Possible Compliance Buy-Out Loophole

Earlier today, TSN announced that the NHL and NHLPA agreed to accelerated compliance buy-outs. The important excerpts are the following:

"Teams are now eligible to exercise an "accelerated compliance buyout" on one player with a salary cap hit of $3 million or more before the regular season begins on Saturday."

"In order for a player to be bought out this week, he still must clear waivers first."

"Team will take the full cap hit on such players this season, less the $900,000 for not burying the player in the minors, but suffer no cap hit next season or beyond."

"Teams would pay out 100 per cent of a player's actual salary this year and two-thirds or one-third (as applicable) over twice the remaining term of the contract and the player is free to sign elsewhere."

"However, there's no actual benefit to the teams to take this plan of action other than as a favour to the player to perhaps allow them to sign with another team right away." (or is there?)

I originally intended to write about this subject once the full new CBA was available online, but this new development forced me to write about it today before it becomes irrelevant (or materializes).

Here is the paragraph concerning compliance buy-outs from the summary of terms of the NHL/NHLPA proposed CBA that is available online.

"During the Ordinary Course “Buy-Out” periods following the 2012/13 season and 2013/14 season, in addition to any other Ordinary Course “Buy-Outs” a Club may elect to effectuate pursuant to Paragraph 13 of the SPC, Clubs may elect to terminate and “buy-out” the already existing SPCs of up to two (2) additional Players (in the aggregate over the two (2) years) on a Compliance basis (a “Compliance Buy-Out”). Such Compliance Buy-Out(s) would be effectuated on the same terms as are set forth in Paragraph 13 of the SPC, except that the amounts paid under such “buy-out(s)” will not be charged against the Club’s Cap in any of the years in which the payments are made to the Player. Amounts paid under such Compliance Buy-Out(s) will, however, be counted against the Players’ Share during any League Year in which the “buy-out” payments are made. A Player that has been bought out under these Compliance Buy-Out provisions shall be prohibited from re-joining the Club that bought him out (via re-signing, Assignment, Waiver claim or otherwise) for the duration of the 2013/14 League Year (if the Player was bought out in 2013) and the 2014/15 League Year (if the Player was bought out in 2014)."

The intent to prohibit a team from re-acquiring the player it has bought out via the compliance buy-out is clear. However, there is a way around this, because the criteria used is "the Club that bought him out" instead of say "the Club that had the player on its payroll for the 2011-2012 season". All you need to go around this is two teams with two similar "bad contracts" that they want to buy out with the accelerated compliance buy-out. By trading two similar bad contracts, placing them on unconditional waivers and than using the accelerated compliance buy-out, the original team would be able to re-sign its own player to more favorable terms and possibly enjoying very good value on the new contract for the 2013-2014 season if it has at least a two-year term. Since these "bad contracts" have very bad value in a cap system, they are very unlikely to be reclaimed on waivers by any team (teams in big markets that could be tempted by such contracts do not have the cap space necessary this season to keep them while teams in small markets do not have the internal budget to afford them). 

Using an accelerated compliance buy-out now is also a better option than using a simple compliance buy out this summer if you want the player with the bad contract to play for your team this season, because if that player suffers from a long-term injury during the season, the team will not be able to buy him out during the summer buy-out period (which could have catastrophic consequences for the 2013-2014 season when the cap goes down to 64.3M). One thing that could however mitigate this risk to abuse the LTIR reserve next season like the Flyers are currently doing with Chris Pronger.

Let's take as an example the two contracts that are currently regarded as the worst: Scott Gomez's and Wade Redden's. The terms of both are extremely similar: both have two seasons and 10M$ left to pay (without taking into consideration the current prorated season). A Scott Gomez-Wade Redden trade would imply that the Montreal Canadiens use one of their 2 compliance buy-outs on Wade Redden's contract thus giving the New York Rangers (and the 28 other teams) the chance to re-sign him to more favorable terms and imply the New Rangers use one of their 2 compliance buy-outs on Scott Gomez's contract thus giving the Montreal Canadiens (and the 28 other teams) the chance to re-sign him.

