Flat Cap Effect: UFA – Offer Vastly Surpasses Demand

COVID-19 has screwed up a lot of things. Since early 2020, the deadly virus broke into a pandemic that saw the world economy almost shut down to a stall. Some businesses had to shut their door, some permanently, being unable to sustain the impact of the lack of social interaction. Others more fortunate managed to get by up until this point by cutting down expenses, including staff, just to stay afloat. All hoped to see a turnaround by this time but a combination of selfishness, poor politics and frustration has made the situation worse. As experts warned about, the second wave of Coronavirus is at the point of surpassing the initial outbreak. This will kill some businesses in most industry.

Pro sports, NHL included, are trying to get back to life but it comes at a price. The NFL and MLB have suffered recent outbreaks and junior Canadian hockey leagues are seeing the same. And that’s why the NHL decided to push their original plans. They went from of opening training camps on November 17th and the 2020-21 season from December 1st to early January 2021. I guess if they go ahead, it would be the 2021 season instead?

Teams’ struggles

Not only do NHL teams struggle with no revenue coming in, GMs of those teams have to do some active Yoga just to remain under the salary cap. It has been announced to be frozen at the same point as last season, $81,5M. Further, the NHL predicts much of the same for 2021-22, and possibly further. It’s all based on revenue and right now, it’s more than limited.

Some GMs, those whose team is closest against the cap, must still sign their own RFAs while trying to improve their team in the process. Some have improvised themselves as quite the contortionists in find ways to be cap compliant and that includes not qualifying RFAs that they don’t want to let go. We have also seen a higher than normal number of buyouts by NHL teams.

You usually have a pretty set number of pending UFAs each year. Few RFAs are not qualified and only terrible contracts get bought out. It’s not the case this year. In addition to your scheduled pending UFAs, non-qualified RFAs become UFAs and so do players whose contracts have been bought out. This created a saturation for the market. We see an example of that with the number of goaltenders available as UFAs, amongst other positions.

Fiscal impact on players

There’s a reason why they call it “free agents’ market”. Market, in terms of marketing, is the balance between supply and demand. When the demand is high and the supply low, prices go up so in the NHL’s case, higher than normal money is awarded to UFAs. This year, there is a huge discrepancy, but it’s the other way around. The supply is abnormally high, and with the cap staying put, the demand is more limited than usual.

What will this do to the UFA’s trying to land contracts? It will do one of three things, or a combination of them:

1- More short-term contracts

Due to the uncertainty of the cap uncertainty, players may want to sign a short term contract at a lesser amount. They will become UFA a couple of years later and then, get a better contract. Few teams will be willing or capable of committing to those $60-70 million contracts for a seven year period. Teams know that they’ll have other RFAs to sign in the next couple of years too and they don’t know if the cap will go up. It is pretty safe to assume that GMs will play it safe and will try avoiding tying their own hands down the line. Not counting that most owners are likely to ask them to cut expenses due to the lack of revenues, creating self-inflicted cap ceilings.

2- Get their money over longer term

Unlike the NFL, NHL contracts are guaranteed contracts. The only way for teams can get them off the books is through buyouts or mutually agreeing to terminate contracts for the purpose of going to play in Europe. If players and teams feel like there’s a good match, the player, particularly top end players, might chose stability and guaranteed money. He would do that as opposed to gambling on short term at risking a serious, possibly career ending injury. So if the market would normally make it that Player “A” would want $40 million over five years ($8M cap hit), he might accept the same amount of $40M but over a 7-year period instead ($5.7M cap hit). This way, he’s guaranteed his $40 million and the team is in better shape if the cap doesn’t go up.

3- Go to a less desirable market

Some non-traditional hockey market teams often struggle to draw good UFAs. Those teams rely on marketing to draw fans to their rinks and what better than big names to do just that? Let’s say that UFAs don’t usually go to the Panthers in Florida. Say, as a measure of example, the best offer Taylor Hall receives from teams where he wants to go to is around $7.5M. The Panthers, with a lower payroll, may offer him $9M for the same term and use him as the face of their franchise. In Montreal, Hall wouldn’t be the go-to guy as Carey Price and Shea Weber are the face of the franchise and they don’t “need” him to bring fans in.

Even at that, the demand won’t be as high as usual so you’ll find some players who will need to go to Europe to continue their career and play professionally. Others will have to accept league minimum (or close to it) in order to stay in the NHL. Those are not only unusual circumstances we’re seeing, but difficult for everyone involved. These guys’ career isn’t long so if you take a couple of years away, it’s a big percentage. Still, fans won’t have sympathy for them as they too are going through their own struggles, including putting food on the table, due to the pandemic.

It will be interesting to see what happens in the next few days but don’t be surprised to see the three above-mentioned scenarios. You will also see more trades than usual. At the time of writing this, Patrik Laine is not the property of the Montreal Canadiens, yet. Okay, this was a sarcastic comment folks.

Jake’s new mask

Well there you have it folks. As if it wasn’t already official, Jake Allen has his new mask with the Habs’ colours on it. Can’t wait for this season to start. Who’s with me? Go Habs Go!

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