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Shane Doan Deferred Salary and Bonuses Explained

By CapFriendly Jul 23, 2016 at 3:26 pm

Chalk one up for John Chayka and Terrance Bross: last week the Arizona Coyotes GM and Player Agent for Shane Doan put the finishing touches on a new 1 year contract extension for the Coyotes captain.

 

At first glance, the 1 year deal is structured how one would expect for the 39 year old veteran who is returning for his 21st season in the National Hockey League (all of which have been spent with the Winnipeg/Arizona organization).

 

The contract includes a standard Base Salary and a Signing Bonus; as well as a Performance Bonus consisting of games played (a provision made available in the CBA for 35+ contracts consisting of 1 year; Doan earns the bonus(es) if he plays a set number of games). The contract also includes a No Movement Clause (NMC), preventing a trade or loan without his consent. However, the unique and interesting aspect of this deal is due to the actual numbers of the contract, and the breakdown stipulating how the monetary value of Doan’s salary and bonuses will be paid. As previously reported, Doan’s contract includes base salary with a Deferred Signing Bonus and Deferred incentives that will end up bringing the total value of the deal to $5 million.

 

Now you might be asking yourself “what is a deferred signing bonus and incentives?” Well, you’re not alone. We at CapFriendly asked ourselves that very same question given that we had yet to come across such a contract since the site launched, and because deferred salary is rare in general. Now that we have determined the detail, we’ll break it down and explain based on our analysis and research of the CBA, as well as information received from various sources.

 

Base Salary: Doan’s Base Salary for 2016-17 is $2,500,000 and will be paid in its entirety throughout the course of the season per the regularly scheduled NHL payment periods.

 

Signing Bonus: Doan also receives a Signing Bonus in the amount of $1,376,134. On face value that appears to be an odd number for a Signing Bonus; however, what’s important to note is that this is the Net Present Value of the Signing Bonus if it were to be paid in the 2016-17 league year. However, given that the amount is to be paid as Deferred Salary, Doan (and his agent) are able to take advantage of CBA 50.2 (a) (ii) (A) “Deferred Salary”:

Deferred Salary CBA explanation

 

What this means is that because Doan’s Signing Bonus is defined as Deferred Salary, and will be paid at a later date once the contract has expired, the $1,376,134 is subject to interest, and the interest rate is calculated at the 12 month LIBOR rate (which per www.global-rates.com was roughly 1.2695% on July 11th) + 1.25%, for a total of 2.5195%.

 

When the 2.5195% interest rate is applied to the payment schedule in Doan’s contract, the actual final monetary result is $1,500,000:

  • $250,000 payable in 2017 (Net Present Value $243,856.05) 
  • $250,000 payable in 2018 (Net Present Value $237,863.09)
  • $250,000 payable in 2019 (Net Present Value $232,017.41) 
  • $250,000 payable in 2020 (Net Present Value $226,315.39) 
  • $250,000 payable in 2021 (Net Present Value $220,753.51) 
  • $250,000 payable in 2022 (Net Present Value $215,328.31) 

 

Performance Bonus: Same holds true for Doan and his Games Played Bonus which has a face value of $963,438. Again, that might seem like an odd number for a Performance Bonus, but Arizona and Bross have agreed to pay the Performance Bonus as a Deferred Bonus, with the above value again defined as the Net Present Value if the Games Played were achieved and paid within the 2016-17 league year.

 

When the 2.5195% interest rate is applied to the performance bonus, the actual final monetary result is $1,000,000, with a payment schedule as follows:

  • $500,000 payable in 2018 (Net Present Value $487,712.09) 
  • $500,000 payable in 2019 (Net Present Value $475,726.17) 

 

So what does this all mean? It means that Doan’s contract for the 2016-17 season has the following breakdown:

Doan Contract Breakdown

 

 

The result of which spawns 2 very interesting results for the Arizona Coyotes:

  • The Arizona Coyotes end up with a slightly lower cap hit ($3,876,134) and annual average (AAV) ($4,839,572) as opposed to if they didn’t defer the salary and were forced to pay Shane Doan the entire $5,000,000 in the 2016-17 league year (of which Doan was seeking).

 

  • For a team like the Arizona Coyotes operating on budget, and who at the time of the signing were at $51M in committed salary expenses for the 2016-17 season, reducing the amount of actual dollars expended from $5,000,000 to $2,500,000, while deferring the remainder to a later date is beneficial. It gives the team more flexibility, and allows them to sign the player they couldn’t afford to lose.

 

In the end, the Shane Doan contract is a reflection of the how smart and innovative general managers are thinking outside the box when looking at structuring new deals in a Salary Cap system and the modern day NHL.