Friday, January 11, 2008

Ovechkin deal all about the risk

What I've said in the past when it comes to monster contracts in the NHL all applies to Alex Ovechkin's deal.

It's just that, as the dollar figures rise, so too does the amount of risk involved.

Rick DiPietro signed a 15-year deal for $67.5-million. Mike Richards signed for 12 years at $69-million. And now Ovechkin has a 13-year, $124-million contract.

Capitals owner Ted Leonsis is on the defensive today over the contact, and he does make several sound points. $10-million per annum may, indeed, be a bargain for a 28-year-old star in six years time — and 12 or 13 years down the road?

Let's just say that the average NHL salary 13 years ago was little more than today's league minimum, right in the $600,000 range. Salaries have tripped in that period and, over time, Ovechkin's $9.54-million cap hit could be quite modest for a star of his talents.

But that's not the problem with the deal. This, in my mind, is.

Ovechkin's an almost surreal talent, but he's not unprecedented. We've seen plenty of players who have arrived and burned brightly, lighting up hockey's ultimate stage with a combination of speed, power and grace.

Many never made it until the ripe old age of 35, which is when Ovechkin's deal ends.

Pavel Bure's a decent comparison, if only for how he could skate with the puck. But it was two days before his 28th birthday, not long after he was dealt to Florida, that Bure underwent right knee surgery to repair a torn ACL.

He would play three more productive seasons, and retire at 31.

There is only one real guarantee with Ovechkin's deal: He'll receive every penny of the $124-million (minus escrow), regardless of how long and prolific his playing career is. And the real risk involved here for Leonsis and the Caps is the fact that this deal, at 13 years, is uninsurable.

What we learned from DiPietro's deal when it was first signed was that only the first six years were covered by insurance, and any career-ending injury would leave ownership and the team on the hook for the remaining salary.

And in Ovechkin's case, we're talking about twice the dollar value.

As I said, $10-million a season could certainly be a bargain if Ovechkin's healthy and productive, but that's not really the question here. What I wonder is why is this worth the risk?

Leonsis isn't exactly making a calculated decision here based on how the league's salary structure will change — part of what he calls "good planning and cap management" — because who on earth knows how well his star can perform in eight or 10 years? Will he have suffered several injuries by that point and be more of a second-line contributer? Will he be fit to play at all?

What Leonsis is really doing is putting a ball on the roulette wheel, eyes closed, and hoping his investment avoids the fate of so many others.

The original, six-year deal came with a guarantee that would keep the team's coffers full even if its star was sidelined. This one doesn't.

Ovechkin plays a beautiful brand of hockey, and his reckless style has made him beloved in Washington and a star across the league. As I said yesterday, he's on pace for a 60-goal season when we haven't seen one in 12 years.

But his style also puts him at risk.

You know what? Here's hoping he can defy the odds and have a long, productive career playing that way, and that his contract does ultimately end up being a bargain. If any town needs a hero for its hockey team, it's Washington.

I just don't know that I'd take that bet.

UPDATE I've got some more information on the insurance details, courtesy of Capitals media relations director Nate Ewell: "The league’s plan covers the first six years, but we’re free to insure the remainder of the contract after that point on our own. We’re currently looking at our options there."

That league plan would reimburse the team for 80 per cent in the event of a career-ending injury.

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At 3:27 p.m., January 11, 2008, Anonymous Anonymous said...

This is the same guy who thought paying Jagr a billion dollars was a good idea, right? And who's been paying Jagr to play on a rival team for several years, correct?
This Emperor has no clothes.

At 3:29 p.m., January 11, 2008, Blogger Kel said...

James wrote: "He'll receive every penny of the $124-million, regardless of how long and prolific his playing career is. "

Well, I'd like to keep reminding people about escrow. No, he won't receive every penny of the $124-million, even before tax. Next season, when the deal starts, a lot of high salary (on paper) contracts are in effect and will most likely push escrow up even if NHL continues to grow revenue at the current pace. Doubt-digit (percentage) escrow is not unimaginable with a rising cap and many teams spending big, especially with front loaded contracts. (Escrow is determined by actual salary, not cap hit.)

At 3:38 p.m., January 11, 2008, Blogger James Mirtle said...

It's a good point, Kel, and I've made a small change to the copy.

At 4:19 p.m., January 11, 2008, Blogger danielao said...

Sorta confused. What about the way Ovechkin plays the game makes it "reckless"?

Other than maybe some of his goal celebrations.

At 5:34 p.m., January 11, 2008, Blogger Shane Giroux said...

I'm sure you know what James meant by reckless.

It's not like Ovechkin is Gretzky who never got his hands dirty.

Ovechkin is an in-your-face type player and the question is whether his body can stand up to that abuse.

Hopefully it does but having 7 years uninsured on that contract would definitely be keeping me up at night if I were Leonsis.

At 6:06 p.m., January 11, 2008, Anonymous Anonymous said...

James wrote: "He'll receive every penny of the $124-million, regardless of how long and prolific his playing career is. "

As well, James and Kel, if his contribution is truly diminished, the team can release him and pay 2/3 of the remaining salary spread out over twice the number of remaining years under the contract.

It is imprtant to remember that hockey contracts are not quite as guaranteed as baseball contracts (but way mor ethan NFL contracts).

At 8:18 p.m., January 11, 2008, Blogger James Mirtle said...

You're right, Gerald — the buyout's another thing to consider here.

At 11:27 p.m., January 11, 2008, Blogger Mark Bonatucci said...

I''m a Caps fan and really pysched that Ovie has signed a long term deal. I think it's a great move by Ted and the Caps ownership. I also think all this discussion of the poor business merits of the deal are wrong headed. Sports Franchises as a business are all about asset appreciation; operational "income" doesn't play. LETS GO CAPS!!!!

At 11:31 a.m., January 14, 2008, Anonymous Anonymous said...

Don't discount the immdeaite bump in OVechkin jersey sales that will max out once you realize you don't need to buy another Cap jersey for 13 years.

At 8:46 p.m., April 06, 2008, Anonymous Anonymous said...

Hm. 65 goals. Puts the team on shoulders, dragging them into the playoffs and a division title no less.
124M over 13 years? Seems like Ovie got ripped off if you ask me.

Re. your injury concern, let's say he DOES get hurt in 8 years and doesn't perform at the other-worldly level he is now. Guess what, if I'm Washington, I'm still walking out a winner.

At 8:48 p.m., April 06, 2008, Anonymous Anonymous said...

The 9 to 10M/yr IS the insurance already. He's worth much more than that. It's been reduced to ~ 9/yr in case he gets hurt halfway through his contract.



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