logic used in here is faulty.
• The CBA states that a player’s salary in any single season may not be more than 20% of the Upper Limit as set in the year in which the player signed his contract.
• Using the signing bonus mechanism to pay Weber $14MM in season one and another $13MM on 7/1/2013 has, literally, the effect of paying him $27MM in season one.
• You could argue that paying Weber $27MM between late July 2012 and July 1 2013 violates the spirit and intent of the rule that caps compensation at 20% of the Upper Limit, which, I might add, the contract exceeds by almost 200%.
The problem is that the 27 million is payed over two seasons, as the NHL season begins on July 1 of each year, and signing bonuses are due on the first day of each season. So while the 27 million is due in one calendar year, it is actually 14 million in each season.
Additionally, the league has already allowed this when they approved Brad Richards’ contract last season, which paid him a signing bonus of 10 million with a 2 million dollar salary in 2011-2012 and an additional 8 million dollar signing bonus this year, for a total of 20 million dollars. Since he signed his contract on July 2, all 20 million would be paid out in one calendar year. The Parise and Suter contracts would also be in a similar boat, paying 25 million over the first two years.
There is no difference in RFA and UFA contracts per the CBA. The only difference stated between RFA and UFA in the CBA is that the club owning the rights of the RFA has the first right of refusal. Otherwise, contracts may be structured exactly the same for either type of individual insofar as term and payment.
- http://www.mcsorleys-stick.com/ Quisp
  
  The logic is faulty if you assume that only a literal interpretation of the CBA is possible. But by that line of reasoning, the Kovalchuk contract would never have been challenged, much less voided by the arbitrator. Everything hinges on whether or not the league (i.e. Bettman) thinks that the CBA, as intended in 2005, would have prevented this practice if it had anticipated it. Because if the answer is yes, then that alone is reason enough to rule against it.
  
  In other words, you have to step outside of a literal reading of the CBA in order to judge the logic of the argument, because the authority of that very same literal reading of the CBA is attacked by the argument. And, more generally, any all-encompassingly literal reading of the CBA has already been invalidated by Kovalchuk.
Pingback: Spectors Hockey | NHL Blog Beat – July 23, 2012.
ICDogg

Moving up payments 26 days because of the date of the offer sheet is creating a domino effect how? It’s just moving up payments by a matter of days. I just don’t see how that holds up.

I think if you’re going to disqualify a contract on the basis that it violates the “spirit of the CBA”, you need a lot better reason.
- http://www.mcsorleys-stick.com/ Quisp
  
  If you take what people seem to have accepted as true enough — that he would be getting 27 in the first year — then it follows from that he’s only getting 4 in year seven. But that’s the lesser of two points I made. The greater point is the most obvious one: the CBA did not intend for people to be able to get double the allowed maximum salary in a single year’s time. Although who knows, maybe the CBA doesn’t mind. Since it’s sentient.
  
  Clearly, the league has approved the contract, so the debate is academic at this point.
  - ICDogg
    
    I think the only way that “27 in the first year” applies is being the number the Preds are locked into paying Weber if Nashville matches the offer, because of the crazy RFA rule that restricts a trade based on a 365 day year rather than by the league year, which the contracts are tied to. That probably should be changed to correspond with the league year.
    
    But all that means, I think, is that the Preds are, under the current scenario if they match, effectively locked in for two years before trading Weber. To trade him after one year would make no sense after having paid his July 1 bonus. That is, unless the NHL would allow the Preds to accept a large amount of cash as part of the compensation for trading Weber before the 2013-14 season, which conceivably would be allowed taking into consideration the structure of the contract being traded.

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