The Colorado Avalanche could use deferred payments as a way of keeping Mikko Rantanen long-term. In a recent piece in The Athletic, NHL insider Pierre LeBrun explored how the Anaheim Ducks used deferred payments to keep Frank Vatrano with the team.
LeBrun then suggested that deferred payments could be the route the Colorado Avalanche could use to keep Mikko Rantanen. In particular, LeBrun underscored one key element that’s weighing heavily on the contract negotiations: The Avs’ internal cap.
The internal cap represents a self-imposed limit by the team regarding the maximum amount it can pay to future contracts. That cap is Nathan MacKinnon’s $12.6 million AAV.
Now, we could debate whether Rantanen is worth that money or not. But for argument’s sake, let’s say that he is. Also, let’s assume that the Rantanen camp feels he’s worth more than that.
So, how do both sides resolve the stalemate?
Deferred payments. In short, these types of payments consist in agreeing on a global dollar amount on the next contract, but payments go well beyond the contract’s expiration. For instance, let’s say that Rantanen signs an eight-year $150 million deal.
That works out to $18.75 million per season over eight years. Let’s now assume that Rantanen and the Avs agree on deferred payments extending the deal to 12 years. The AAV comes down to $12.5 million. The deal now matches the internal cap.
Some might consider this cap circumvention, but it’s totally legit within the current Collective Bargaining Agreement. If players and owners are savvy, they won’t get rid of deferred payments. If anything, they’ll make sure to use this tool more often.
Pros and cons of using deferred payments by Colorado Avalanche
Let’s start with the most evident pro: The Avs get to keep players’ AAV down. It’s not about cheating players out of fair-market value. It’s about cost savings by extending the number of years to pay out the deal, not the actual contract years.
Also, players can lock in a source of income well beyond their playing years. This ensures players can transition more easily into post-NHL life once they’re done. Players can also better manage their tax bill by bringing their taxable income down.
On the flip side, some players may balk at the idea of deferred payments. They may feel that they’re getting cut out of a fair deal.
Plus, if you really want to get nerdy, kicking payments down the road may backfire as inflation can wreak havoc on the value of money. Without getting too technical, money loses value over time due to the rising price of goods and services.
As such, players’ financial advisors may be telling them to cash in now and invest as much as they can before inflation eats away at their money.
While that’s savvy advice, personally, I would take the longer payday route any day of the week. I like the idea of knowing I have a steady paycheck well after my contract is up. But that’s just me.
Ultimately, deferred payments could be the way the Colorado Avalanche gets to keep Rantanen without crippling the team’s financial position. Although, I will say this: The likeliest hold-up in the entire negotiation process is the Salary Cap ceiling.
Rantanen, along with other big-name free agents, will refrain from signing until they know what the cap ceiling is going to be for next year. So, it may be a while before we know how much it will take to keep Mikko Rantanen in an Avs jersey.