Doughty, the cap and the CBA in 2016

LOS ANGELES, CA - OCTOBER 12: Drew Doughty #8 of the Los Angeles Kings walks to the ice prior to the game against the Atlanta Thrashers at Staples Center on October 12, 2010 in Los Angeles, California. (Photo by Harry How/Getty Images)

Drew Doughty wants to be a UFA in five years, 2016. The Kings apparently are willing to go as low as six years, 2017, but would prefer longer. The defense of the Kings' position is: (1) they want to tie up Doughty for as long as possible, because when he's a UFA, he can go play for someone else; (2) when he's a UFA he will get a huge raise, and (especially given the fact that Kopitar is also a UFA in 2016) that could cause a "capocalype"," where (at best) they would have to weaken the team (Chicago-style) in order to sign all their stars, or (at worst) they wouldn't be able to afford both Kopitar and Doughty.

There are two major schools of thought on the Doughty Contract. There are, of course, variations within each camp, but they all fall into one of: (a) Lombardi's offer is fair and Doughty is being selfish (Blame Doughty); or (b) Doughty is a franchise defenseman and the Kings should pay him accordingly, and by not doing so they risk damaging their relationship beyond repair (Blame Lombardi). 

Blame Lombardi's response to point (1) above is: so what if he's a UFA in five years? So is Steven Stamkos! Why are the Kings so special? Their response to point (2) is: so what if he gets a huge raise? The cap has gone up $25MM in the last five years and will probably be in the $90MM range by 2016, at which point the top salaries (which have pretty closely followed the rise of the cap ceiling; maximum being 20% of the upper limit of any given year) will also rise proportionately. 

20% of 90MM is 18MM. 

So if you think the cap is going to continue to rise at the current rate, you have to think it will be around $90MM in 2016, and you also have to think that the top salaries will be in the $15-18MM range. (If you don't think the cap will continue to rise and you don't think salaries will inflate accordingly, then there's no reason to object to Doughty signing a longer term contract -- except for the option of being able to play somewhere else -- so I don't mind stipulating that the cap and salaries will continue to rise at their current rate.)

Clearly, if you're Drew Doughty and you get to choose, you want to double your salary as soon as possible. 2016 is better than 2017 is better than 2018. But, as I showed in a previous post, it doesn't really matter because (assuming the cap and salaries continue to rise after 2016 just like before 2016), he'll be able to get even more money in 2018. The result is that the monetary difference between going UFA in 2016 and 2018 is negligible. By negligible I mean, it comes down to roughly one or two percent of the total worth of his contracts over the period in question.

So the argument (or one of the arguments) of the Blame Doughty camp is it makes very little difference so you might as well sign. But the counter-argument of the Blame Lombardi camp is since the cap is going up, too, it makes no difference to you EITHER, so you might as well give Doughty what he wants.

But is this true? 

Once you start to try to get specific about what the Kings cap picture will be in 2016, which players are still around, what contracts they will have gotten in the interim, which players turned into superstars, which are busts, etc., chaos theory takes over and the whole exercise becomes a big mess. 

However, there are a couple of foreseeable events on the horizon that will negatively affect the Kings' ability to manage their cap, and predicting the effects of these is much easier to do. What are they?

Closing the front-loaded mega-contract loophole

The current CBA, as we all know, allows teams to offer cap-friendly long-term contracts to UFAs by tacking on bogus low-salary "tail" years to the deal that the player will never play because he's long-since retired. This loop-hole is going to be closed in the 2012 CBA. How, we don't know. Maybe they'll say that cap-hit equals salary from that point forward. Maybe they'll change how cap-hit is determined past age 35. But one thing is certain: this was a strategic advantage that benefited teams with superstar UFAs, and the Kings have never enjoyed the advantage because they've been a young, struggling team under this CBA. But the loophole will be closed just as the Kings are getting into a position to be able to use the loophole. 

