Keith Ballard's Contract, Compliance Buyouts and "Payroll Room"

Thomas Drance
June 11 2013 04:13PM


How do you solve a problem like Keith Ballard?
Image via wikimedia commons.

To put it kindly, Keith Ballard's Canucks tenure has been forgettable.

The likable defenceman with speed to burn made sense as an acquisition at the time, but he never really earned the trust of Vancouver's coaches, and was rarely able to keep a spot as high sixth on the blue-line depth-chart. In the 2013 postseason Ballard didn't dress in a single postseason game, with raw rookie Frank Corrado and lumbering Andew Alberts playing on the team's third pairing instead...

Keith Ballard will turn thirty-one in late November. He has two years and according to capgeek.com 8.4 million dollars in actual salary and salary cap-hit commitments remaining on his contract. With the Canucks pressed up against the cap this offseason and deep along the blue-line, a 4.2 million dollar depth defenceman is not a luxury item the team can afford for another year. With that, let's look at several ways the Canucks could potentially remedy their situation as it pertains to Mr. Ballard.

Read past the jump.

There are certain provisions in the new collective-bargaining agreement (CBA) that the Canucks can use to help them get out from under an onerous contract like the one possessed by Keith Ballard. Laurence Gilman recently described these provisions on the Team 1040 as "weapons.. in the arsenal known as the collective bargaining agreement." Now that the new CBA is available to the public (you can download a .pdf here), let's look at these instruments more generally and also touch on how they might be leveraged by the Canucks in regards to Keith Ballard.

I'd note before we proceed that I have no formal legal education. I'm just a layman hoping to use Keith Ballard's situation to illustrate some of the more intriguing new instruments in the new CBA.

Compliance Buyouts

In the 2013 CBA, "Compliance Buy-Outs" are covered by article 50.9(i) (ii,iii,iv).

Compliance buyouts function exactly like "Ordinary Course Buy-Outs," except that the Buy-Outs of the compliance variety will not count against the club's salary cap. Compliance buyouts are limited, as teams are only permitted to use two compliance buyouts, and those two compliance buyouts come with an expiry date and can only be excercised during the "Ordinary Course Buy-Out Period" that follows the 2012-13 and 2013-14 NHL seasons.

There are two "Buy-Out Periods" in any given NHL season, but only the first one really applies here (the second window applies only to clubs with salary arbitration cases). The relevant "Buy-Out Period" will open 48 hours after the conclusion of the Stanley Cup Final this June, but in seasons thereafter the first Buy-Out window will open on the later of June 15th of the league year, or 48 hours after the conclusion of the Stanley Cup Finals. 

The Buy-Out Period closes on the eve of free-agency, so June 30th in a normal season. This season however, the first "Buy-Out Period" will close on July 4th (before free-agency opens on July 5th) as stipulated in Exhibit 16B of the 2013 NHL CBA.

During the two relevant Buy-Out Periods, there are no restrictions on how clubs can use their two compliance buy-outs over the next two years (beyond the fact that they'll expire after the 2013-14 Buy-Out period closes). So for example, a team will be permitted to use a Compliance Buy-Out on two players this June if they so choose.

Any player who is bought out "under the Compliance Buy-Out Provision" of the CBA will be "prohibited from rejoining the club that bought him out" for one year by any means.

Here's an interesting wrinkle. As stipulated in article 11.18 of the 2013 CBA, teams will be permitted to use three "Ordinary Course Buyouts" outside the regular Buy-Out Period during the life of the new agreement. The language of article 11.18 is clear that any Buy-Outs which occur outside the regular Buy-Out Period will be of the Ordinary Course variety only.

So for Keith Ballard, who is due 8.4 million over the remaining two years of his contract and is over the age of 26, the Canucks would need to dish out 5.6 million dollars over four seasons (1.4 million per year) in order to buyout his current standard player contract. If the Canucks excercise a compliance buyout on Keith Ballard this June, they'll net 8.4 million in direct cap-savings over the next two seasons. Needless to say, that would be massively valuable. 

Retained Salary Transactions

There's been speculation that the Canucks would prefer not to use a compliance buy-out on Keith Ballard, and will actively explore the option of dealing the disappointing blue-liner while agreeing to retain a portion of his salary.

