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yesterday, The Carolina Hurricanes have signed restricted free agent winger Seth Jarvis to a massive eight-season, $63.2 million contract. What is unusual about the contract is its structure. According to Frank Seravalli of The Daily Showdown, Jarvis has agreed to defer payment. Therefore, the final check for his signing bonus will arrive on July 1, 2032 — the ninth year of a contract that doesn’t actually exist. As a result, Jarvis’s cap hit is lower than the average cumulative value of the eight seasons he will play. He didn’t get $7.9 million. According to PuckPedia, the box office for each season is $7.42 million. The deferral is worth $15.67 million; but Jarvis will get $63.2 million. This isn’t the first time the Hurricanes have done this, either. Seravalli noted in his post that they did something much smaller with Jacob Slavin, reducing his cap hit by $65,000.
Something Sevali neglected to mention in his post: The Hurricanes aren’t the first team to do this. Arizona actually re-signed Shane Doan back in 2016. Is this allowed? Of course. Although Jarvis raised this concept in an important way yesterday, it is not simply an interpretation of the contract negotiation agreement. The spirit of the CBA is not for third parties to determine whether it has been violated. The provision for deferred bonus payments has been in the CBA since 2013. (Maybe even 2006, but I don’t have a copy of that CBA to confirm.) It is written in Article 50.2, which covers player salaries, bonuses, and club actual salaries. Specifically, 50.2(b)(i)(A) reads as follows:
(A) For these purposes, a “deferred bonus” means any bonus earned during the term of an SPC during which services for which such bonus are paid are completed but not paid until after the expiration of such SPC. By definition, a deferred bonus earned during the term of an SPC is not payable after the expiration of such SPC. For the purposes of calculating the club’s caps and floors and the player’s share, deferred bonuses shall be included in the bonus for the league year in which the player’s services were performed at a present value of the 1-year LIBOR plus one and one-quarter percent (1.25) of the deferred bonus (unless deferred bonuses are payable with interest, in which case they shall be included in the league year in which the player’s services were performed at the stated cash amount of the deferred bonus). Bonuses marked “deferred” but payable during the term of an SPC are not permitted.
Financial and accounting experts among key people will identify the risks involved here. LIBOR stands for London Interbank Offered Rate This is the average interest rate used by banks for lending to each other. LIBOR has been replaced by the Secured Overnight Financing Ratebut the principle is the same. If the players are paid with interest, then calculate as is. If not, use the calculated value. If the interest rate is favorable, then the team actually spends less time. If not, then the players are better off.
To me, this contract raises a question: New Jersey Devils Offering an extension bonus in current negotiations with their only remaining restricted free agent, Dawson Mercer?
I think cap space is one of the reasons this deal hasn’t been done. As of last night, the Devils had just over $4.9 million in cap space, according to PuckPedia. While I could see Mercer getting a bridge deal within that number, the Devils will likely be under the cap in 2024-25. That’s not ideal if a call-up is needed. Or management wants to make a trade. Or they decide to keep someone in training camp and want to give them a contract. From those perspectives, having a little cap space is a plus. Giving nearly all of that to Mercer right now might not be the best option.
With some players on the roster moving to Utica, New Jersey’s cap space could increase. According to PuckPedia, with New Jersey’s cap increase, Max Wellman is making the NHL minimum salary of $775,000. Moving him to Utica would give the Devils more space. Burying Nathan Bastien (or trading him?) to clear his $1.35 million cap hit might be a more ideal option to free up space, as general manager Tom Fitzgerald’s “get bigger, meaner” move could make Bastien redundant. The point is, if the difficulty in negotiations is that Mercer wants his transition contract closer to $5 million, something has to be done first. With the Jarvis trade, does that open up another option for the Devils?
My first thought was absolutely yes. The CBA does allow for that option, why wouldn’t you use it? After more than 30 seconds of thinking, I don’t know why Mercer would do that. Jarvis’ situation seems more unique. He obviously wants to stay in Carolina for the long term. The Hurricanes want him there as long as possible. Considering the tremendous amount of money he’s making, deferring some of his bonus might be a loss for him. If rates go down, he might get more, but if not, he’d still have $63.2 million. I don’t think Mercer is in the same situation.
I used to think Fitzgerald should lock him in for eight seasons before he could get his big payday, but last season was a real surprise. Mercer might have scored 20 goals after a very cold start to the season. His lowest scoring total in three seasons in New Jersey, His 5-on-5 ice play rate is down from his excellent 2022-23 season. It’s unclear if he’ll play center or wing, and he probably should play wing. A two- to four-season bridge deal is more appropriate, as it’s unclear if Mercer will recover and perform well or settle for center forward. While that’s still useful, it’s not worth a lot of money and time. If that’s the case, why would the Devils offer to defer future money they may not want to spend now? If Mercer wants to leave after his next contract, or the Devils want to move on from him, why pay him after his contract is actually over?
More importantly, why would Mercer accept an extension bonus at this stage in his career? Jarvis and his representation are clearly interested in staying in Raleigh for as long as possible. Mercer may or may not want to do that, and it’s unclear if the Devils will agree to it. I think it’s in Mercer’s best interest to take what he can get now while understanding that he could make more. Ideally, that would depend on whether he can repeat and/or improve upon his performance in 2022-23. I think that means not agreeing to anything that would erode his UFA seasons (which begin in 2028) and making sure he’s paid within the confines of his contract. Getting paid after his next contract is nice, but why would Mercer wait to get that money when it could have been paid upfront?
Ultimately, I think something that has been allowed in the CBA since the beginning of the salary cap era will be opened up. I think we will see more teams explore this option to get long-term, huge contracts. I don’t think it makes a lot of sense for the team and/or the players seeking short-term contracts. Unless the team is in a tough spot budget-wise. This was the case in Arizona in 2016. The Devils’ owner was wealthy and invested a ton of money into the team; there was no discernible internal budget beyond the salary cap. Thanks to Eric Talsky and his front office (which now includes former Devils analyst Tyler DeLo), they found a well-documented way to get around the salary cap and ultimately lock up a player in his prime. I don’t think Fitzgerald would, or even should, take advantage of it in the Dawson Mercer trade.
As always, I could be wrong. Maybe Fitzgerald will offer to defer the bonus to help make a deal happen, and maybe Mercer will agree. Maybe Mercer’s salary will be less than $4.9 million, and none of this will make sense because no one needs to be a member of the Comets for salary cap reasons. Maybe this matter will be resolved some other way. What do you think? Will we see more teams offering deferral bonuses to provide a little short-term salary cap relief in the future at a real cost? Will more players take it? Will the Devils do it, if not for Mercer, but for someone in the future? Please leave your responses and other thoughts on this development in the comments. Thanks for reading.
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