Two great articles beat me to the punch on a topic I've been struggling to understand, to say nothing of being able to boil it down to bite-sized morsels. First up, from our very own "On the Forecheck":
There's a good reason why players should support clamping down on these contracts, and it's called escrow. The players are entitled to a specific percentage of league-wide hockey related revenues over the course of the season, and when their combined payrolls exceed that amount (as has been the case lately), they have to give the overage back to the owners. [...] What that all means here is that when stars make big money in excess of their cap hit, that inflates the amount of overall player salaries, and the rest of the players end up giving that back to the owners in the form of escrow. [...] [W]hen a guy like Kovalchuk gets big money now, everybody's escrow costs grow higher, too. Here are a few examples of how much individual players stand to lose next season as a result of Kovalchuk's $10M salary exceeding the cap hit of $6M:
Read the whole article, though. And then read this one:
The basic fairness of averaging the salaries contained in a contract for salary cap purposes is that while players might take more from the pool than their cap hit in some years, in other years, they’ll take less. Take Shawn Horcoff as an example. He’s a cap hit of $5.5MM annually. This year he makes $7MM. In a few years, he’ll make $3MM. If you’re a player who has to kick some money back into escrow this year because Horcoff’s salary is greater than his cap hit, you know that in a few years, Horcoff will be eating up more salary cap than he’s taking in salary, which is of benefit to the rest of the players. From the perspective of the players, the entire system is premised on the idea that contracts will be signed in good faith, with an intention to play them out.
And that's where the front-loaded mega-term deals come in. Because Marian Hossa will not play till he's 42. Kovalchuk will not play till he's 44. They will never receive millions less in salary than cap hit, so the benefit passed on to their fellow players will be exactly zero. Nice. More from mc79hockey.com:
These nine players [Vincent Lecavalier, Roberto Luongo, Marian Hossa, Henrik Zetterberg, Chris Pronger, Daniel Alfredsson, Mikka Kiprusoff, Marc Savard and Johan Franzen -- doesn't count Kovalchuk, since the article is from last December], assuming that they play until their contracts call for stipends of less than $2MM, will pull in $73.524MM [more] than they’ll cost in terms of cap hit. [...]
Why does this matter? Well, that money has to come from somewhere. The players have a fixed piece of the pie. When someone games the system to make his salary exceed his cap hit in the long term, he does it by taking money out of the pockets of the other players.
The cost to the players of the contracts signed by the Frontloaded Nine [was] $4200.00/$1MM in salary. [...] When considering anything NHL related, my first thought is always "…But how does this affect Shawn Horcoff?"
I am adopting this rubric for my own life from this day forward.
How much cash will come out of Shawn Horcoff’s pocket next year so that Vancouver, Detroit, Chicago, Boston, Tampa, Calgary, Philadelphia and Ottawa will have better teams than they otherwise would? To what extent is he subsidizing the decisions made by those players? [...] [T]he answer is somewhere between $27K and $28K. Bad enough that Chris Pronger and his wife hated Edmonton - Horcoff will be kicking money into the pot so that they can live somewhere less objectionable.
And that subsidy just went up several thousand dollars, per player. This is why I was mildly surprised, a month ago, that the NHLPA voted to invoke the 5% inflator. They're giving the owners an extra $3MM of their own money which will come out of their own pockets, (money which is over and above what the league and players' union have determined to be a reasonable projection of what the cap should be in order to be in line with revenues) in order to make deals like this.
Dustin is a pretty nice guy, Kovy. He probably would have just given you the $9K. All you had to do was ask.