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The NHL’s Free Agency System Is Broken

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Not enough star players actually make it to UFA status, and that needs to change for the game to grow.

World Cup of Hockey 2016 - Media Day Photo by Minas Panagiotakis/Getty Images

NHL teams hand out oodles and oodles of cash and coin every July 1, and at the time it is usually pretty obvious which contracts are going to be regrettable. The biggest culprit is often term because it seems that there is always one or two more years tacked on for good measure, even when it isn’t the wisest idea. It is like when you have been drinking at a bar all night and the staff makes an announcement for last call. You have already had your fair share and would otherwise be content collecting yourself and walking out, but then a fellow patron or friend “gets one for the road,” and you follow suit.

John Tavares was the crème de la crème of the 2018 free agent market; he justly was given a seven-year deal worth $77 million that carries an annual cap hit of $11 million.

Tavares hitting the open market added excitement to free agency, because players of his stature rarely get there. There are a number of reasons for that, but above all else is that NHL players have terrible contractual rights.

The Current System

The first standard player contract (SPC) signed is known as an entry-level contract (ELC). These deals can range from one-to-three years depending on the age of the player signing it, according to Article 9 of the collective bargaining agreement (CBA).

A player between the ages of 18 and 21 signing their ELC is automatically contracted for three years. If that player is between the ages of 22 and 23, their contract has a term of two years. The length of an ELC for a 24 year old is just one year. For players 25 and older, “No required number of years, not in the entry level system and not subject to limits on compensation.” This is the basic crux that needs understanding, although those parameters slightly change for European players who are older and so on.

In terms of money, currently the maximum base salary for an ELC is $925,000, but there are bonuses that are available that can increase the contract’s value. A player may have a signing bonus of up to $92,500 which is 10 percent of their salary. There are also Type A bonuses which carry a payout of up to $850,000, although a player is limited to just $212,500 per Type A bonus. During the 2017-18 season Connor McDavid of the Edmonton Oilers hit all his Type A bonuses by tallying 35 assists, 20 goals, 60 points and being named an NHL All-Star.

There are also Type B bonuses with a maximum of up to $2,000,000 based on performance when it comes to league awards; for example, winning the Art Ross Trophy as top scorer, being named league MVP, or being named to the NHL’s First All-Star team. All things considered it is possible for a player to earn up to $3,775,000 a year while signed to an ELC.

After a player’s entry level deal is up, the team still holds the cards for the most part since they become restricted free agents. The freedom of choosing another team to play for come years later when they become unrestricted free agents.

The age a player signs their ELC determines when they are eligible to elect arbitration, which is outlined in Article 12, specifically 12.1 Eligibility for Player or Club Election of Salary Arbitration. Players who sign their first deal between the ages of 18 and 20 require four years of professional experience to elect salary arbitration. However, players who sign their first contact at 21 require three years, those who sign at 22 or 23 require two years, and those 24 and older require just one year. Professional experience is defined by the CBA as:

A Player aged 18 or 19 earns a year of professional experience by playing ten (10) or more NHL Games in a given season. A Player aged 20 or older (or who turns 20 between September 16 and December 31 of the calendar year in which he signs his first SPC) earns a year of professional experience by playing ten (10) or more Professional Games under an SPC in a given season.

(b) Only Players who qualify as Restricted Free Agents as described in Section 10.2 of this Agreement, who meet the qualifications in Section 12.1(a) above, and who have not signed an Offer Sheet are eligible either to elect salary arbitration or be subject to a Club-elected salary arbitration.

(c) As used in this Article, “age,” including “First SPC Signing Age,” means a Player’s age on September 15 of the calendar year in which he first signs an SPC regardless of his actual age on the date he signs such SPC..

Arbitration is a mechanism in which both sides submit a number and argue why their number makes the most sense. The decision is then made by a third party mediator which is final in most cases. What happens from there can get messy as outlined in section 12.10 Walk-Away Rights for Player-Elected Salary Arbitration. If a player elects arbitration and the award is one year, the team can walk away from the player if the value is greater than $4,222,941. If it is a two-year award, the team can walk away from the second year of the deal. In all cases where a team takes a player to arbitration, they may not walk away from the award.

