Uncapped potential: How the Avalanche can leverage some great contracts and an enviable financial situation to contend both today AND tomorrow
For most of us, the Avalanche have significantly exceeded expectations this year. At 19-6 (yet still somehow only third in the division), the Avs have a real shot of making the playoffs this year. Are they true cup contenders the way that Chicago and St. Louis are? I’m not so sure. Our only injury test thus far has come from Matt Duchene, who has looked every bit like the franchise player we had hoped when we drafted him but also happens to play at the one position at which we have enviable depth. Imagine a freak collision that leaves, say, Hejda (who is 35 by the way) out for 2 months; not a pretty picture. That is just one among dozens of things that could derail our hopes for a deep playoff run this year.
I am rooting as hard for the Avs to make some noise in the playoffs as anyone but this year is not the year that really excites me; it is the next 4. Sports fans have had to get more financially savvy in the moneyball era, which is part of the reason why things like trade value rankings have become so prevalent. Outside of the Brooklyn Nets, Los Angeles Dodgers, and maybe a handful of other examples sports fans have had to come to terms with the fact that spending wisely and winning are very closely related. Thankfully for all of us, through a combination of skill, luck, and well-timed mediocrity, the Avs appear to be in a great position to take advantage of this trend. We currently have a resource, cap room, which is expected to become significantly less scarce in the coming years; we should use it to our advantage while we can.
Let’s start with the contracts we already have (all salary data come from the always-excellent pages of CapGeek). Duchene’s recent extension pays him $6 million per year through the 2018-19 season while Landeskog’s pays him a bit over $5.5 million per season through 2019-20. MacKinnon will be in an Avs sweater through 2015-16 at under $1 million per year and Johnson is on the books for those same years at a hit of just under $4 million per year. That means our combined core of Duchene (22 years old), Landeskog (21), Johnson (25), and MacKinnon (18) will make just over $16 million per year both next season and the season after. For comparison, the combination of Rick Nash (29), Brad Richards (33), and Henrik Lundqvist (31) will cost the Rangers about $23 million per year… through the 2017-18 season. Ouch.
Of course, other costs will come up. Paul Stastny and Ryan O’Reilly are both free agents after this season, and it’s not crazy to think they’ll want contracts close to Duchene’s (though I think that is more about Duchene taking a major hometown discount than those guys having unrealistic expectations). Seymon Varlamov is also a free agent after this season, though the combination of his excellent play in the season’s first quarter and uncertainty surrounding his legal troubles mean projecting his potential contract would be particularly difficult. But even based on unchanged cap levels projected forward, we have the flexibility to lock these guys down if that’s what Sakic and Roy decide to do.
Our contracts may be an issue eventually, especially when they get renewed at later ages and larger salaries; as crazy as it sounds, the phrase "Matt Duchene’s albatross contract" could very well be discussed unironically 15 years (or equivalently, 4 lockouts) from now. But we can worry about that when we get there. As of right now, none of our current contracts look bad and a few look like downright steals.
Go read that last sentence again (it feels good, doesn’t it?). Now remember that the cap is expected to rise significantly in the coming years given the convenient timing of the expiration of the old NHL media contracts. This article explains it pretty well, but basically the NHL just signed a contract for Canadian rights for $5bn over 12 years. That’s around $14mn per year, per team, from this deal alone. That doesn’t include extra revenue from additional outdoor games, the extra interest surrounding the Olympics, or any broader increases in ticket and merchandise sales that should accompany an improving economy. However you slice it, revenues are going up.
All of that means that our contracts that look simply good now are going to look great once some of that money starts to hit. It may be a bit early to start talking to Johnson, but as an Avs fan I keep my fingers crossed that the words "contract extensions announced for Stastny and O’Reilly" will hit the wire every time I check the morning news. How would that situation fit into our salary cap? I thought you’d never ask!
Let’s assume that O’Reilly, Stastny, and Varlamov get the Duchene treatment starting next year, and Johnson gets that same contract starting after his current one expires following the 2015-16 season ($6 million per year for five years). Then let’s sign MacKinnon to a long-term deal worth $8 million per year starting in 2016-17. Those are admittedly very back-of-the-envelope estimates, but they’ll work for this exercise. In that case, this is what our guaranteed salary would look like for the 2016-17 season:
Landeskog: $5.5 million
Stastny/Duchene/O’Reilly/Varlamov/Johnson: $6 million each
MacKinnon: $8 million
Total: $43.5 million
We’d be paying our core about $44 million in that scenario, and the soonest any of those contracts would expire would be at the end of the 2018-19 season. You could probably take those players paid at those levels and build a decent team even under today’s salary cap of about $64 million. But the cap is not expected to stay the same for all of the reasons we mentioned above; in fact, this article suggests it would hit about $80 million starting in the 2016-2017 season. Imagine the magic that the front office could work having that core locked down for $44 million with a remaining $30+ million to spend! The bottom line is that we would benefit greatly from locking down every player who is even remotely likely to be a key component of our team three years from now. Given how much salary flexibility we appear to have, we can afford to be a bit aggressive here; keep in mind that as a percentage of the total cap, Landeskog’s salary in 2016-17 is going to be the equivalent of Parentau’s current contract. You can afford to miss on a few of those contracts as long as you hit the big ones.
There are obviously a lot of caveats to this analysis. First and foremost, it assumes that ownership is willing to spend up to the cap. It also assumes that this flood of new money actually comes through; it is hard to see how this would play out given that we’ve already seen similar revenue surges surpass expectations for the other major sports in recent years (baseball is the prime example), but I suppose there is no such thing as "Bettman-proof upside." In my mind, the biggest issue with locking everyone up ASAP will be that the agents. These guys aren’t stupid, they know the payday is coming, and they are going to hold out for bigger free agent contracts to avoid missing the boat (as they should). In my mind the best solution would be to make a big push to sign extensions for the key pieces sooner rather than later.
Regardless of whether or not further moves are made before this revenue boom hits, the team will be good in the future with the core we currently have. The question then is: how can we take advantage of this now?
Trading cap room for contention
The Avs are in a unique situation as a contender. They currently stand a whopping $12 million under the projected end-of-season salary cap, which is second in the league behind Florida and is more than every other currently projected playoff team combined. That means Avs management can consider trades from fringe contenders that are clear salary mismatches in exchange for getting the better players. This isn’t a great strategy to pursue consistently, but in this case the Avs can afford to take on some bad money in the future to get the player that they want now, knowing that it won’t hurt as much when the cap goes up. This would give us the chance to get that solid second-pairing defensive D-man to help Barrie develop, or some forward depth.
It also allows us to take on the contracts of teams that have recently given up and gone into full-on rebuilding mode. Could Tyler Myers pull an Erik Johnson and become the latest formerly-shunned first round defenseman that flourishes under Roy’s masterful tutelage? I doubt it, and I don’t know that we would be willing to pay the price in young talent to make the trade work, but we could certainly afford to pay the price in dollars if we wanted to.
I think the important takeaway here is that the Avalanche have a resource, cap room, that is currently very valuable but is projected to become significantly less valuable in the coming years. We should use it now, when it will be worth most. Extending Stastny and O’Reilly would be a great start.