Burning the First Year of a Rookie’s Entry Level Contract

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As the college and junior hockey seasons begin to come to a close in March, NHL teams have important decisions to make about their up and coming prospects. They can either shut their players down for the season or bring them up to the NHL/AHL to get a small preview of their playing potential at a higher level. This opportunity seems like a no brainer, especially for players management believe are too good for their current competition and are ready to make the next jump in their development to a professional league in the coming season.

When management makes the decision to audition a player at the next level, the only remaining hurdle is finalizing the prospect’s entry level contract (this issue is usually more prevalent for college hockey players as they can’t sign a professional contract while maintaining their amateurism where junior players have no restrictions). An entry level contract is limited by term (dependent on the prospect’s age at the date they sign the contract) and compensation but includes a provision for prospects aged 18 and 19 (as long as they don’t turn 20 before December 31 in the year they sign their first contract) that allows teams to slide the contract one year into the future if the player does not skate in a minimum of 10 NHL games (NHL CBA Article 9.1D).

Eligible prospects are allowed to skate in nine NHL games (combination of regular season and playoffs) without having the first year of their entry level contract kick in. For players that don’t qualify for the entry level contract slide, management has a much tougher decision to make. An older prospect’s contract will count against the salary cap during the season they dress for their first NHL game. In either case, this will not affect a player’s future unrestricted free agency as the requirements for most players (except Group 5 free agents but we expect these top prospects to play 80+ games before they turn 25) are seven accrued seasons in the league or turning 27 years old. A player must dress for 40 games in a season to accrue a season for free agency purposes and with only a handful games left in the schedule, this is impossible.

Charlie McAvoy, the Bruins top defensive prospect made the decision to leave Boston University and go professional last week. Ideally, Boston would like McAvoy in their lineup as they push toward the playoffs, but he doesn’t qualify to slide his entry level contract to the start of next season as he is currently 19 years old and turns 20 later this calendar year (December 27). McAvoy is currently playing for the Providence Bruins in the AHL on an Amateur Tryout contract. Other players facing a similar issue include Boston’s Jakob Forsbacka Karlsson and Ottawa’s Colin White. Both actually signed professional contracts yesterday and will burn the first year of the entry level contract in their NHL debut.

General Managers not only have to manage their roster for the present day, but also set themselves up for an indefinite period in the future. Teams will need to evaluate their window to compete for the Stanley Cup in this process. Is it in their best short and long term interest to play a prospect for a handful of games and burn the first year of a prospect’s entry level contract in the process? There are many different factors in play so let’s walk through the different potential scenarios of either burning or saving the first year of the rookie contract and how it could affect the all-important second contract.

Burning the First Year of an Entry Level Contract

Burning Year of ELC

For my example, I’m going to assume a player is 19 years old (as McAvoy currently is), but this timeline can be shifted depending on the age of a prospect signing his first contract (Note: a player’s RFA timeline (shown above in grey) can only be shifted back one year as they will become a free agent once they are 27 at the end of the League Year (June 30)). The player’s age 18 season is blacked out as he was playing in college/juniors and hadn’t signed his rookie contract yet.

Burning the first year of an entry level contract (shown in yellow on the above chart) allows for a player to immediately jump into an NHL lineup and hopefully make an impact while getting acquainted to the level of competition. Teams may view this option as a post-Trade Deadline acquisition. I won’t get into the details of fitting a rookie into a lineup late in the season but management and the coaching staff have to be on the same page in determining where a player could be a good fit and realistic performance expectations.

Looking forward past this season, the player will have two years left on his entry level contract and five before reaching unrestricted free agency. Capped at $925,000 (ignoring signing & other bonuses), a player on his rookie contract provides very affordable labor and often outperforms his salary. Drafting talent that can fill out a roster is very important for contending teams because entry level contracts can offset larger contracts veteran players negotiated. Having multiple rookies in the lineup allows teams to pay star players $6-8M+ while still dressing a competitive roster from top to bottom.

A rookie’s first two full seasons will go by very quickly and soon will be a restricted free agent in need of a new contract. A major perk of burning the first year of the entry level contract is that the rookie is provided almost a full season less to prove his true NHL talent before contract negotiations. Having only accrued two NHL seasons compared to three is a huge leverage situation for the team. Management, having projected the player’s immediate and future worth, can try to undermine a player’s current value in negotiations and sign the player to a cheaper deal because he lacks a strong body of work. Teams can pursue either a shorter bridge contract or a long-term contract directly following a rookie’s entry level contract.

A bridge contract is a much safer option when negotiating a player’s second contract. This contract is short term (often 2-3 years), offers a team-friendly cap hit (usually between $2-4M) and the player remains a restricted free agent at the expiration of the contract. This contract allows teams to continue to pay star players more money while getting value out of younger players for their early career. A player is given this extension period to continue to prove he’s a franchise player and worth a much larger and more lucrative third contract. If a player isn’t able to produce at a high rate or if he’s limited by injuries, the team isn’t on the hook for years to come. But, if the player turns into one of the league’s top players during his bridge contract, he’s going to cost the team much more money than what they could’ve paid him following the rookie contract (see PK Subban’s second and third contracts as a perfect example of this). A bridge contract is a gamble as it could cost the team more down the road but provides insurance if the player isn’t’ able to maintain his level of play.

