Few things are as universally panned by pundits and fans as expensive long-term contracts and pricey trade deadline deals. Both frequently carry with them extensive risks: for long-term contracts, the chance of the deal eventually becoming an immovable albatross is high (and increases exponentially the longer the deal extends into the players twilight seasons). For deadline deals, the frenzied, auction-like atmosphere engendered by playoff teams all searching for “another piece” drives the asking price up for highly desired players, usually beyond what they’re worth. The list of players acquired at the deadline for packages of prospects and picks, only to see the team falter in the post-season, is a long one.
And yet, NHL GMs continue to make similar errors year after year. Perhaps the best and most recent example of both issues is Ilya Kovalchuk: acquired at the trade deadline last season for Niclas Bergfors (former first rounder), Johnny Oduya (functional NHL defender), Patrice Cormier (second round pick) and a first round draft pick in 2010. Kovalchuk would finish the year as point-per-game player for the Devils, but his acquisition would fail to propel them past the first round of the post-season.
Lou Lamouriello compounded his error this summer by inking Kovalchuk to a nine year contract worth $6.667 million per season (a deal even less onerous than the original 17 year, $102 million contract that was originally signed – and subsequently voided by the league). The Devils season hasn’t been a colossal failure strictly because of the Kovalchuk addition, but there’s no question his performance and hefty cap hit have exacerbated some of the team’s many issues.
Kovalchuk is a compelling object lesson because Lou’s gambles failed immediately, which is always possible when rolling the dice. However, what Lou and other GMs are doing in cases of long-term contracts and trade deadline deals is actually fairly rational when we consider the league’s incentive structure: to put it bluntly, “win now” is the imperative goal for almost all NHL decision makers. It doesn’t make a lot of sense to build for the future when present struggles can lead to your ouster.
There are a couple of related incentives when it comes to Kovalchukian deals in the NHL. Firstly, an extended contract can allow a GM to lower the average salary – and therefore cap hit – of the contract. This was the reason the NHL voided Kovalchuk’s initial deal this past summer: as it was originally conceived, the contract was severely front-loaded with Kovalchuk scheduled to earn just $550,000 per year in each of his last five seasons. That meant the sniper would earn a huge chunk of salary during the productive seasons of his career, leaving him free to retire later without losing more than a relatively trivial amount of dollars. There are other deals of this ilk in the league (Roberto Luongo and Miikka Kirprusoff come to mind). This kind of cap structure allows a manager to pay a player what the market will bear in real dollars, but less in terms of cap hit.
Of course, this avenue was cut off for Lou and he still signed Kovalchuk to a huge, long-term contract anyways. Sidney Crosby, Alex Ovechkin, Evgeni Malkin and Eric Staal all boast 5+ year contracts with hefty salaries and little-to-no cap mitigating tails attached. So while the cap hit loop-hole helps to explain some of the larger deals signed in the post-lock-out era, it’s not the sole reason for their existence.
As mentioned, NHL GMs are mostly motivated to win now. Sports is a highly results oriented business (coaches are sacrificed before the percentages all the time), meaning winning in the short-term frequently trumps planning for the future outside of a few extreme circumstances (organizations committed to “rebuilding”). What long-term deals do is allow managers to defer risk into the future. For example, Eric Staal is probably worth his $8.25 million cap hit to the Carolina Hurricanes currently. How long he will persist in being a value contract is impossible to say, but the chances of that shrink each successive year of his deal as the chances of him falling away from his peak increase. So in inking Staal to his contract, Jim Rutherford is trading immediate, short-term certainty (Eric Staal is valuable, $8M player for the franchise) for long-term, as-yet-unknowable risk in that Staal’s performance will eventually fall below the value of his deal (when and by how much is the question).
Deadline deals similarly trade immediate gains for future uncertainties. While the package of assets dealt to the Thrashers for Kovalchuk seem especially pricey in the light of the Devils subsequent failure(s), the truth is the value of the likes of Bergfors (a rookie), Cormier (a prospect) and the 2010 first round pick were immaterial in the short-term for the Devils and much less certain in the long-term given the fact none were established NHLers (let alone established NHL stars). Had the Devils won the cup with Kovalchuk, no one would have second-guessed the deal. In addition, if Bergfors et al prove to be less than worthwhile players, the perceived price paid by the Devils will fall considerably.
Of course, when teams fail to “win now”, deferring risk via long-term contracts and dealing future assets can result in an aging, expensive, inflexible roster and a lack of internal prospects to supplant doddering vets. This is the issue currently afflicting the Calgary Flames thanks to (the recently deposed) Darryl Sutter’s relentless pursuit of short-term success.
Deadline deals and long-term, big money contracts carry risks with them, but they are ill-sketched, relatively long-term risks GM’s are willing to gamble with in return for potential short-term gain. While this seems to be an irrational strategy on it’s face, the truth is winning “now” is often far more important in terms of personal goals and job security than building for some indeterminate future. The problem being, of course, that with enough bad bets the chickens will eventually come home to roost without the requisite success to justify the prices paid.