The Buyout Window Opens: Will the Canucks Take Advantage?

Thomas Drance
June 27 2013 07:35AM


Keith Ballard is Vancouver's prime buyout candidate.
Screencap via Canucks TV

The NHL's "first buyout window" opened late last night, at 8PM PST. It will extend through regular NHL business hours (or until 5 PM EST, 2 PM PST) on July 4th, the eve of free-agency. For this season and next the buyout window will be especially interesting because, per the terms of the 2013 NHL/NHLPA collective bargaining agreement (CBA), teams will be able to use a maximum of two "compliance buyouts," or buyouts which will carry zero salary cap ramifications. We broke down the mechanism in detail earlier this month if you want a quick primer.

So the Canucks have eight days to look over their options and decide whether or not to avail themselves of this particular "weapon in the arsenal of the collective bargaining agreement," to quote Laurence Gilman. Knowing Mike Gillis's preference for a considered, unemotional decision making process, and his habit of "working to deadlines," I wouldn't expect any hasty decisions on the part of the team regarding the use of a "compliance buyout," or two this season.

Ultimately, however, salary cap realities will almost surely force the teams hand. According to the indispensible website capgeek.com, the Canucks currently sit a mere $47,222 below the upper limit of the 2013-14 salary cap, and they have six players still to sign to get to the 23 player limit (including, ideally, a top-nine centreman).

It's certainly possible that the Canucks can achieve some creative salary cap destruction by pulling a variety of other levers, be it traditional ones like a hockey trade, or by using new mechanisms like "retained salary transactions." Frankly, it's tough to see such maneuvers being sufficient to create the cap space the Canucks surely need if they hope to transform their club back into the juggernaut they were a couple of seasons ago.

Unlike the Flyers, Leafs and Canadiens, the Canucks have been mum on whether or not they plan on using a "compliance buyout" on one of their players up to this point. If they do utilize a compliance buyout on a current roster player it'll most likely be on Keith Ballard, whose player agent Ben Hankinson has publicly lobbied for one. Mike Gillis again dodged directly answering inquiries on this subject immediately following the John Tortorella introductory press conference on Tuesday:

The Globe and Mail's Gary Mason told the Team 1040 in late May that using a compliance buyout was a non-starter for Vancouver's ownership group because of the money involved. Jason Botchford walked that back a bit when he reported that ownership's refusal to avail themselves of the "compliance buyout" option "is not the understanding of (Canucks) management." In that same piece, however, Botchford also mentioned that Canucks ownership "had a hard time swallowing" the 1.8 million dollar liability the team took on when they acquired Brad Lukowich in the Christian Ehrhoff trade during the summer of 2009.

A theoretical Keith Ballard buyout would save the team 8.4 million dollars against the salary cap over the next two seasons, but would represent a 5.6 million dollar investment investment from ownership (1.4 million over four years)...

For now it's tough to tell whether or not the Canucks will use a compliance buyout. What I would say is that I'm not someone who would read anything at all into Mike Gillis's non-answers on this subject. That's in line with Vancouver's usual close-to-the-vest modus operandi. What's easier to say, especially because it's not my money, is that the Canucks absolutely should use a compliance buyout.

This offseason and some of the changes to the CBA that have come with it, presents well monied NHL clubs like the Canucks with a unique opportunity to act like the top European soccer clubs and purchase players within the parameters of the NHL's salary cap system. For what it's worth, Canucks ownership has okayed similar moves in the past with Christian Ehrhoff and David Booth, even if they did so reluctantly.

The Canucks could, for example, take on a bad contract in addition to a slick asset from a spend-thrift club, turn around and use a compliance buyout on that contract. According to Jason Botchford this is something the team was strongly considering in mid-May, and according to Larry Brooks the Maple Leafs and Lightning were exploring an even more devious scheme to take advantage of a loop hole in the compliance buyout provision in the CBA..

So is a quality young roster player on an entry level contract worth, say, four million six hundred and sixty six thousand dollars (aka the cost of buying out Scott Upshall)? I'd think so.

Alternatively, they could take back a bad deal in a Roberto Luongo trade and promptly buy it out. In doing so they might negate some of the trade value murdering impact of Luongo's life-time contract.