"Retained Salary Transactions," as they're called in the CBA, are a long time Brian Burke hobby-horse and a new wrinkle in the 2013 agreement. The rules governing retained salary transactions can be found under article 50.5 (e)(iii).

The rules governing retained salary transactions are actually pretty simple, though there are a number of restrictions. Teams are able to retain up to 50% of a player's salary and cap-hit in a trade, and you have to retain an equal proportion of the player's cap-hit and salary. The percentage of the cap-hit/salary that a club retains must remain consistent from year to year for the duration of the standard player contract traded in a retained salary transaction.

So in the case of Keith Ballard - who is an easy example because his salary and cap-hit are identical - the maximum proportion of his contract the Canucks can retain in a retained salary transaction is 50%. So it follows that the minimum amount of cap-relief the Canucks can net from a retained salary transaction involving the defenceman is 4.2 million over two years (2.1 million per season). That would probably be sufficient to boost Ballard trade value into positive territory, but wouldn't provide the Canucks with sufficient cap-relief.

Beyond that relatively simple rule are a long list of restrictions governing retained salary transactions. For example, a team can have a maximum of three "retained salaries" on the book at any one time, and at no time can the amount of a club's retained salary exceed 15% of the salary cap's upper limit (so, teams can retain a maximum of 9.645 million in salary as a result of these sorts of deals under next seasons 64.3 million upper limit). 

If the Canucks were to trade Keith Ballard in a retained salary transaction, they would be unable to reacquire him in any way for a duration of one year. Though there's an exception to that exception (!) in that, if a player is dealt using a retained salary transaction and his contract expires or is subsequently bought out, say, four months later, then that one year restriction is lifted. 

There's also a provision that prevents a club from dealing a player, and then reacquiring him in a retained salary transaction for a period of one year. Teams are further forbidden from going Horcrux on a contract and splitting it up into more than three separate pieces. For those of you who aren't Harry Potter fans, that means that any standard player contract can only be moved in a retained salary transaction twice (so a maximum of three seperate teams could be on the hook for a portion of one contract, but no more than that). 

Finally the percentage of a players salary that a club agrees to retain in such a deal is a pretty firm commitment. In a cap advantage recapture situation, for example, a team who has dealt a player in a retained salary transaction is on the hook for the proportion of the deal they initially agreed to retain. This wouldn't apply to Keith Ballard whose contract carries no cap advantage, but I think we'll look at the possibility of a retained salary transaction involving Roberto Luongo later in the week. Anyway this same basic principal applies to buyout and loan situations as well.

Conclusion

With Keith Ballard and the Canucks, something has to give this offseason. With the cap receding, and the Canucks pressed right up against it already, the organization cannot afford to gamble 4.2 million on Ballard rejuvenating his career under a new coaching staff.

I'll be curious to see whether or not the club goes the Retained Salary Transaction route with Ballard, or is forced to resort to a Compliance Buyout. With the price of top-four defenceman soaring on the open market, due in part to limited availability, I have to think Keith Ballard would have some value to clubs as reclamation project with a 2.1 million dollar cap-hit. But whether or not the cap savings accrued from such a deal will be sufficient for the Canucks is another question, and I tend to think the Canucks will be hard pressed to find a trading partner for Keith Ballard if the proportion of his cap-hit they retain dips south of 40% (which would net Vancouver 2.52 million in cap savings per season).

It'll ultimately come down to whether or not the Canucks are able to move Roberto Luongo's contract without taking any salary back - an unlikely proposition in my view - or whether or not they move a core piece - like an Alex Edler - for a young player ideally on an entry-level deal. Basically if the team is able to generate significant cap savings elsewhere then, and only then, might it make sense to solve the Keith Ballard problem with a retained salary transaction.

Looking at this structurally, it's crystal clear that a compliance buyout is the superior - and I'd wager more likely - option for Vancouver.

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Thomas Drance lives in Toronto, eats spicy food and writes about hockey. He is an NHL News Editor at theScore, the ex-managing editor of CanucksArmy.com and an opinionated blowhard to boot. You can follow him on twitter @thomasdrance.
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#1 Mack
June 11 2013, 04:28PM
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The asset you get for a $2.1M Ballard is not going to be more valuable than the capspace that would be generated by a compliance buyout. At best he would get a mid round pick or an average depth player, and I can't see how that would be more valuable, especially to this team, than $4.2M in cap space would be.