Accelerated compliance buy-out payments (first year prorated for a 48-game season, payments are outside the cap, but not outside the players' share)

Scott Gomez: Y1:3.220M, Y2:1.500M, Y3:1.500M, TOT: 6.220M

Wade Redden: Y1:2.927M, Y2:1.667M, Y3:1.667M TOT: 6.260M

A total amount difference of around 41K (which is further reduced by the time value of money) that the Montreal Canadiens would have to pay in extra for buying out Wade Redden instead of Scott Gomez (which is peanuts for a big market team).

By being bought out at the start of the season with an accelerated compliance buy-out, Scott Gomez loses 1.5M on the last year of his contract (plus one year of interest on the year-3 1.500M). If Scott Gomez subsequently signs a contracts that pays him 1.500M over, let's say, the next two years, the total amount of money received (excluding the one-year interest lost) by Gomez would be the same as if he fulfilled his original contract and with the same opportunity cost (ie he will be able to re-sign elsewhere only after the 2013-2014 season). Because the 2012-2013 season has only 48 games, such a "complimentary total-money-received-neutral contract" would have a 1.016M caphit over two years (with only 1.500M actually paid). If the Montreal Canadiens hand out such a contract to Scott Gomez, the total impact on the cap for the 2012-2013 season is a loss of 0.116M in cap space and a gain of 6.342M in cap space for the 2013-2014 season (when cap space will be a most) versus the scenario of not buying him out.

Simarly for Wade Redden, by being bought out at the start of the season with an accelerated compliance buy-out, Redden loses 1.667M on the last year of his contract (plus one year of interest on the year-3 1.667M). If Wade Redden subsequently signs a contracts that pays him 1.667M over the next two years, the total amount of money received (excluding the one-year interest lost) by him would be the same as if he fulfilled his original contract and with the same opportunity cost (ie he will be able to re-sign elsewhere only after the 2013-2014 season). Because the 2012-2013 season has only 48 games, such a "complimentary total-money-received-neutral contract" would have a 1.128M caphit over two years (with only 1.667M actually paid). If the New York Rangers hand out such a contract to Wade Redden, the total impact on the cap for the 2012-2013 season is a loss of 0.228M in cap space and a gain of 5.372M (when cap space will be a most) versus the scenario of not buying him out.

The underlying assumption is that the bought-out players may be psychologically inclined to sign break-even contracts (see the recent Colby Armstrong contract). It is interesting to note that if Gomez (Redden) signs one two-year or two one-year contracts with actual pay higher than 1.500M (1.667M), they will make more money that way (with higher risk) than if they simply fulfilled their original contract.

The inherent risk to this strategy is that 28 other teams can also offer a new contract to the bought out players (since they are becoming UFA after being bought out) and they are potentially in a better position to do so, because they are not carrying the original cap hit of the player with the bad contract (minus 900K) this season on their cap. By making the original trade (Gomez for Redden), the Rangers and Habs are also tipping off the 28 other GMs in the league that they have the intention to re-sign their own player thus making it harder to re-sign them to friendly terms.

However, the fact that NHLPA and the NHL still seem able to add/change the rules of the new CBA (see new accelerated buy-outs) probably means that the wording of this clause could still change and fix this loophole.

Update (Jan-16): Both Scott Gomez and Wade Redden have been placed on unconditional waivers today by their respective teams and no trade has taken place. They are thus not in the future plans of their respective team and there is no possible way that the potential loophole discussed above will be used.

Path to the Stanley Cup Part I - A New Identity?

I now begin a series of 7 articles that will take a look at the Montreal Canadiens' eventual path to the Stanley Cup.

