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Photo Credit: Bruce Hemmelgarn/USA Today Sports

The good and bad of Jacob Markstrom’s contract structure

The Calgary Flames shelled out big bucks for a goaltender on Friday, inking Jacob Markstrom to a six year deal worth $6 million per season. As they say, the devil is in the details and the details of the Markstrom deal are fairly peculiar and in some ways, kind of good for both sides.

Breakdown

Via PuckPedia, the yearly breakdown of salary and signing bonuses.

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Season Salary Bonuses
2020-21 $4,000,000 $0
2021-22 $4,000,000 $0
2022-23 $8,000,000 $0
2023-24 $8,000,000 $0
2024-25 $3,500,000 $2,500,000
2025-26 $3,500,000 $2,500,000

TSN’s Frank Seravalli referred to this on Twitter as “the hump,” as the payouts across the deal resembles a camel with low salaries early and low salaries late and the prime earning done in the middle of the deal.

Let’s see what factored into this structure, shall we?

Escrow

(Escrow is the percentage of NHL salary withheld by owners to ensure that the players collectively receive a 50/50 split of yearly league revenues. Because revenues will be way down because of the pandemic and various shutdowns, the two sides agreed to change the linkages for a little while.)

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Okay, let’s do this again, looking at how much cash Markstrom will actually get (before taxes).

Season Salary Bonuses Escrow % Payout
2020-21 $4,000,000 $0 20% (+10% deferral) $2,800,000
2021-22 $4,000,000 $0 18% $3,280,000
2022-23 $8,000,000 $0 10% $7,200,000
2023-24 $8,000,000 $0 6% $7,520,000
2024-25 $3,500,000 $2,500,000 6% $5,790,000
2025-26 $3,500,000 $2,500,000 6% $5,790,000

(Escrow is on salary, but the 10% deferral is on all money in the system including bonuses. The deferral gets paid back throughout the remainder of his contract, but it’s unclear how much and when.)

From a team standpoint, this structure allows the club and player to share in the financial risk in the short-term. The big escrow percentages early on are balanced with a low cash commitment, which in turn is met by a heftier outlay as things (in theory) recover.

And the two bonus years – 2024-25 and 2025-26 – coincide with the opening of the new arena and increased revenue generating capacity for the Flames, which seems like an acceptable compromise.

Buyouts

If you’re like us, you’re a bit scared of how NHL players can age. And when players age poorly, they get bought out. So what happens if the shine comes off the Markstrom apple and the Flames want to cash out?

Here are some buyout scenarios on the back half of the deal. Buyout payouts are structured like this: two-thirds of the remaining salary over twice as many years as are left on the deal.

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After three seasons:

  • $15 million of salary left, so a $10 million pay out over six seasons, or $1.667 million per.
Season Original Cap Hit New Cap Hit Cap Savings
2023-24 $6,000,000 -$333,333 $6,333,333
($8m minus $1.667m)
2024-25 $6,000,000 $4,166,667 $1,666,667
($3.5m minus $1.667m)
2025-26 $6,000,000 $4,166,667 $1,666,667
($3.5m minus $1.667m)
2026-27 $0 $1,666,667 -$1,666,667
($0 minus $1.667m)
2027-28 $0 $1,666,667 -$1,666,667
($0 minus $1.667m)
2028-29 $0 $1,666,667 -$1,666,667
($0 minus $1.667m)

Okay, let me explain the oddity of the negative cap hit in 2023-24. Each season’s buyout cap hit is calculated as the difference between the original salary paid out that said and the salary paid out in the buyout. Because 2023-24 has such a high amount of salary ($8 million), the savings exceeds the cap hit from that year in a weird CBA loophole. But that’s off-set by the fairly high cap hit in 2024-25 and 2025-26, which probably act as a deterrent for buying Markstrom out that early.

After four seasons:

  • $7 million of salary left, so a $4.669 million pay out over four seasons, or $1.167 million per.
Season Original Cap Hit New Cap Hit Savings
2024-25 $6,000,000 $3,666,667 $2,333,333
2025-26 $6,000,000 $3,666,667 $2,333,333
2026-27 $0 $1,166,667 -$1,166,667
2027-28 $0 $1,166,667 -$1,166,667

This scenario is a lot less crazy, but the cap hit is still fairly big in the first two seasons.

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After five seasons:

  • $3.5 million of salary left, so a $2.335 million pay out over two seasons, or $1.167 million per.
Season Original Cap Hit New Cap Hit Savings
2025-26 $6,000,000 $3,666,667 $2,333,333
2026-27 $0 $1,166,667 -$1,166,667

The deal isn’t buyout proof in the way Milan Lucic’s bonus-heavy deal was. But it’s also not super-easy to buy Markstrom out, which protects the player’s interests a bit.

It was a balancing act between team and player needs, and it seems like they found a decent one.