If they go the retained-salary transaction route, than it's pretty clear that the Aquiilnis aren't willing to do everything to win like they might claim. What's the use in being a big-market team if you don't use every advantage available to you?

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#2 Josh
June 11 2013, 05:09PM
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I am confused about something and hope I can get some clarification.

If you retain up to 50% of a contract in salary, do you HAVE to retain the same amount in cap hit? i.e. with Ballard, can you give the other team the 4.2 mil cap hit while you can pay the 2.1 salary (with no cap hit)?

If you HAVE to retain the same amount of cap with salary, then wouldn't it make more sense to buy him out and lose any cap hit from him? I understand they would want to get something out of him but with how tight the Canucks currently are with the Cap hit.... I guess it's time to let Lawrence do his magic.

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#3 Lemming
June 11 2013, 05:49PM
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Unless the Canucks get a significant piece for Ballard, you have to think that buying him out will be what the Canucks do with him.

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#4 dmj
June 11 2013, 05:50PM
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tell me great majesto, what if mr luongo is on waivers as of midnight July 3, 2013 ....happy fourth of july.... buyout the buyback---> trade that? is there no room for fairytales in the NHL? #oopsdiditypethatoutloud

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#5 5minutesinthebox
June 11 2013, 06:04PM
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What i dont understand is the possibility of quality blue liners salaries skyrocketing. I understand that there may not be a huge amount of quality dmen available, but would the new Cap (at least somewhat) dictate a players salary demands.

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#6 Nat
June 11 2013, 06:57PM
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Great article Thom. Thanks for digging into the CBA and explaining how it would work. I certainly have no motivation to read that document myself. : )

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#7 NM00
June 11 2013, 07:25PM
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Spending $4.2 million on a 3rd pairing defenseman never made sense. Ever.

In a vacuum, the Keith Ballard trade was fine. But the moment Dan Hamhuis was signed and effectively replaced Willie Mitchell, Ballard was no longer needed.

There was nothing stopping Gillis from trading Ballard after signing Hamhuis. Hanging on to Ballard for 3 years has only made things worse.

In terms of buyouts, I can't blame Aquillini for being reluctant to bail out his GM. After all, it's his money.

Aquillini has already spent a ton on scouting, player development and upgrading facilities. There isn't any evidence that this money has been well spent or had a tangible effect on the team.

The lockout and transition payments further cut into his wallet.

So has the number of home playoff games (4) in the last two years.

Buying out Luongo (or DiPietro/Bryzgalov in a crazy trade scenario) might be palatable to fans. But, quite frankly, the owner shouldn't let the GM sabotage his franchise by giving away a good asset while writing a fat cheque in the process.

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#8 2gangsta2care
June 11 2013, 10:52PM
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NM00, I get what you're saying about how owners shouldn't have to bail out the GM but on the other hand I feel they have an obligation to the fans to be as competitive as possible. We're all on the same team after all.

Gate reciepts last season were 73 million dollars. A 5 percent increase in ticket prices equals an extra 3.7 milly per season.

A decrease in salary cap (for a team spending to it) equals an extra 5.9 milly per season.

That's an extra 9.6 milly of pure profit compared to the last full season of hockey. In 2011-2012 Canucks made a profit of 30.4 milly... so that "extra" 9.6 million is equal to 32% of 2011/2012 profits.

Factor in a little inflation, a couple scouting and player development increases and the cost of running the AHL team (could very well lose money) and I guarantee there's is plenty of that 9.6 left over come the 2012/2013 season.

My point which is taking me a while to get to is that there should be plenty of money to fork out 1.5 a year for Dipietro's contract (or a similar deal) if that's what needs to be done for the team to progress. Such a deal should be as palatable to owners as a hike in ticket prices is to fans.

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#9 2gangsta2care
June 11 2013, 10:53PM
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*2013/2014 season

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#10 JCDavies
June 11 2013, 10:55PM
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@5minutesinthebox

I agree, there will have to be some wage deflation (or at least stagnation) due to the lowered cap.

If, as expected, star players are unaffected by the new cap while other FAs get squeezed, Ballard's value could be further diminished if comparables are forced to accept lower salaries.

Even if the cap rebounds quickly, it won't be soon enough to mitigate Ballard's cap hit.