The first quinquennial plan (2003-2004 to 2008-2009) established by Bob Gainey was a failure. The Montreal Canadiens didn't win the Stanley Cup during that period. However, the team did have some success. In 2007-2008, they finished first in the eastern conference with 104 points and went to the second round of the playoffs losing to the Flyers. The 2008-2009 season however was more difficult. Bob Gainey seeing that the window of opportunity of his plan was closing down that season made some panicking moves like firing of coach Guy Carbonneau and replacing him behind the bench. Without Markov and Lang for the playoffs and an injured Bouillon, the Habs folded to the Bruins in 4 games. The window of opportunity was now closed: the contracts of Montreal's core players were now up (Koivu, Kovalev, Lang, Brisebois, Schneider and Brisebois) and were now too old to be re-signed for multiple years. It was time to start anew and Gainey thus announced another quinquennial plan. This news was received with disdain: "Not another five years!" This new plan changed the face of the franchise with the arrival of six new veteran faces with different contract length(years): Gomez(5), Gionta(5), Cammalleri(5), Moen(3), Spacek(3) and Gill(2).

Now, 3 years have passed and we should theoretically be at the beginning of the two-year window of opportunity for a shot at the Stanley Cup. However, much has changed in the last season. Cammalleri, Spacek and Gill where all traded during the season, the Habs finished last in the eastern conference, Pierre Gauthier (who succeeded Bob Gainey as general manager) was fired by owner and president Geoff Molson and Bob Gainey decided to resign after learning the news. Since the group presided by the Molson family acquired the Montreal Canadiens franchise, Geoff Molson has exhibited multiple signs of wanting to meddle with the operation affairs of the club. One such sign of meddling was at the 2011 entry draft when Geoff Molson wanted the Montreal Canadiens to draft Olivier Archambault (a Quebecer) contrary to the scouting staff's will. With Gauthier and Gainey now out, the second quinquennial plan now seems officially over, or is it?

Geoff Molson has made public statements saying that he wants to change the identity of club by bringing "a winning attitude", make his team harder to play against and bring more grit. This seems contrary to the image/plan of the second quinquennial plan that brought in the 3 "smurfs". However, in the last 2 years of Gainey's first quinquennial plan, the Habs were one of the most physical team in the league. This indicates to me that Gainey values physical play. And if we assume that the second quinquennial plan was a logical follow-up to the first one, physical play and the "hard to play against mentality" were probably always a part of the plan (even if it would only materialize at a later stage). Let's not forget that Gauthier/Gainey were the ones that brought in Moen, Cole, Emelin and Bourque. (It could however be argued that Molson asked specifically for these moves as they happened only in the last year). In the last season, Montreal has jumped from the 26th to the 17th position in hits. Marc Bergevin has followed the same route by adding Prust, Armstrong and Bouillon, all physical players. It should be emphasized that it is much less expensive and easier to add bottom6 gritty players to a line-up than top6 skilled players. The big (overpaid) contracts that were given in 2009 now offer good market value relative to the new cap ceiling. For example, when Mike Cammalleri was signed in the 2009 summer, his contract was accounting for 10.56% of the then available cap space (6M / 56.8M), but will only be accounting for 8.55% next season (6M / 70.2M). This explains in part why Calgary did not re-sign him at that price in 2009, but were now willing to trade for him this season.

Identifying the identity of a team

To identify the identity of a team, you first need to identify the identity of the its players individually. However, not all players should be assigned the same weight. Players with a bigger role on the team should be put more weight on. Players with longer contracts or contracts that are expected to be extended (particularly for young players who are RFA) should also be weighted more heavily. Thus, the veteran defensemen Gill/Spacek with their 2/3 year contracts where never expected to be part of the team at the end of the 5-year plan. On the other hand, players that are drafted by the team are expected to play with the team until they have at least 7 years of professional experience or are at least 27 years old. The drafting choices of the Habs have thus much more impact on its identity than the signing of UFA to five years or less terms. How a team drafts in the first round is a clear indicator of what identity it is aiming for.