Unfortunately, this process can get nasty with a team tearing down a player in an attempt to devalue them. P.K. Subban, then of the Montreal Canadiens, went through an stressful arbitration hearing and interestingly signed an eight-year, $72 million deal ($9 million AAV) the very next day before the arbiter submitted a decision. Subban would leave the team just under two years later, in a move that will go down as one of the worst in franchise history.

While there are dozens of cases like the above, it should be noted that the majority of arbitration cases are never heard, and it is very common for deals to get done the day of the arbitration case. Mika Zibanejad was headed to arbitration last July, but came to terms with the Rangers the day of his hearing.

A player remains a restricted free agent until they are 27 years old or have accumulated seven years of professional experience. At this point, they can choose to hit the open market in search of a contract that represents their worth, but this rarely happens for players who deserve it. Teams currently have the ability to re-sign their players for up to eight years (before July 1, when they officially become unrestricted free agents), while players who hit the open market can only sign up to seven years.

Here is a list of some notable players who have elected unrestricted free agency under the current CBA, what they signed for, and what their cap percentage was.

Chart by Shayna Goldman | @hayyyshayyy

A name or two may be missing but as you can see, this list includes a lot of older names and inflated contracts. The reason for this is because many are secondary or tertiary players who in a normal environment wouldn’t be able to command this type of cash. These mega deals can lead to regret, and regret leads to buyouts or other salary cap dumps.

With all of this said, is there a simple way to fix the system? I believe there is, but it will take some work and dedication on the part of the NHLPA.

The New NHL Free Agency System

In my mind’s eye, I envision a world in which teams are forced to pay their talented young players to a point in which they are unable to foolishly spend money on players who are more than past their prime. A world in which teams need to think about how they treat their prospects, and be in a position in which there are consequences for mishandling them.

In the year 2018, 27 is too old for players to become a UFA. It doesn’t make sense because players are joining the sport at a much younger age than the generation that preceded them.

Chris Peters wrote a fabulous piece back in 2015 on how USA Hockey development has changed over the last few decades, and here’s just a snippet that speaks to the concept of development and how it has changed:

Now there’s even more sophistication to growing the game as USA Hockey established a membership development department that strategizes how the game can grow further. In less than seven years, that department, along with a revolutionary “American Development Model” initiative have brought innovation to growing the game.

“Our strategy of growth is how do we introduce kids at [ages] 6, 7 and 8, primarily, to the game,” said Pat Kelleher, USA Hockey’s assistant executive director of membership development. “Our youth associations are set up to take kids at that level. Our strategy has stayed the course.”

The result of this strategy has been marked growth at the 8 & Under level, and increased retention rates at the older levels according to Kelleher.

In 2014-15, USA Hockey will eclipse 600,000 total members for the first time in its history, which includes players of all ages, coaches and officials. That’s a long way from 136,000 hearty souls in 1980.

These players are participating in more competitive hockey that includes targeted coaching, nutrition, and overall development. Technology and science in 2018 provide more information than 1988, and that needs to be recognized in some way. By the time the top players are drafted, there is a good sense of what kind of player they are, and what they can become. Heck, it is sometimes obvious way before a player is drafted.

Not all prospects are created equal and they shouldn’t be treated as such; not all first round prospects should be in the NHL right away. Often times you may have a situation where a struggling team ends up with a top pick and there’s a need to rush them in, and it has ended up backfiring on many occasions.

The current contract structure is designed to help teams maintain the rights of their players, because there are going to be bad teams who need good players, and it would be detrimental if every young player was able to just walk away at the first opportunity they had to do so. While I understand this concept, I feel teams shouldn’t have what could be up to nine years of total control.

Compensation and Contract Length

In order to fix free agency, player contracts, and overall issues that lead to a lockout, players drafted should be signed to an entry-level deal of five years. At the conclusion of that deal, a player becomes a free agent — this may seem radical, but hear me out.

