DEFERRED SALARY: UH OH, NHL CONTRACTS JUST GOT A BIT MORE COMPLICATED
There are plenty of hockey fans who will tell you that contracts are both too prominent and too complicated in the modern NHL. We’ve already got cap hits, signing and performance bonuses, escrow, LTIR, and a whole host of other detailed concerns to consider. Nowadays, whenever a new player is signed or traded for, one can almost bet on a significant chunk of the analysis having something to do with their contractual particulars.
Well, if you’re one of the fans who already felt that way, you may want to skip this article, because things are only getting more complicated from here. Thanks to the Carolina Hurricanes and incoming GM Eric Tulsky, we’ve now got to talk about deferred salary.
In case you missed the headlines, Tulsky and the Hurricanes made a big signing on Saturday, inking Seth Jarvis to an eight-year extension*. Jarvis became the second Hurricane to do so this summer, with Jaccob Slavin having signed an eight-year extension* of his own on July 1.
You’ll note, of course, those asterisks. That’s there because these are not your typical eight-year extensions. The Hurricanes have taken the infrequently-discussed option of delaying some of Jarvis and Slavin’s signing bonuses to beyond the playing-length of the contract, and in doing so they’ve likely set a precedent for many future NHL negotiations.
Here’s how it all works.
Slavin signed an extension that kicks in next season (2025/26) and covers his playing for that season and the next seven thereafter, expiring after the 2032-33 season. The contract will pay him a total of $51,688,000. But if you bust out your home calculator and divide that total by the number of contract years – the typical formula for figuring out cap hit – you’ll end up with an expected hit of $6,461,000 in each of the eight years. But that’s not the case. Slavin’s cap hit will actually be the slightly reduced $6,396,000 throughout his new contract.
Why? How? Deferred salary. One of Slavin’s signing bonuses, a $4.55 million payment that is technically tied to the 2031-32 season, will not be paid out until July 1, 2033, which is the day after the contract’s playing term expires. And here’s where complicated gets downright complex.
It may not be all that interesting, but it does have something to do with interest. In short, money today is worth more than money tomorrow, because money today can be banked and have interest earned upon it.
Put in more specific terms, if the Carolina Hurricanes owe Slavin $4.55 million off their 2031-32 books, but don’t have to pay it until 2033, they’re effectively earning cash by being able to accrue interest on that amount for an extra two years.
In order to cover this discrepancy in value, the NHL CBA considers the deferred salary at a discounted rate based on its expected growth in value. In other words, whatever value in 2031 is expected to grow to $4.55 million by 2033 is what counts against the Hurricanes’ cap, not the full $4.55 million itself.
In the past, the NHL has used the London Interbank Offered Rate, or LIBOR (not to be confused with Libor Polasek), to estimate the future value, but it is believed they now use a different, internal measure.
Now, in this particular case, we’re dealing with pretty small margins. All that math, and all the Hurricanes get out of it is dropping Slavin’s cap hit down from $6.461 million to $6.396 million. It’s a cap savings of just $65,000 a year, or $520,000 over the entire course of the eight years. In today’s cap-obsessed NHL, every dollar counts, but it’s still essentially chump change.
Not so in the case of Seth Jarvis.
Like Slavin, Jarvis signed an eight-year* contract with the Hurricanes, with one difference being that his deal kicks in right away for the 2024-25 season. Another key difference is that Jarvis has considerably more of his signing bonuses deferred.
Jarvis is being paid $63.2 million for eight seasons of hockey, with his playing term expiring at the end of the 2031-32 season. Typically, such a contract would incur a yearly cap hit of $7.9 million.
Instead, Jarvis will hit the books at just $7,420,087 per season, a discount of $479,913 a year, or $3,839,304 over the playing term of the contract. And that, is not chump change. That’s a significant and perhaps very useful amount of spare cap.
How? Why? Same idea as Slavin, but bigger. Jarvis has signing bonuses of $4.95 million, another $4.95 million, and $5.77 million, attached to the first, second, and seventh years of his contract, respectively, that will be paid out on July 1, 2032 – the day after the contract’s playing term expires – instead.
Same idea: crunch the numbers, calculate the interest, and you figure out that paying Jarvis later saves the Hurricanes almost half-a-million dollars a year, and those savings get passed down to their cap.
That’s what’s in it for the Hurricanes, anyway. What’s in it for Slavin and Jarvis?
Not much, really. They don’t receive any extra compensation. At most, they get the line of “agree to be paid at a later date and we’ll give you more money overall.” That, and the ability to help their team be more competitive by reducing their own cap hits without having to make any real financial sacrifice.
And that could prove an influential and intoxicating idea, especially now that players as prominent as Slavin and Jarvis have set the precedent. “Hometown discounts” are often talked about in hockey, but don’t always come to pass, because it’s kind of difficult to convince players to play a sport that destroys their bodies, and to take a discount while doing so. But if the offer was not a discount, but a delay. A deferment?
That sounds a lot easier to talk a player into. “Take a later paycheque, and you give us more cap space with which to improve the team around you?” That’s a pitch that many NHLers will respond to, as Jarvis and Slavin presumably did.
Why is this happening now? Is it the result of a new rule, or a change in the CBA?
No, actually. This has been possible for quite some time, and in fact has happened before. Shane Doan signed a one-year deferred salary deal with the Arizona Coyotes for the 2016-17 season.
(Shoutout to Jean-Francois C., perhaps the most knowledgeable NHL cap expert on the internet!)
That contract saw his base salary paid in full during 2016-17, but his signing bonus split over the next six years. As such, Doan’s cap hit was slightly reduced. But that wasn’t really the point that time – the Coyotes were just in a tough financial spot, and needed more time to pay Doan what he was worth.
(It’s also worth noting that Slavin signed his own deal with Carolina two months ago, but we only heard about the deferred salary aspect of it for the first time — in large part because it was a relatively marginal amount compared to the proportion in the Jarvis contract).
This Hurricanes business is something else entirely. It’s a new spin, a new tactic, and it’s definitely a new precedent that should come up in all major future contract negotiations. Not every player will accept a deferred salary, but enough will that it will likely become a trend. And yet another wrinkle that fans will have to figure out if they want to really know what’s happening in their team’s books.
From a Canucks perspective, this could come up soon. If there’s one player on the team we can imagine being willing to take a deferred payment in order to help out the team, it’s probably Brock Boeser, and he’s the next core Canuck in need of an extension.
After him comes Thatcher Demko, and then captain Quinn Hughes in 2027. How many of those deals will feature deferred salary? It’s impossible to know. All we know is that Tulsky, Jarvis, and Slavin have got the ball rolling, and made NHL contracts all the more complicated as a result.
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2024-09-01T16:47:25Z dg43tfdfdgfd