Seth Jarvis of the Carolina Hurricanes received a massive eight-season contract yesterday – made possible by deferred payments in his signing bonus. This is allowed by the NHL Contract Bargaining Agreement. Should it be utilized for Dawson Mercer’s next contract?
Yesterday, the Carolina Hurricanes signed restricted free agent winger Seth Jarvis to a massive eight-season contract worth $63.2 million. What is unusual about this contract is its structure. Per Frank Seravalli of Daily Faceoff, Jarvis has agreed to defer payment in his contract so the final check of his signing bonus will come on July 1, 2032 – which is the ninth year of the contract that does not actually exist. The result of this is that the cap hit for Jarvis is less than the average accrued value of the eight seasons he will play for. Instead of $7.9 million, it’s $7.42 million per season per PuckPedia. The deferred payments are worth $15.67 million; but Jarvis will get his $63.2 million. And this is not the first time the Hurricanes have done this. Seravalli pointed out in his post that they did this on a much smaller scale with Jaccob Slavin to reduce his cap hit by $65,000.
What Servalli missed in his post is that the Hurricanes are not the first team to have done this. Arizona actually did it in re-signing Shane Doan way back in 2016. Is this allowed? Absolutely. The concept, while pulled off in a significant way with Jarvis yesterday, is not a mere interpretation of the Contract Bargaining Agreement. There is no spirit of the CBA to be decided by a third party as to its violation. Deferred payments for bonuses has been in the CBA since 2013. (And possibly even 2006, but I do not have a copy of that CBA on hand to confirm.) It is written in Article 50.2, which covers Player Salary, Bonuses, and Actual Club Salary. Specifically, 50.2(b)(i)(A) which is written as follows:
(A) For these purposes, “Deferred Bonuses” means any Bonuses that are earned during the term of an SPC during which the services attributable to those Bonuses are performed, but are not paid until after the expiration of such SPC. By definition, Deferred Bonuses that are earned during the term of an SPC may not be paid until after the expiration of such SPC. For purposes of calculating a Club’s Upper Limit and Lower Limit, as well as the Players’ Share, Deferred Bonuses shall be counted as Bonuses in the League Year in which the Player performs the services for which they are earned, at their present value at 1-Year LIBOR plus one and one-quarter (1.25) percent of the Deferred Bonuses (unless the Deferred Bonuses are to be paid with interest, in which case they shall be counted in the League Year in which the Player performs the services for which they can be earned, at the stated cash amount of the Deferred Bonuses). Bonuses denominated as “Deferred” but payable within the term of the SPC shall not be permitted.
The financial and accounting experts among the People Who Matter will identify the risk involved here. LIBOR stands for London Inter-Bank Offered Rate and it was the average interest rate used by banks when they borrow from another. LIBOR has been replaced by Secured Overnight Financing Rate, but the principle is still the same. If interest is used to pay the player, then it counts as-is. Without, then the calculated worth is used. If the rates are favorable, then the team effectively spends less in time. If not, then the player makes out even better.
To me, this contract brings up the question: Should the New Jersey Devils offer a deferred bonus in their current negotiations with their one and only remaining restricted free agent, Dawson Mercer?
I think cap space is one of the reasons why this deal has not yet been done. According to PuckPedia, the Devils have just over $4.9 million in cap space as of last night. While I can see Mercer getting a bridge-like deal within that number, the Devils would likely enter the 2024-25 season right up against the cap. Something that is not ideal if and when call-ups are needed. Or management wants to make a trade. Or they decide to bring in someone on a PTO for camp and want to give them a contract. A little cap space is a bit more than nice to have from those perspectives. Giving Mercer just about all of it now may not be the best move.
New Jersey’s cap space could increase with some movement among the roster to Utica. Max Willman’s NHL minimum salary of $775,000 is up with New Jersey on PuckPedia. Move him to Utica and the Devils have more room. Burying Nathan Bastian (or trading him?) to clear his $1.35 million cap hit may be more ideal to make space since GM Tom Fitzgerald’s Operation Get Bigger and Perceptionally Meaner may make Bastian unnecessary. The point is that if the difficulty in negotiations is that Mercer wants his bridge deal to come in close to $5 million, then something will have to be done first. With Jarvis’ deal, does this open up another option for the Devils?
My first thought is absolutely. The CBA literally allows this as an option and why would you not use it? After more than 30 seconds of thinking about it, I do not know why Mercer would want to go for it. Jarvis’ case seems more special. He apparently wanted to stay in Carolina for the long-term. The Hurricanes wanted to him to stay for the longest possible term. Given that he stands to make an incredible amount of money, then deferring some of his bonus money may be a wash to him. If the interest rates drop, he may stand to get more but if not, he still has $63.2 million. I do not think Mercer is in the same position.
As much as I once argued that Fitzgerald should lock him up to eight-seasons before he commands an incredible amount of money, last season really threw that for a loop. Mercer may have reached 20 goals after a terribly cold start to the season. He also put up his fewest amount of points in his three seasons in NJ and his 5-on-5 on-ice rates dropped from his excellent 2022-23 season. It is unclear whether he lines up at center or at wing, where he possibly should be instead. A bridge deal of two to four seasons is more appropriate since it is not apparent whether Mercer is going to bounce back and excel or settle in as a middle-six forward. While that is still useful, it is not worth a lot of money and term. And do that end, why would the Devils offer to defer future money that they may not want to spend in the present? If Mercer looks to move on after this next contract or the Devils look to move on from him, then why pay him after that contract actually ends?
More importantly, why would Mercer accept a deferred bonus at this point of his career? Jarvis and his representation were apparently fine with staying in Raleigh for as long as possible. Mercer may or may not want to do that and it is unknown if the Devils will agree. I would think it is in Mercer’s best interest to get what he can now with the understanding that he could earn more. Ideally based on whether he repeats and/or improves upon his 2022-23 season. I would think that means not agreeing to anything that eats into his UFA seasons – which starts in 2028 – as well as ensuring what he gets paid is within the contract. Getting paid after the next deal ends is nice but why should Mercer wait for that money when it could be paid out earlier?
Ultimately, I think the door will be opened to something that the CBA has allowed since, well, the start of the salary cap era. I think we will see more teams explore this option for substantial, long-term contracts. I do not think it makes a lot of sense for the team and/or the player looking for a shorter team deal. Unless the team is right up against it budget-wise. Which was the case with Arizona way back in 2016. The Devils’ owners are rich and have splashed a lot of cash on the team; there is no perceived internal budget beyond the salary cap. Credit to Eric Tulsky and his management team – which now includes former Devils analyst Tyler Dellow – for identifying a documented way to move money around a salary cap and ultimately lock up a player through his best years. I do not think Fitzgerald will or even should look to utilize it for Dawson Mercer’s deal.
As ever, I could be wrong. Maybe Fitzgerald will offer to defer bonus money to help make a deal work and maybe Mercer would be OK with that. Maybe Mercer will come in under $4.9 million and this is all moot with no one needing to go be a Comet for cap reasons. Maybe this is something that gets resolved in some other way. What do you think? Will we see more teams offer deferred bonuses to provide a little short-term cap relief for a real cost in the future? Will more players take them? Will the Devils do it, if not for Mercer, but for whom in the future? Please leave your answers and other thoughts about this development in the comments. Thank you for reading.