A player like McDavid entered the league at 18, and it was clear what his potential was. Under this system he would have remained under Oilers control until age 23. However, not every player is as talented as McDavid, and some need additional seasoning and development. With that said, here is how deals would play out depending on when they signed:

  • Sign at 18 | UFA at 23
  • Sign at 19 | UFA at 24
  • Sign at 20 | UFA at 25
  • Sign at 21 | UFA at 26
  • Sign at 22 | UFA at 27
  • Sign at 23 | UFA at 28
  • Sign at 24 | UFA at 29
  • Sign at 25| UFA at 30

This age range provides a good balance, because the more talented players will be signed earlier, and teams will be able to recognize that. If you are an NHL team who has someone that can make a difference in your system right away, you are going to sign them a contract. If you are unsure about their potential, you are going to wait until they show what they can do before signing them.

Player salaries would also change from the current structure of a maximum of $925,000 plus bonuses. Instead of all players receiving similar starting salaries, teams would have more of a range they could work in. The salary floor would be whatever the league minimum was that year, and the maximum would be $4 million. The reasoning behind this is that currently rookies on ELCs can earn up to $3,775,000 if they hit their Type A and Type B bonuses, and I am picking $4 million as a round number. The majority of players will end up on the lower end, but there will be situations in which an exception is made.

By giving teams the option to give actual salary instead of a contract with bonus options it would help them structure their salary cap for the future. Teams currently deal with bonus overages, and that can become a drain if you don’t budget properly. This system takes out the guess work, and would be primarily used for sure thing prospects more or less. This would be an add on approach with the current system remaining in place. Specifically stated, a team could sign a rookie to a contract worth $1 million a year and offer up to $3 million in potential bonuses. You can tweak it however you want as long as it works out to be no more than $4 million a year.

This may seem like an unimportant thing to change, but there’s a method to my madness. Teams currently benefit from hoarding ELC players on cheap deals, but it would be beneficial to structure deals that lessen the potential jump in AAV. For example, say you have your 22 year-old prospect locked up until 27 on a contract that pays $2 million a year. If they perform at an amazing level it becomes easier to negotiate their next contract that is potentially worth $4.5 million a year. That would represent an increase of $2.5 million annually which is fairly easy to budget. It would also create a situation where you would be paying them for fewer prime years, because they would be older and statistical speaking it would be more likely for them to regress than improve upon their previous years performance.

This hypothetical jump is drastically less than the one McDavid is making this year coming off his ELC, as he is entering the first year of his mega-extension that costs the Oilers $12.5 million against the cap until 2026.

Another example to consider involves a player from this year’s draft. Imagine if the Carolina Hurricanes were able to structure a deal for Andrei Svechnikov that paid him $4 million a year. If he killed it in his first five seasons, it would be a no brainer to extend him long term before his ELC was up, and lets just say the number is $8 million. That would represent a jump of $4 million which is less than jump Evgeni Malkin made off his ELC to his second contract which was worth $8.7 million a season. This is an extreme example to prove a point, but the concept speaks for itself. The possibilities and examples are endless, but it all goes back to paying a player what they are worth, and setting things up for the future. It also allows safe guards for those players who don’t have what it takes, and creates an avenue for them to hit unrestricted free agency.

Speaking of unrestricted free agency, players who re-sign with their team will be able to do so for a max of six years, and those who leave could sign for five. This is a change from the current system of eight years with the player’s current team and seven with a new one, but I think this works out better for both the players and their teams. While clawing back the years a player can potentially earn money on a given contract seems like a bad idea, it actually gives more leverage to the players, and some protection to the team. Under the current system most players hit free agency at 27 and sign one major deal. This system could allow a player to hit free agency at 23, sign a six year deal with their team or a five year deal with another, and then another big deal at 29 if their play warranted it. This would allow for players to conceivably test the market twice, and it would also lessen the blow for a team that signs a terrible deal.

Movement Clauses

Another benefit to this system would address something that general managers and ownership hate dealing with, and that is movement clauses. Why do you think players are so adamant about inclusions of a NMC or NTC in their deals? It is because they fundamentally lack significant contractual rights for the prime of their career, and these clauses help give them power. If the system gave players the flexibility to get to market more often, they wouldn’t need to wield them as a form of power and control. There would be those players out there who want security and stability for their family, but more often than not it could be reserved for those franchise players who actually deserve them.

