Hockey bonuses used to be the sizzle on a contract steak.
Players would get a signing bonus on the day of the deal and perhaps smaller incentive bonuses tied to achievements, such as individual player awards or statistical targets. The base salary was the big ticket.
Today, such contract structures seem quaint and outdated. At least for the NHL’s best players, bonuses have become the meat on the bones of the deal — in some cases comprising 90 per cent or more of the total contract.
Consider the massive deal signed by John Tavares with the Toronto Maple Leafs. In 2018-19, Tavares is receiving $15.25 million US as a signing bonus and a measly $650,000 as a base salary, which used to be the major element of a player’s contract.
In salary, Tavares is paid like a fringe fourth-liner. In bonus, he is paid like a king. Over the seven-year term of his deal, Tavares never exceeds $910,000 per season in salary, while the signing bonus doesn’t dip below $7 million. The total payout is $77 million with a cap hit of $11 million.
Steven Stamkos of the Tampa Bay Lightning has a similar deal, although signed a year earlier, and not as lucrative as the Tavares windfall. Of the $68 million for Stamkos, $60 million is paid in bonus and just $8 million in base salary over eight years.
Edmonton’s Connor McDavid is receiving $13 million of this season’s payout as signing bonus, and $2 million as salary. By 2025-26, he will have received $86 million in bonus, versus $14 million in base salary.
Why are the agents of the NHL elite structuring contracts this way?
Three main reasons: The bonus money is paid up front, and who wouldn’t like to receive tomorrow’s pay cheque today? Just as importantly, the bonus money makes the contract virtually buyout proof (buyouts are calculated on salary, not bonus money) and lockout proof, should there be a work stoppage prior to the 2020-21 season.
Players up for new deals are wanting to ensure their bonus money gets paid in a single shot (“lockout insurance”), even if the base salary gets shut down along with all or part of the 2020-21 NHL season. There are also income tax savings, which vary by state or province, by getting the bulk of your cheque as a bonus.
Keep this in mind when considering the Ottawa Senators‘ ability to pay pending free-agent forwards Mark Stone, Matt Duchene and Ryan Dzingel.
Stone and Duchene, in particular, are in position to ensure they receive the bulk of their contract regardless of whether or not the NHL and its Players Association agree to a new CBA in time for the 2020-21 season.
A prominent NHL agent says that while these types of deals are becoming more widespread, they are generally “reserved for the elite players, most of them unrestricted free agents signing with a new team. Or reserved for the franchise player on certain teams.
“Certain owners, for example, the guy in Ottawa, aren’t known to offer those kinds of deals. I don’t think that was ever part of the (Erik) Karlsson offer, made to him before he was traded.
“It does give certain teams in certain markets a competitive edge in signing players.”
The representatives of Stone and Duchene wouldn’t be viewed as greedy or unreasonable in asking for bonus-laden contracts, but simply acting in the best interests of their clients.
On Hockey Night In Canada, Sportsnet’s Nick Kypreos suggested Duchene was the subject of a contract offer from Ottawa in the neighbourhood of eight years, $64 million. Elliotte Friedman surmised that the offer for Stone would exceed that.
The topic of bonus structure was not discussed, but it’s reasonable to assume these two pending UFAs would want the majority of their pay in bonus, for the reasons stated above. It’s possible Stone could accept a smaller bonus and a more classic contract in order to remain in Ottawa and become the Senators’ next captain.
It’s also conceivable the Senators could load up one bonus-heavy contract, say, Stone’s. But could they afford two long and lengthy bonus deals? It is far more challenging for a franchise with cash flow issues, like Ottawa, to compete in this bonus arena with a club like the Maple Leafs, who are swimming in cash.
The player agent didn’t want to comment on the worth of players (eg. Stone, Duchene) he doesn’t represent, but for background said it is “safe to assume those two players, on the open market, if they reach the open market, will have opportunity to sign deals that are heavily laden with signing bonus over salary each year.”
Advantage: the well-to-do of the NHL.
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As the sports blogging site SB Nation noted last summer:
“To pay these epic signing bonuses, you need to have the kind of cash flow very few teams can boast. This is a strength of the Leafs as a cash-rich team with an almost non-existent debt load. They can cut a cheque for $15 million and smile about it.”
In Ottawa, they smile through such largesse with gritted teeth. That is, if they can manage such generosity at all.
The reality around the Senators and the ownership of Eugene Melnyk is that the franchise carries a heavy debt load, is suffering through another season of declining attendance with no playoff revenues to count on in 2018 or 2019.
The Senators act as though Bobby Ryan’s annual $2 million US signing bonus is onerous. It began in 2015-16 and runs through to 2021-2022, a $14 million commitment along with an annual base salary of $5.5 million.
Yet, that figure is puny by comparison to the bonus payouts it’s expected Stone or Duchene could command, especially as unrestricted free agents this summer.
The salary cap was supposed to be an equalizer in the NHL, but just as agents figure out ways around the CBA, franchises who are deep in cash can use contract structure to their advantage, regardless of cap limit, and leave the smaller markets behind.
There has been talk that in the next CBA, the NHL would like to limit the amount of signing bonus that can be paid out each year to an individual player. That concern is coming from teams that can’t or won’t pay these bonuses.
The NHL could also argue that these bonuses are a way of circumventing the buyout provision in the current CBA.