7 Thoughts on Free Agent Frenzy

Breaking down an unprecedented offseason with TheHockeyCode

Since the end of the Stanley Cup playoffs, friend of the newsletter Idriss Bouhmouch (aka TheHockeyCode) has been hard at work advising players and agents on how best to prepare for their upcoming arbitration and contract negotiations.

After collaborating with Idriss on a long-form article discussing Travis Dermott’s next contract, I caught up with him via video conferencing to discuss what we can expect in these unprecedented times.

1. About Idriss’ unique playing career

Financial professional, family man, hockey analyst…starting goaltender for the Moroccan National Ice Hockey Team?

Idriss fell in love with hockey growing up in Montreal, but only fulfilled his ambition of becoming a goaltender as an adult. He trained alongside children at summer goalie camps before emerging as Morocco’s #1 netminder during the 2017 IIHF Development Cup - a tournament held in Andorra to grow the game in non-traditional hockey countries.

An early turnover led to an Irish short-handed tally, but Idriss and his team stemmed the tide to end their tournament on the highest note.

For an avid rec-league competitor such as Idriss, winning an international event in your ancestral country’s colors was a dream come true.

2. Some considerations for teams

The turnaround between the end of the Stanley Cup playoffs and Free Agency Day is short and frantic

Adding to the chaos is the elimination of the week-long “interview period” for upcoming UFAs. the inability for relevant parties to meet in person due to COVID19 restrictions, will put a great deal of strain on dealmakers.

Clubs can only negotiate contracts with NHLPA certified agents, and this reality reinforces the important of having a process in place in the way front office will operate ahead of October 9th.

Contingency plans for different scenarios have been mapped out in respective teams’ war rooms across the League. Many of them will involve delegating additional responsibilities to Assistant General Managers.

Simultaneously entertaining multiple negotiations is a real stumbling block for even the most capable and experienced GMs. There is a reason why some front office have up to 3 AGMs, and that the vast majority of newly minted GMs have previously served as AGMs.

In addition: teams with deep pockets (TOR, NYR) and cities with lower income taxes (FLA, TBL, DAL) will continue to have an advantage this free agency. When Seattle enters the league, there will be one more team (joining Vegas, Dallas, Tampa, Florida) without a state income tax.

3. Some considerations for agencies

Agencies will also find themselves stretched thin due to the unique circumstances, particularly those representing multiple in-demand clients.

These established players may be courted by multiple teams on October 9 and will be pressed to make a decision on the offers made for their services.

In theory the league has outlined clear anti-tampering rules in the CBA to prevent teams and agents to reach ‘handshake’ deals prior to a player hitting the open market. The fact that this process is strictly monitored by the Commissioner’s office is a deterrent to both Managers and Agents.

In practice Agents are skilled at understanding the intricacies of the marketplace and uncovering needs, wants and risk appetite of each teams towards inferring a potential interest or fit for their client (i.e. Team can vaguely summarize using carefully crafted language such as “I have an organizational need and I’m prepared to pay about $XM for a bottom-6 forward, or $YM for a top 4 right handed shot offensive defensemen).

4. Flat cap = Projection adjustments

Cap projections that @samforstner and I have prepared using historical data and contract commitments that were made in a marketplace where the salary cap was expected to increase year over year.

The assumption of an increase in the salary cap did influence many front-office decisions and investments in previous seasons - and in turn the data we employed.

(Our methodology is available here)

Naturally, we expected that historical reality to impact out projection outputs. The marketplace in the NHL has changed drastically, which is why our model outputs may ‘feel’ rich at first sight.

The flat cap means that some projection results that we’ve shared would likely sign at a slight discount - in an estimated range of 5-10% - leading up to and when the free agency market opens. This discount adjustment would suggest that Alex Pietrangelo may likely be sign about $1.05M lower than the projected 8 years x $10.5M including some sort of No-move clause.

However the nature of an open marketplace is not to be understated, the influence of supply & demand, urgency around addressing an organization need and general competitiveness/desperation of teams may very well inflate the cost of in-demand players.

Further reading: TheHockeyCode 2020 Contract Projections

5. Tyler Toffoli: A UFA target for Montreal

The 2014 Stanley Cup champ is projected to sign for $6.5M over seven years (discounted to account for cap reality, he'd earn about $5.85M AAV), but could be a valuable top-six option on a team looking for offensive depth on the wings.

Toffoli has been accustomed to high-income tax rates in his career (LA: 52.56%, VAN: 49.76%), so paying Montreal's 53.28% would not appear to be a significant financial stretch. Of course, wealth specialists are resources available to help players make their decision to ensure financial success and stability.

With cap space on hand ($10.2M) and plenty of pro contracts spots to spare (41/50 limit), Montreal has been deliberate this offseason in adding valuable character to their group with the addition of former Cup Winners Jake Allen and Joel Edmundson.

Players who have won the Cup are in demand, and the impact they can have on the team’s culture is not lost on NHL GMs. High caliber organizations are deliberate in how they construct their roster and how they take risks. For example, after trying to add a winner in Chris Kunitz in the past, Tampa Bay has indeed been rewarded for signing UFA Pat Maroon on a value contract as a free agent coming off a Cup win with the Blues.

6. Financial strategy & signing bonuses

When we consider that there is no visibility about when the season will start and how many games will be played, we could expect players to want more bonus and less salary in 2020-21, as that amount will directly be affected by the number of games played in the upcoming season.

Canadiens President Geoff Molson and GM Marc Bergevin already have $17.2M in signing bonuses committed for the upcoming 2020-21 season.

As a comparison, Stanley Cup Champions Tampa Bay and GM BriseBois owe will owe $28.6M in signing bonus. Divisional rivals Boston Bruins are on the hook for an enviable $4.95M.

All these Eastern Conference teams still have plenty of room to go before coming close to matching the whooping $58.5M owed to Leafs players by MLSE (owned by Bell and Rogers Communications Inc.) ahead of next season.

7. Look for back-loaded contracts?

With escrow being dynamic, a contract structure on a multi-year deal that minimizes the impact of escrow will be sought after.

Escrow is declining according to the CBA extension, so this is motivation to have a back-end load: less money now, but more in the bank over the life of the contract.

This approach should actually align with the financial interest of the organizations looking to trim dollars ahead of upcoming economic uncertainty (i.e. internal cap). Particularly those who struggle to generate substantial operating cash flow (or profit) in a normal hockey season.

The risk with back-loaded contracts are they can become cap anchors. A player owed a higher salary in a given year may prove to be a difficult asset to move if the event that the player's performance deteriorates significantly.

According to hockey wealth specialist Matt Bacchiochi of the Gavin Group, missing out on fans in the stands revenue may prevent ownership groups from having the ability to take on risk, and this may result in less competition between teams when bidding for players of higher price brackets. There will be a challenge to be truly creative as for front-loaded contracts, the difference between lowest and highest year cannot exceed 40% and the difference from year to year cannot exceed 25%.

Front-loaded contracts make sense if it can be bonus-heavy or if the player is concerned about a much higher tax burden in the future. Otherwise, the opacity of the games that will be played in 2020-21 and lower escrow rates in future season, back-loaded deals become more favorable. With interest rates incredibly low, the time value of money matters less BUT if inflation kicks, the money available today is worth much more than the same amount in the future!

Have more contract projection or free agency questions?

Reach out to Idriss by email (ibouhmouch@gmail.com) or twitter @thehockeycode.