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#11 JCDavies
June 11 2013, 11:02PM
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@2gangsta2care

"NM00, I get what you're saying about how owners shouldn't have to bail out the GM but on the other hand I feel they have an obligation to the fans to be as competitive as possible. We're all on the same team after all."

It's not just winning; if ownership believes the increased expenditures will lead to higher revenues in the future it could also be the correct business decision.

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#12 JCDavies
June 11 2013, 11:16PM
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I still think Ballard's best value is in a trade for a worse contract. If the Canuck's are willing to use the compliance buyouts, they could swap Ballard for a larger compliance buyout and bring back a player that could fill an area of need. This would all depend on what ownership wants to do but it's one of the better options from a player personnel standpoint.

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#13 NM00
June 12 2013, 12:30AM
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@2gangsta2care

"NM00, I get what you're saying about how owners shouldn't have to bail out the GM but on the other hand I feel they have an obligation to the fans to be as competitive as possible. We're all on the same team after all."

It's a private business. Fans are customers. There is zero obligation. You are not on the owner's "team".

That said, Aquillini has been willing to cut into his profits to field a winner. Quite frankly, I feel fortunate to have a local owner who wants to win.

“It doesn’t bother me that people want us to spend more money,” Crane said. “But it’s not their money. This is a private company, even though it’s got a public flair to it. If they want to write a check for 10 million bucks, they can give me a call.”

That's from Jim Crane (owner of the Houston Astros). Fans are not on his team, either.

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#14 Oscar
June 12 2013, 01:08AM
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2gangsta2care comment,

I agree with your projected profits for the team this coming season as a result of salary drop and ticket price increase. However, Aqualini is a real estate developer who typically sells you condos for a high end presale prices but will cut corners on construction cost to increase his profit margin. He kinda has a reputation in Vancouver. He also was sued by his former business associates(Galardi and Beaty) for screwing them over during the purchase of the Canucks. Speaking of screwing, his ex-wife knows all about that. So asking Aquilini to buyout his players contract, which will seem almost insignificant when his divorce is settled, seems very unlikely. Aquilini is not a hockey fan, in fact part of the reason he bought the team is because Orca Bay owned a parking lot which he has already begun in building condo, hotel and casino. He'd call it a kicker in owning an NHL team. If it was Garlardi/Beaty, they would exercise their buyouts and spend now for the good of the team exceeds the need for one to increase profit margins.

Aqualini knows now never hire a friend to be a GM simply because he has some sales experience. Gillis reset button will result in same lackluster post season and will be fired.

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#16 JCDavies
June 12 2013, 07:09AM
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@Thomas Drance

"@everyone - player salaries are ultimately driven by laws of supply/demand, not the extant state of the salary cap. We should not expect a lowered cap to have any deflationary impact on player salaries."

This is not 100% true.

The salary cap will have a deflationary effect on some player salaries by reducing the demand for those players. To expect demand not to fall when big market teams can't spend money they would've spent otherwise seems unrealistic. The sooner the cap reverses itself and restores the ability for big market teams to spend freely the less significant the effect will be.

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#17 billm
June 12 2013, 12:59PM
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@jcdavis

The cap will have a deflationary effect on marginal or complementary players. It will not have an effect on impact players. What the lower cap will do is drive down a bit the cost of 3rd and 4th liners and 3-6 defensemen, back up goalies.

Top 6 forwards, top 2 d-men, proven #1 goalies will still make bank.

Teams will still spend on the top talent. They will just make room with what is now the hot commodity of the NHL. Decent young players on entry level contracts. One of the reasons I wasn't happy about the Canucks blowing a year of Corrado's ELC.

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#18 Ruprecht
June 12 2013, 01:24PM
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I don't know that I can agree that Ballard's tenure as a Canuck has been forgettable. It's actually one of the more memorable exercises in asset mismanagement I've witnessed. So it will always have the distinction of being a case study. I have a feeling no matter what happens that Ballard will be talked about for years to come.

What I can not understand is the rationale behind what has led this man's career into the painted corner it is in. I mean, isn't this the same organization that claims to have pumped Hodgson's value so as to make him more attractive at the deadline? Nothing of the sort for a guy who has been rumoured to be on his way out of town for the last couple of years.

It kind of blows my mind when I think of the real cost of giving up on Ballard completely. Intangibles.