As of recent years, the more popular approach to a player’s second contract is immediately signing him to a longer contract. Depending on the individual circumstance, this contract is considered mid-range in terms of length (4-6 years), compensation ($4-6M) and may qualify a player for unrestricted free agency at the contract’s expiration. This approach is riskier than a bridge contract as a much larger contract is guaranteed to a player with a relatively small NHL resume. The long-term second contract will cost a team more in the first few years but should provide great value in the back half of the contract assuming that the player grows into the role of a franchise player. The New York Islanders have gotten great value out of John Tavares’ second contract for the past five seasons (he signed a 6 year, $33M contract following his rookie deal).

For example, Johnny Gaudreau burnt the first year of his entry level contract by playing in just one NHL game (Calgary didn’t qualify for the playoffs) following his junior season at Boston College in 2012-2013. He went on to put up big numbers in the last two years of his rookie contract before signing a 6 year, $40.5M contract ($6.75M AAV) at the start of this year. Calgary took a gamble on Gaudreau being able to maintain his level of play, one that could pay off tremendously in the long run. Had Calgary decided not to burn the first year of his rookie deal, he likely would’ve cost more at the end of this season with three very productive seasons under his belt compared to two.

If a team’s window to compete for the Stanley Cup is now or in the immediate future, the best bet is to burn the first year of a rookie’s entry level contract. First, the rookie is available for this year’s postseason run and may be able to make an immediate impact to the team. Second, a smaller sample size at the NHL level gives management an advantage in negotiating the player’s second contract, whether they decide on a bridge deal or a longer contract. Getting additional value out of a player’s first few contract is crucial to maintaining and even extending a team’s window to compete for the Cup.

Not Burning the First Year of an Entry Level Contract

Not Burning Year of ELC

A team looking towards the future may choose not to burn the first year of a player’s entry level contract with just a handful of games remaining in March. It goes without saying that the player will not be available to the team for the playoffs but will start fresh at the beginning of next season aiming to make the NHL roster. In this scenario, an entry level contract will provide very affordable labor for three seasons and when completed, will likely leave a player four seasons away from unrestricted free agency.

This option is the standard approach for rookies, allowing them three years under their first contract to develop and mature. Similarly to burning the first year of the contract, this scenario allows for rookies to offset the contracts of star players, but for an extra year. This third full year of low salary can be crucial for top teams but also allows rookies to further build their resume. A stronger resume will be more costly when negotiations begin for the player’s second contract. As the same as earlier, teams can either pursue a bridge deal or a longer second contract.

A bridge deal with this option has less leeway as the player likely only has four years remaining of restricted free agent status. With three years under a player’s belt, both the player and management will have a better idea of his ceiling and durability. Management will have a tougher time underpaying the player, but will still be able to sign the player for much less than his value in an open market. Still, the team will get half a decade out of a player for less than what he’s worth. This is the safest option for management as they are getting a longer look at the player and only signing them to a short-term contract. Looking further down the line, a third contract (likely long-term if the player has developed into a star) will likely cost the team a lot more as they’re buying several years of his unrestricted free agency. If a player isn’t able to maintain his level of play, the team isn’t on the hook to overpay him for several years.

Signing a player to a long-term extension following the expiration of his entry level contract will cost the team more in the short-term but will likely level out the costs in the long-term. The first half of the contract will be several million dollars more expensive than a bridge contract, but the second half of the contract will be cheaper than the player’s third contract following the bridge deal. This contract is riskier than a bridge contract but can provide good long-term value if a team believes a certain player is destined for success. The team won’t have to worry about a third contract for a player until he is around 30 years old.

If a team’s window to compete for the Stanley Cup is in the future, the best bet is to not burn the first year of a rookie’s entry level contract. A team out of the playoffs or a tough first round playoff matchup looming in the future, it may be a better bet to hold off on bringing aboard a rookie until next season. Going the bridge deal route will result in up to six seasons of a player on low salary until a bigger contract kicks in, but teams may find better long-term value in signing a player to a longer contract at a reasonable salary. Getting additional value out of a player’s first few contracts is crucial for setting a team up for success and building towards a team’s window to compete for the Stanley Cup.

Conclusion

After laying out both scenarios, there isn’t a straight answer to whether or not a team should burn the first year of a rookie’s entry level contract in the final stretch of the season. A team currently in competition for the Stanley Cup may benefit more from adding a talented rookie to the lineup immediately and using him as a cheap asset in the next few years while a team in a rebuilding mode may benefit more from holding off on inserting a rookie into the lineup and having him on a cheaper contract down the road.

A team will have to evaluate their organization from top to bottom in determining when their best window of competing for the Stanley Cup is and work to build towards it. Many other factors will come into play including when other top players will need new contracts that will come at a premium, when current contracts are coming off the books and other prospects coming up in the system among many others.

In the end, a one year contract slide won’t solely determine a future contract’s value. A player’s development from a top prospect into a contributing professional is much more important to a team’s investment than a rule in the CBA. Smart asset management, like effectively managing a rookie’s current and future contracts, can go a long way in surrounding their top players with supplementary talent across the roster.

Follow Steve Ness on Twitter: @QuickkNess

All data from CapFriendly and NHL.com.

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