Garrison signed for 6-years at an average of $4.6 million – a cap hit the same as Kevin Bieksa. But, from a team’s strategic perspective, is Garrison REALLY getting paid as much as Bieksa?
In a salary cap world, a player’s worth is measured relatively to his cap hit, not his absolute value. A player making $3 million is now compared to what the team could spend that $3 million dollars on. Classic opportunity cost. This is why some very good players become essentially almost worthless because of their contracts – see the cases of Sheldon Souray and Wade Redden, who both were banished to the AHL not because of their skills but because of their skills relative to their cap hit.
But the cap changes every year. This means strictly comparing one player’s salary cap hit to another’s is flawed. The actual dollar value is meaningless… except as a figure to use to calculate a percentage of the cap. That’s what is important. What percentage of the cap ceiling are you paying the player?
And this means before comparing one player’s cap hit to another, you need to take into account when the contract was signed.
So let’s compare Jason Garrison’s new contract to Kevin Bieksa’s. They both have a cap hit of $4.6 million. But Garrison’s contract was signed in the summer of 2012, for the 2012-2013 season and onward. Bieksa’s was signed a year previous. Bieksa signed for a $4.6 million cap hit when the cap was $64.3 million, or for 7.2% of the cap. Garrison signed for a $4.6 million cap hit when the cap is (as of today… things could change with the new CBA agreement) $70.2 million, which is 6.6% of the cap.
Garrison’s contract is only 92% of Bieksa’s once you account for the increase in the cap.
How would a team use this information for a strategic advantage? A team can adjust the value of contracts it offers players based on their prediction of the movement of the salary cap in upcoming years. If a team thinks the salary cap will be increasing in each of the next seasons, they could then “overpay” to get a particular player, knowing that a big inflation in player salaries is coming with an increased cap hit.
Theoretically, you’d be more aggressive in chasing particular free agents you want when you expect the cap is going to rise in the near future, and be more cautious when you didn’t expect it was going to rise much.
For example, let’s look at last summer, where the cap was $64.3 million. If you knew/predicted the cap was rising to $70.2 million – an increase of 9.2% - you could make a contract offer to a free agent you want that is higher than the value you think the player is worth – up to about 9.2% more. Yes, of course you still need to come in under the cap for the current season, so you couldn’t use this strategy for every player on the team, but you can use it to specifically target a certain player you want especially when bidding for a free agent. There are more variables to consider here but I’m simplifying.
Roberto Luongo’s contract here is a great example. He signed his 12-year, $64 million contract in summer 2009, before the 2009-2010 season. Today we know that the cap would increase 4.6% the next season from the previous, 8.2% the season after that, and 9.2% for the upcoming season (the cap for the 2012-2013 is a full 24% higher than for 2009-2010).
If the Canucks correctly identified the major increases in the cap in the next 3 years, they would have adjusted by offering a shorter-term with a higher cap hit. And you can see today that this is true, as no analyst or GM when assessing Luongo’s worth is balking at his $5.3 million cap hit, but it’s the length of the term that is killing his value.
Edited by PR, 01 July 2012 - 09:58 PM.