Take Kopitar, for example. He's a UFA in 2016. If the ceiling and salaries continue to rise at the current rate, the cap will be in the 90s and the max contract will be around $18MM. Let's say Kopitar is Crosby by then and he can reasonably expect a contract of $16MM a year for the next several years. He'll be 29. Under this CBA (our current one), the Kings could pay him $16MM a year for five years, then $8MM, then (say) $4MM, then $1MM for four years, taking him to his 40th birthday. That's $96MM over 11 years and really it's $16.5MM a year for five years. 

The cap hit (under our current CBA) would be $8.7MM. But with the loophole closed, the cap hit will be $16MM. Maybe $15MM-ish if they only allow you to average up to age 35. Maybe $16MM exactly if the cap hit equals the salary in any given year. 

The point is, that savings goes away. Instead of the Kings having a cap hit of $8-9MM for Kopitar, they'll have to budget for a cap hit of double, $16MM. 

And the same is true for Doughty. 

Now, before you say "yes but the cap ceiling has gone up too!" let me remind you: the cap has gone up over the last five years, with the same loophole in place. Elite teams post-lockout have made use of the loophole. In five years, the Kings believe they will be an elite team. And whether or not the cap and salaries continue to rise, that loophole will be closed, and the Kings (and all other teams in their primes with elite players getting big UFA bucks) will face what amounts to a huge cap penalty.

It would be as though New Jersey, this year, had to count $10MM or whatever it is as Kovalchuk's cap hit, instead of $6MM-ish. That alone would devastate the team. 

So that's one of the events that we know is on the horizon, and we can be pretty sure about its effects. What's the other one?

The NHLPA will eventually vote NOT to invoke the 5% "inflator"

Every year since the 2005 CBA, the NHLPA has juiced the cap ceiling by voting to raise it by 5% over what it should be based on revenues. (Actually, I have also read that there was one season where they opted against the 5% inflator, but I can't find any specific reference to which year, so I'm sticking with "every year" until someone -- maybe you -- sets me straight.) This is a right they negotiated for themselves in the 2005 CBA. The union has always juiced the cap ceiling because, from its point of view, if you give the GMs more money to spend, that money goes directly to the players, i.e. their constituents. 

There's a problem with that logic though, and sooner or later the players are going to figure it out and decide NOT to increase the ceiling. The problem with the logic is this: 

The cap ceiling is tied to revenue, and so are players' salaries. The total of player salaries in any given year is fixed at a percentage of revenue. If the revenue projections fall short, the players get less money. If the total of all the player salaries for a given season is greater than the fixed amount of money they are determined to get based on revenue, they have to give a percentage of their salaries back. A percentage of the salaries is pre-emptively held back in an escrow account for this very purpose. 

When the players artificially increase the cap ceiling with their voting power, that causes more money to be spent, which in turn raises the total player salaries for the league, which means that all the players get less money in their paychecks. This is true no matter what. 

The players think that they're just voting to allow the GMs to pay them all more money. But what they're really doing is voting to take real money out of their own paychecks and redistribute it to the small percentage of players who are negotiating new contracts that summer. 

For example, the 5% inflator has raised the cap ceiling roughly $2-3MM every season. That's (this year) $3MM-ish more potential spending by GMs, per team. That's a potential $90MM of spending. Let's say that only one-third of the teams will spend more (some are poorly, some have internal caps, etc.). That's $30MM. That means that the players' total salaries will go up at least $30MM and maybe more (if we're dealing with front-loaded contracts, because those pay more in salary than cap-hit). But lets just say it's $30MM. There are 600 players in the league, more or less. I believe the average player makes $1.8MM (that could be last year's number; but it will do). A player making $1.8MM would lose $50,000 in salary because of that $30MM they essentially voted to allow the GMs to spend. If the player makes more than the average, they would lose more, if less then less. 

But that's real money. And they're paying for it. This benefits the players who happen to be negotiating new contracts that summer. But if you're not one of those people, it's just money out of your pocket.

Eventually the players will figure this out and vote down the inflator. And that will reduce the cap by 5%. On a cap ceiling of $90MM+, that's a cap reduction of $4MM. That's a correction that's reasonable to expect, and probably sooner than later, given the state of the economy.

For the last six years, that wouldn't have mattered at all to the Kings. That only matters to teams who spend to the ceiling. Which the Kings are, starting now. And will certainly be by five years from now.

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