Friday, 1 August 2014

On PK Subban and Bridge Contracts

If you've been on hockey Twitter at all today, you'll know a few things: 1) PK Subban and the Montreal Canadiens need a new contract, 2) PK Subban and the Montreal Canadiens went to arbitration to attempt to get a contract done, and 3) PK Subban and the Montreal Canadiens are not happy with one another. This is because PK Subban is asking for what he's worth on the open market, but the Habs are trying to pay him like he's a very-good-but-not-great NHL defenseman, but if you're reading this you know that part already. What's important is that two years ago, the Habs insisted that PK Subban sign a "bridge contract" instead of locking up long-term. Subban took that deal, then became one of the best players in the league. Subban's now looking to get paid and the Habs are kind of getting cold feet. That bridge deal isn't looking so good now, is it?

The benefits of a bridge deal are two-fold: one, it allows a team a little more time to "see what a player's got" before locking in to a long-term commitment, and two, and perhaps more prominently, it allows a team to realize massive value savings while a team still has almost total control of a player's RFA years. Corey Pronman uses something like a 40% discount of UFA value for RFA players to estimate what a "fair" deal is.

To me, this approach is unthinkably stupid. A player is worth what a player is worth. If PK Subban is worth $9+ M/yr on the open market, then he's not worth 60% of that to the Habs because he's an RFA and they hold exclusive negotiating rights. If Montreal loses Subban through one way or another, they still have to replace him with a player or players of his value, which is whatever the greater market determines that value is. $5.5 M/yr is not a fair deal for Subban simply because the NHL has a system in place that attempts to control costs for stars while guys like Leo Komarov, Clayton Stoner, and Deryk Engelland can all make in the neighborhood of $3 M/yr.

The "bridge deal" isn't really a thing in the NHL CBA per se. It's some kind of universally agreed upon construct that teams use to squeeze huge value out of RFA guys - it is, along with capped ELC's, the NHL's version of an unpaid internship. "Put off the pay day as long as you can" is a pretty straightforward time value of money concept. Paying out one dollar today is generally less desirable than agreeing to pay put one dollar two months from now. The major problem with the NHL is that most guys will have to get paid one day, and they will get fair market value eventually. PK Subban is going to get paid; it's just a matter of who's going to pay him.

There is no doubt that Montreal got massive value out of Subban these past two years. He won the Norris trophy in 2012-13, and was easily the best defenseman on a Eastern Conference finalist in 2013-14. So looking at it in that light, it seems that the bridge deal accomplished what it set out to do: squeeze value out of a player while a team has exclusive control over his negotiating rights. The problem is that players and their contracts don't happen in isolation of a given team or of the rest of the league, and that PK Subban didn't merely spend the past two seasons providing a crazy ROI for a hockey team. Subban spent the past two years providing huge excess value for the just okay Montreal Canadiens, and that context is what made the bridge deal a massive mistake from the second it was signed.

Any given NHL team's goal should be to win the Stanley Cup. That's essentially the whole point of professional hockey existing. As such, any given NHL team should aim to be in one of two states: a building state or a competing state. Realistically, there are only 5-6 legitimate competing teams in the NHL at any one given time, and everyone else is either delusional or attempting to accrue enough good assets that will be in the primes of their careers at the same time so that they may compete at some point down the road. If you're in a building state - and let's be completely honest here, the Habs aren't close to being legitimate Stanley Cup threats so they should have been building - saving a few bucks right now isn't that important, especially if it comes at the expense of saving a few bucks at the time when you desperately need to save a few bucks. If you're aiming to win the Stanley Cup, you almost certainly need players providing you with significant excess value while you're in a competing state.

Just look at the previous two (well, four) Stanley Cup champions: the Kings and the Blackhawks. The Kings paid the best possession forward and defenseman in the league a combined $4.65 million last year, and their eventual second line wingers a combined $860,000. No winger on the team carried a cap hit above Marian Gaborik's $3.75M/yr (CBJ retained half his salary in the deal). The Blackhawks paid less than $1M each for Marcus Kruger, Brandon Saad, Nick Leddy, Brian Bickell, Viktor Stalberg, and Andrew Shaw in 2012-13, while Duncan Keith made just over $5M - a huge bargain for a top-2 defenseman and offensive dynamo. Hell, Jonathan Toews and Patrick Kane's $6.3M/yr contracts were fantastic value considering each was likely worth more than $10M/yr.

Because Montreal made PK Subban stomach a bridge contract, they likely lost their opportunity to provide excess player value at the time when they'll need it most. They opted to save a few bucks right now rather than wait for when they really needed to save a few bucks. The teams that are legitimate Cup contenders at any one given time are those that are squeezing a ton of excess value from every position. Their stars are making modest money for star-calibre players, and their supporting casts are being paid pennies. There is no secret formula to winning the Stanley Cup other than "build the best team possible," and to do that, you're going have to cram more talent under the salary cap than other teams, and to do that, some guys will be underpaid while you're in your competing state.

Montreal wants to enter their competing state very soon, and having PK Subban locked up long term at $5.5M/yr-$6M/yr like they probably could have done two years ago is a lot more conducive to fitting the most talent under the cap than paying him fair market value. All in all, this is a trainwreck that was entirely avoidable if Montreal had planned for five years down the road rather than one or two. PK Subban is going to get the money he deserves based on his talents, it's just a matter of who's going to pay him.