From our vantage point, the Canucks have the money and the incentive to lift themselves off the mat and be serious players this offseason. Consider that according to Forbes' admittedly bogus numbers, the value of the franchise has essentially exploded. In 2007, for example, Forbes valued the Canucks at $211 million. The Aquilini group you may remember, purchased the team in 2004 for a cool 250 million.

Around the same time as current Canucks ownership scored a technical knockout in the courts and were granted uncontested, complete ownership of the club, the team hired a guy named Mike Gillis. You can say what you want about Mike Gillis's hockey moves, but he's been an enormously successful General Manager from a business standpoint. 

Since 2007 the value of the Canucks franchise has exploded, increasing nearly 60% from 211 Million in 2007 to 342 Million in 2012 (again according to Forbes). Forbes' numbers for 2012 had the Canucks operating with the fourth largest budget and genearting the fourth highest amount of revenue among all NHL teams, which matches up well with Nate Silver's recent work on NHL franchises that suggested that Vancouver is the fourth biggest hockey market in North America...

In writing up Forbes' 2012 list, I wrote the following, "you have to spend money to make money and credit to Canucks ownership, they've consistently proven that they're willing to do so." The Aquilini group has owned the Canucks for the better part of a decade, and there has never been any reason to question their commitment to spending whatever money was necessary in order to bring a Stanley Cup to Vancouver. 

As such, it would be highly uncharacteristic of this ownership group to restrict Canucks management from taking full, creative advantage of the compliance buyout provision of the new CBA, whether it's to buyout Keith Ballard, purchase young talent, or as the cost of doing business in a long awaited Roberto Luongo trade. Either way, we're going to learn an awful lot about this organization over the next ten to fourteen days...

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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 AC
June 27 2013, 08:39AM
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It would be fun to watch if the Canucks do use the advantage that their wealth gives them to use the compliance buy-outs.

However, I wouldn't be surprised if the Aquillinis have a different take on things after a short regular season sandwiched between two very short post seasons (much less revenue than the owners were probably expecting over the last two years). Their Profit/Loss statement probably looks very different over the last two years, which will very likely make the owners squirm before committing any more money than they already have.

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#2 Mantastic
June 27 2013, 10:34AM
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i think you mean you'll find out a lot about the organization in 1 week as the buyout window closes in that 1 week, not 10 to 14 days.

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#3 NM00
June 27 2013, 11:33AM
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"You can say what you want about Mike Gillis's hockey moves, but he's been an enormously successful General Manager from a business standpoint."

Please.

The Canucks have been making money because Gillis inherited a talented core that won many playoff games.

And because the salary cap prevents big market hockey teams from outspending their revenues.

Correlation does not equal causation.

Mike Gillis has been as successful at running the Canucks business as Brian Burke was successful at running the Leafs business.

These myths about Gillis' wizadry really need to die.

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#4 kaybee
June 27 2013, 02:23PM
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"These myths about Gillis' wizadry really need to die."

Franchise value has improved by 60% during his tenure.

You seem intent on disproving all of managements accomplishments. The position you take so consistently predictable - You will always take a position that discredits the management, even when it's a good one. It's obvious you're operating from a bias, so why should I consider anything you see when I suspect you're offering a spin and not genuine analysis?

As for Aquilini, failure to leverage the buyouts would be incredibly frustrating, especially after he just raised ticket prices. This is a sensitive time in the club's cycle and I'd be disappointed if he he decided to be a cheapskate here.

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#5 Mantastic
June 27 2013, 02:50PM
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@kaybee

a lot of franchises around the NHL, especially in canada, improved their franchise value by a lot during that time frame.

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#6 NM00
June 27 2013, 02:54PM
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@kaybee

"Franchise value has improved by 60% during his tenure."

https://en.wikipedia.org/wiki/Correlation_does_not_imply_causation

In case you are wondering, Brian Burke isn't a genius because the Leafs made a lot of money during his tenure, either.

The position you take as a Gillis apologist is so consistently predictable.

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#7 kaybee@kaybee.com
June 27 2013, 03:37PM
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@NM00

@NM00

I don't know why I expected more of a response from you than 'no, you are'

Not everyone has the same single-minded bent as you. I simply call things as I see them; you'll notice I criticized ownership in the same breath.