For starters he's taking a roster spot that could have been used to develop a true depth player...or keep the assets we paid to have developed to acquire him. Think of things in terms of how much money it takes to develop worthy players to make into wanted commodities, then flip into a quality established player. Or the amount of money we paid Ballard to be a borderline Canuck over the last few years.

This isn't just a simple drop 8.4 mil and it's over. It's a case that has been hemorrhaging money since we invested and hurt us for the years it was happening. 4.2 mil per would have been a lot nicer on the ice making an impact.

As a bonus and the pinnacle of my bewilderment, for some reason he also cost us a year of Corrado's ELC. So, long term it's going to pack a sting.

Now I don't mind if something has been learned from this that pays off down the road, but it just doesn't seem to be Gillis' style. He seems to be in charge of his own on the job training and free to chase his own tail for another year at least.

Ballard is, and will be, just another expensive lesson that we'll be paying for for years to come. I sincerely hope he finds a home where he can rejuvenate....far away in the East.

Too bad there isn't a damaged goods return clause in the new CBA. I can think of a couple of players I'd like to send back to Florida that have been broken.

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#19 JCDavies
June 12 2013, 03:07PM
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@billm

Agreed.

The original comment was referring to Ballard and his comparables, who I do expect will to some deflationary effects. Star players and ELCs won't be impacted at all.

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#20 JCDavies
June 12 2013, 03:14PM
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@Ruprecht

Well said.

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#21 Rusty
June 12 2013, 05:29PM
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Ruprecht wrote:

I don't know that I can agree that Ballard's tenure as a Canuck has been forgettable. It's actually one of the more memorable exercises in asset mismanagement I've witnessed. So it will always have the distinction of being a case study. I have a feeling no matter what happens that Ballard will be talked about for years to come.

What I can not understand is the rationale behind what has led this man's career into the painted corner it is in. I mean, isn't this the same organization that claims to have pumped Hodgson's value so as to make him more attractive at the deadline? Nothing of the sort for a guy who has been rumoured to be on his way out of town for the last couple of years.

It kind of blows my mind when I think of the real cost of giving up on Ballard completely. Intangibles.

For starters he's taking a roster spot that could have been used to develop a true depth player...or keep the assets we paid to have developed to acquire him. Think of things in terms of how much money it takes to develop worthy players to make into wanted commodities, then flip into a quality established player. Or the amount of money we paid Ballard to be a borderline Canuck over the last few years.

This isn't just a simple drop 8.4 mil and it's over. It's a case that has been hemorrhaging money since we invested and hurt us for the years it was happening. 4.2 mil per would have been a lot nicer on the ice making an impact.

As a bonus and the pinnacle of my bewilderment, for some reason he also cost us a year of Corrado's ELC. So, long term it's going to pack a sting.

Now I don't mind if something has been learned from this that pays off down the road, but it just doesn't seem to be Gillis' style. He seems to be in charge of his own on the job training and free to chase his own tail for another year at least.

Ballard is, and will be, just another expensive lesson that we'll be paying for for years to come. I sincerely hope he finds a home where he can rejuvenate....far away in the East.

Too bad there isn't a damaged goods return clause in the new CBA. I can think of a couple of players I'd like to send back to Florida that have been broken.

Speaking of asset mismanagement. How about the rubbish that management pulled right after the team was oustered by LA last year. Instead of publicly supporting their designated starter and "franchise" player in Luongo, they called him out. What's the net effect? A goalie with a very diminished trade value. Watch Shero's performance today backing Fluery and you will see an astute manager that is protecting the value of his assets.

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#22 Ruprecht
June 12 2013, 06:08PM
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@Rusty, Great point. I saw the presser after I posted and had the same thoughts. It's hard to justify anything the leadership structure of our team has done over the past couple of years when you see how savvy the group in Pittsburgh is. Like they actually have foresight and know that the actions of today can have a long term effect on the future.

I try not to slag our Management, but really that presser pretty much encapsulated everything our leadership lacks...and where their deficiencies are hurting us in the long run. The hilarious part is that we are supposed to be this progressive organization, when the Pens just proved that even a little old school goes a long way. Schooling us in the process.

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#23 scribs
June 13 2013, 04:15PM
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@Mack

"The asset you get for a $2.1M Ballard is not going to be more valuable than the capspace that would be generated by a compliance buyout."

This.

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