My suggestion of a five-year entry-level deal represents a two-year addition to the ELC, but a reduction of two years of experience currently needed to become a UFA. This is by design, because it would create a system in which players would become UFAs consummate to their talent level. You may have a late bloomer who signs at 23 and puts it all together, but at age 28 the odds indicate that they are on a course to play at a level of diminishing returns (Hockey-Graphs had a two-part series on the concept of age curves, and you can check out Part 1 and Part 2). Conversely, a player who is in the NHL because they belong at age 19 should be getting paid what they are worth by age 24. If their team fails to recognize that, there should be consequence. In either case the player should be paid accordingly.

The biggest part of this system is that teams will be held accountable for their actions. The current system allows for players to play for up to nine games before being sent back to their team allowing for the entry-level deal to slide. This isn’t the greatest system because nine games generally isn’t enough to get a read on a player. In the case of McDavid it was obvious, so he made the league. Holding a player out an extra year or two before fully committing is an idea that makes sense, because sometimes a player isn’t ready and too much is asked of them. I can’t think of a perfect number in this case, but it would be much better if it were in the 18 game range, or double the current system.

I think of Sam Gagner who was drafted by the Oilers No. 7 overall in the 2007 draft. He made the Oilers at an 18-year-old out of necessity and had 49 points in 79 games in his first season. His next three seasons saw him record 41, 41 and 42 point campaigns as a 19, 20 and 21 year old. At this time he average 16:46, 16:17 and 17:45 a game respectively. These are decent numbers, but a little lower than you’d expect from a top seven draft pick.

My question in this situation is, had this system been in place and he’d been held out of the NHL for a year or two, what kind of player who he have become? The talent with Gagner was obvious, as displayed during his eight-point night vs. the Chicago Blackhawks, but I can’t help but feel he was rushed in his development. Gagner turns 29 in August and will be entering his 12th season in the league.

I may be completely wrong on Gagner, but if you look around the league you are bound to find instances of too much, too soon. Some recent names that come to mind include Mikhail Grigorenko, Nail Yakupov, and Jake Virtanen, but I am sure depending on what team you follow there are bound to be a bunch of example within your own system.

While ownership would likely shrink at the talk of taking control away from them, there are benefits for them. They wouldn’t have to rush players into the league, and they would still receive ample time to evaluate their young talent while having them under control. It would also create a situation in which they are being forced to spend their money and cap space more wisely. If I am a general manager with tons of young talent, I don’t have the option to go sign 30-year-old free agent X because my cap space is accounted for.

The Tampa Bay Lightning signed Nikita Kucherov to a contract worth $4.76 million against the cap for his age 23, 24 and 25 seasons. Ryane Clowe was paid more than that as a 30 year old. Edmonton had Taylor Hall and Jordan Eberle on reasonable contracts considering their skill, and yet Milan Lucic is scheduled to be paid $6 million a season by the Oilers until he is 34 years old. Had Hall or Eberle been paid closer to their worth, their cap situation would have prevented them ordinarily from signing a player past their prime, but they decided to deal their stars away anyway. These contracts exemplify just what is wrong with the system, since their salaries aren’t equal to their talent and worth; instead, they show the opportunity they had to get that significant contract.

The system should be inverted so that young talent is paid for through prime, and veterans aren’t rewarded for previous success.

This past winter saw a number of MLB free agents waiting around for contract offers because teams weren’t going to immediately pony up the cash. In November of 2017 J.D. Martinez of the Arizona Diamondbacks was looking for a deal in the $200 million range. Martinez was coming off a season in which his line according to Baseball-Reference featured a .303 average, a .690 slugging percentage and a 1.066 OPS. He also had 45 home runs and 104 RBI. By all accounts it was an amazing year, and he was one of the best players on the market. However, Martinez was 30 years old, and teams simply weren’t going to commit mega dollars and years to an aging player. So Martinez waited and waited until finally the Boston Red Sox finalized a five-year deal worth $110 million on February 26. Martinez leads the American League in home runs, RBI and is in the top 10 among batting average, slugging and OPS.

