Tuesday, July 19, 2011

On Why Entry Level Contracts Are More Valuable Than Ever

I guess I should make this a regular feature here at Driving Play - Pointing Stuff Out You Might've Known But Have Forgotten. I'll work on the title. The first entry in this series was about the decline in goal scoring since the lockout. This one is about the effect a rising salary cap has had on entry-level contracts.

Every player who is drafted and signs with their drafting team signs an entry-level contract (ELC hereafter). The rules about entry-level contracts are fixed - there's certain bonuses that can be given out, but there is a clearly defined maximum salary that depends on what year the player was drafted. Here's the list:

2005: $850,000
2006: $850,000
2007: $875,000
2008: $875,000
2009: $900,000
2010: $900,000
2011: $925,000

So, from 2005 to 2011, the maximum salary in an ELC has increased by nearly 9%. That sounds almost substantial, but we have to remember that the salary cap has increased by 64%, from $39 million to $64 million. Leaving bonuses aside, a player making the rookie maximum in 2005 would be making 2.1% of their team's possible salary allotment. In 2011, that player will make 1.4%. That sounds insubstantial, but in effect, it serves as a large pay cut. The difference in the two percentages (.7%) is almost enough for an additional minimum salary player on the roster (.82%).

Okay, so you might say, 'Well Triumph that all sounds well and good, but what if teams are paying pretty much everyone that maximum, thereby reducing that effect?' But they're not. I did a study on 15 teams and the ELCs they signed that go into effect next season. I chose 15 teams because it took a long time and because I'm kinda lazy, but I can assure you the numbers won't change much if I did all 30. Here's what drafted players are getting paid, on average (numbers courtesy of capgeek.com):

1st round: $909,000
2nd round: $797,000
3rd round: $631,000
4th round: $677,000
All Others: $625,000

Not only will any of these contracts provide a substantial discount if the players make it to the NHL, but we've seen that negotiating a 2nd NHL contract can be very tricky. If the player has only played 3 years in a professional league, he does not have arbitration rights. This means that his only negotiating recourse is to get an offer sheet from another team, which are rather rare. We saw recent RFA Karl Alzner sign a contract at a massive discount because he essentially admitted that he had no choice.

We shouldn't expect to see this situation change in a future CBA, either. Players who are draft-eligible aren't part of the union, and no doubt teams don't want to give young, unproven players more money. The value of entry-level contracts should increase in the NHL going forward, making the NHL Entry Draft even more important than it already is.

2 comments:

  1. What requirements need to be fulfilled for a player to be eligible for arbitration, exactly? I assume from the second to last paragraph that at least 4 years in a professional league is one of them. Does that then mean players can't be arbitration eligible at the end of their ELC or am I missing something?

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  2. "Does that then mean players can't be arbitration eligible at the end of their ELC or am I missing something?"

    Not necessarily - although I'm just gonna go by memory because I'm lazy. Remember that a player can play a professional season without playing under his ELC; he can play in the AHL (if he's from Europe). So theoretically an 18 or 19 year old player can play in the AHL, his ELC will slide, but he would be arbitration eligible at the end of his ELC.

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