1st round drafting by the Montreal Canadiens

2012: Galchenyuk

2011: Beaulieu

2010: Tinordi

2009: Leblanc

2008: none, (Kristo)

2007: McDonagh, (Eller), Pacioretty, (Subban)

2006: David Fischer

2005: Price

2004: Chipchura

2003: A. Kostitsyn

2002: Higgins

2001: Komisarek, Perezhogin

Note1: Acquired by trade or highly talented 2nd round picks between parentheses

Note2: Excluding the last 5 drafts, all of the Habs' first rounders made it in the NHL, except David Fisher

• Common denominator: above average speed
• Many of these players play a physical game: Komisarek, Higgins, A. Kostitsyn, Pacioretty, Tinordi, Beaulieu or intense game along the boards: Eller, Subban, Leblanc, Galchenyuk
• Higgins and Chipchura faced serious injuries in their career and were traded away.
• McDonagh, as the last playoffs have revealed, plays a relatively soft game and was traded away (in the Gomez trade). On the other hand, Eller was acquired through trade (Halak trade) and plays an intense game.

Has the franchise improved in the last 3 years?

As Jacques Martin, former coach of Montreal Canadiens, said multiple times in his interviews, players should focus primarily on the process and not the results. Obviously the results were not there last season as the team finished last in the eastern conference, but what about the process?

Offensive abilities can rarely be improved in a player, however the defensive side of their game can be improved with good coaching combined with willingness from the player. Such improvement is most important for young players who have few games of experience in the NHL. Gorges, Subban and Eller are three young players that have greatly improved their games during the last seasons. Gorges and Subban have been used with Hal Gill as a shutdown defensive pair in the playoffs with success. The acquisition of Gill in 2009, who had just won the Stanley Cup with Pittsburgh, was a great mentor for their development. Lars Eller and Andrei Kostitsyn (on the same line as Moen) were used as a shutdown line against high quality of opposition for some games this season. Andrei Kostitsyn has had some success with Nashville after being traded making some great defensive plays in the playoffs. Desharnais, Pacioretty and even Cole just had their most productive season in all their respective careers. Although the young players have displayed some encouraging improvement, some would argue that some of the veterans have regressed. The most glaring example is Gomez which I will now discuss in more details.

Gomez just had his least productive season in all his career (although it should be noted that he played only 38 games). Is it possible that his talent has completely disappeared? I highly doubt it. His talent (which is still present) just does not translate in point production anymore. Gomez is a fairly uni-dimensional player in some aspects. He has great vision, speed and passing skills, however his shot is terribly slow and inaccurate. He thus relies heavily on his wingers to complete the plays he creates and his production is thus very dependent on the quality of his teammates. Gomez was however demoted this season (to the profit of Desharnais) and has played with really low-skilled wingers. Last season, he was the center who played with the lowest quality of teammates on the team which was not the case the previous seasons. Gomez also played some nights as a winger, because of the surplus of centers on the team which is not his natural position. Gomez also played very few nights with his long time buddy Giointa with which he has very good chemistry. (Both were together in the line-up only 13 games this season and when they were, they did not necessarily play on the same line.) On November 19, 2011 when Gomez played  against his former team the New York Rangers on the same line as Gionta, he had a very productive night with 2 assists and was all over the ice. Gomez and Gionta also need a big body on their line to create some space for them. When it was the case (with Pouliot or Pacioretty), their line was very productive. Another possible explanation for Gomez's production decrease is that Gomez is a power play specialist that used to make a good proportion of his point production on the power play. However, power play opportunities have greatly decreased league-wide in the last seasons as I have illustrated in one of my previous post.

My general conclusion is that individually most players on the current roster of the Montreal Canadiens have improved over the last seasons. However, not all of them were used in their "right chair" (teammates, opposition faced). If results did not materialize, it was because their utilization was not optimal to guarantee results and wins. Facing a quality of opposition a notch too high for your abilities may help you develop your defensive game (process), but it will not translate into wins for the team (results).