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#8 NM00
June 27 2013, 04:04PM
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@kaybee@kaybee.com

Ah so you want a logical explanation. The TML example wasn't enough?

The NHL engages in market fixing practices such as the entry draft and salary cap. As such, collective profit is guaranteed.

The salary cap came about because NHL GMs/owners have proven they cannot run a profitable business.

The Canadian dollar and the salary cap have combined to make Canadian & big market American franchises profitable. Hence, franchise values go up.

In 2-3 years, the Canucks window for a championship will have closed unless a new core can be formed.

Even if the Canucks decline, the franchise value will go up as the final transition payments are made to the players and player/worker costs are cut down to 50% of revenues.

This market fixing, by the way, is the reason NHL teams are profitable and franchise values go up. It has nothing to do with GMs knowing how to run a business well.

I repeat: correlation does not equal causation and Brian Burke is not the reason the Leafs franchise value has gone through the roof and will continue to increase at a quick pace.

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#9 Cale
June 27 2013, 04:40PM
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Why am I not surprised you keep abreast of what Silver writes, Drance?

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#10 Sealed Lips
June 27 2013, 05:09PM
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I'm fairly certain the Canucks have been quiet about compliance buyouts is cause they don't want teams who are looking to trade for Lu to know this info. If teams know they're gonna buy out Ballard, or are looking to purchase assets - they'll definitely want to unload $$ in a Luongo deal. Probably why Botch backed off his original report, they probably fed him some b.s.

I saw an article today that the Canucks were linked to buying out Lecavlier from Tampa - just as Toronto was linked to them. The NHL found out and nixed it, but it pretty much says to me they are looking to 'buy' assets with compliance buyouts.

Where it gets tricky is, they only have 2. 'If' 1 needs to be used in a Luongo trade, and I'm fairly certain the other is for Ballard. Then they're screwed. I think, and it appears like they tried to, they need to take a bigger buyout contract (like Dipietro or Lecavleir) and send that team Ballard for buyout. The $$ difference is where Van can 'buy' assets. That's pretty much the only way can see them maximizing this opportunity

And let's not kid ourselves, this is an 'opportunity' for teams with $$. It's an investment for them, it's not a sunken cost. Once ever 7-10 years teams get an opportunity to 'purchase' assets like this. Aquilini better take advantage of it. Especially after he increased ticket prices and this teams been bounced in the 1st round 2 consecutive years. They have a crap farm team, the free agent market won't be great, it's time to 'buy' some great assets. If he doesn't - complied by the Torts hiring. I'm seriously looking at bring my allegiances to another team. I'm pretty much at an end point here with them.

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#11 jer
June 27 2013, 05:29PM
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re: NMOO's "Correlation etc" comment: thought this was worth a link: (can we post links here? I'm gonna try...)

http://tinyurl.com/8swrbrw

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#12 Lemming
June 27 2013, 05:39PM
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@kaybee@kaybee.com

I agree with you, any good points I feel he has gets lost in the single-minded drive to find fault with everything about Gillis.

There could be a story about Gillis having a turkey sandwich, and I guarantee you I'll see the words "incompetent asset management, Booth, Ballard, Alberts, Kassian, dug a hole". It amazes me how he can relate any discussion of Gillis back to the same talking points every time.

That being said, I think he has good points, and Gillis isn't particularly responsible for the increase in value. If there are arguments against it, my shoddy understanding of the economics of the game prevents me from arguing. But it's definitely not shocking or reliable that he takes the anti-Gillis argument.

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#13 NM00
June 27 2013, 06:33PM
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@Lemming

The anti-Gillis argument?

I suggest you reread what I wrote.

Drance is making a logical leap here by attributing the Canucks' financial success to Gillis running the business well.

For starters, it would take a lot more work than just showing the increase in franchise value during Gillis' tenure to attribute this success to him.

Espescially when franchise values are going up in other Canadian markets and big American markets as well.

It's almost as though it has nothing to do with the GMs and everything to do with an economic system which guarantees profit in big and/or Canadian markets.

Acknowledging the context of the environment in which Gillis works is not "anti-Gillis".

By the same token, did Brian Burke "run the business well" during his tenure in Toronto?

To go a step further, have Don Maloney and David Poile run their respective franchises poorly simply because they rank lower on Forbes' list?

Of course not.

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