If you don’t follow baseball this paragraph may not mean much to you, but in short it reflects the fact that teams showed patience and restraint and didn’t cave into demands. Boston saved at least $90 million, and that is huge. Martinez is tearing it up now, but who knows how he will be at age 33, 34 or 35. This isn’t an apples to apples comparison because the MLB doesn’t have a salary cap, but a luxury tax in which teams who exceed a certain payroll limit are taxed; the rate in 2018 is $197 million. This example is more theory than practice, and it speaks to a concept the NHL needs to embrace.

If the NHL had a system where its best players had the means to get paid what they worth, the market would regulate itself. Top stars would get paid and those left over would lose leverage. Players like David Backes wouldn’t be likely to command $6 million, or 8.22% of the cap on a deal that pays him until he is 37. There might be a team that would want him at the price, but it would likely be for fewer years. There would be rare exceptions, but for the most part there would be some semblance of normalcy.

I always find it funny that come arbitration and restricted free agent season time general managers and teams cry poor, but on July 1 they are like a retiree at the casino rip roaring to drop some cash at the slots and video machines. This to me sounds like a scenario where they pay only when they absolutely have to, and that is something that needs to change.

Nobody likes change, but to prevent future lockouts there needs to be a change to the system. There is always a hesitancy when it comes to paying young players, but this proposed system provides a way to protect teams, and give them ample time to make the right decision.

There may be situations in which a team loses a great young player, but if you are owning a team you should be able to maintain your house and create an environment in which your players want to stay. There is already a mechanism that allows players who have spent four years in college and don’t sign an entry level deal with the team that drafted them to head to unrestricted free agency. This is what happened with Blake Wheeler, Justin Schultz and Kevin Hayes just to name a few. In this situation teams would have the ability to trade players for a massive haul, but they would also have the ability to sign another young player or two.

The design of this system means that talented players would be hitting the market virtually every year, and that would create opportunities. Teams would still have to abide by the salary cap, so it wouldn’t be a situation where one team could just hoard all these young players. Simply stated, there’s no room for complacency and teams have been getting away with exploiting young talent for too long.

The Tavares signing was huge because he went home to Toronto, but more so because he is the biggest player in the salary cap era to hit the open market. Here’s a list of of notable players who had an opportunity to hit the open market, but instead re-signed with their team on a long-term deal.

Notable Players Who Opted To Re-Sign Before Free Agency

Notable Players Who Opted To Re-Sign Before Free Agency
Chart by Shayna Goldman | @hayyyshayyy

There was such a spectacle about him meeting with teams and speculation about what they were presenting because this doesn’t happen everyday. In a world where the best players are hitting the market in their prime, this behavior becomes normal and a part of the cost of doing business.

The most notable superstar free agents to sign with a new team prior to Tavares include the dual 13-year, $98 million deals that Zach Parise and Ryan Suter signed with the Minnesota Wild in 2013 and Brad Richards’ nine-year, $60 million deal with the Rangers in 2011. The fact that there haven’t been more deals like this is just crazy.

This is what the class of 2019 could look like in terms of skaters, and I wonder how many players will actually make it to July 1.

Projected UFA Class of 2019

Chart by Shayna Goldman | @hayyyshayyy

Free agency in the NHL is broken, but it doesn’t have to be this way. There could be resistance at first, but if implemented, a system like this would help grow the game and make it healthier from a fiscal perspective. Players want to be paid what they are worth and teams don’t want to be stuck with a deal that isn’t working out, so this represents a win-win. Ultimately, it could change the way teams draft, develop and protect their players.

I am skeptical that this entire system would ever be implemented, but feel there are some logical concepts that could be used as foundation of a platform the NHLPA ultimately presents at the next round of CBA negotiations. If there’s one thing you takeaway from this article let it be this: Fans, by and large, pay to go and see stars. The NHL is a younger game that it has ever been before, and the players deserve to get their fair share.

Financial information via Cap Friendly unless otherwise noted.