The perfect compromise

In a negotiation that took longer than anyone thought it ever would, Johnny Gaudreau and the Calgary Flames agreed to a pretty sensible six-year contract extension on Monday afternoon. Sure, the six-year, $40.5 million deal could have been better for both sides. Taking everything into account, though, what was agreed upon Monday ends up being the perfect compromise.

When I say “taking everything into account”, I mean all of what has transpired. The Flames were on the verge of seeing their superstar forward sitting out meaningful games; conversely, Gaudreau was dangerously close to missing regular season action and, as a result, his first cheque of the season. While both sides had to move off their ideal stance, this extension makes a lot of mutual sense.

This isn’t as good as it could have gone for Gaudreau because the market suggested a higher AAV had he signed for seven or eight years. However, Gaudreau still signed for market value; it just so happened he signed for what the market suggested over six years as opposed to longer. He hasn’t taken a massive hometown discount here.

From everything I’ve been told about the negotiations and from everything we’ve learned from NHL insiders far and wide, the Gaudreau camp was asking for somewhere in the $8 million range. But it’s important to remember two things on that front.

First, that $8 million figure was always understood to be on a max (eight year) deal. Second, and equally as important, that was the high water mark on a negotiation. In cases likes these, one side sets the bar high and the other sets the bar low to get to a final number. As such, a fair number was always in the $7.5 million range over an eight year term.

That figure meshes well with Gaudreau’s best comparable in Vladimir Tarasenko. As many of us know, the Blues forward signed an eight-year, $60 million extension last summer that carries an AAV of $7.5 million. While Tarasenko is not a perfect comparable for Gaudreau, he was always the closest, most recent, and most relevant one to fall back on. Right from the get go of these negotiations, Tarasenko’s number was a part of the conversation behind closed doors.

Knowing that, then, let’s do some rough extrapolating. With the way NHL economics work nowadays, the AAV is closely correlated to how many years of unrestricted free agency are covered in a deal. UFA years are a player’s prime earning years, so the younger you can get there the better. As such, each year bought up is going to carry with it a premium.

In Gaudreau’s case, anything over five years was going to buy up UFA years setting a four-tier market. The numbers below are just estimates, but they do paint a decent picture.

In this example, I accounted for around $350,000 for each UFA year purchased in an extension. I’m not sure what the price would actually be to buy UFA years in Gaudreau’s case, but I think my estimate would at least be somewhere in the ballpark. As you can see, targeting Tarasenko money would have been realistic on a max deal. 

In this situation, though, one of the big hangups seemed to be Calgary’s hesitance in pushing the AAV too high on a long term deal. We’ll get to the team side of things in a second, but that chart above is the best way I can illustrate how Gaudreau is still getting what the market suggests he deserves.

The downside for the player is a slightly lower dollar figure. The upside, though, is getting to true free agency sooner with the potential for a bigger payday. In the end, it’s a pretty solid middle ground for Gaudreau.

I still believe the most ideal thing for the Flames was getting Gaudreau signed to an eight-year deal. Even with the premium on UFA years jacking up the AAV, having a player of Gaudreau’s caliber signed for as long as possible always made the most sense to me. That said, what Calgary ended up signing is still something that works well for them.

As was reported by a few different insiders, the Flames had a desire to keep Gaudreau’s cap hit under an “internal cap” set by Mark Giordano’s extension last summer. Whether you agree or disagree with the logic, this deal satisfies that desire. Gaudreau now joins the captain as Calgary’s highest paid player, both at $6.75 million annually.

More importantly, Gaudreau’s cap number gives the Flames some flexibility as they try to lock up some other key pieces in the next few years. While the team sacrifices the stability of buying up as many UFA years as possible for Guadreau, they also save a few hundred thousand dollars per year in the process. While it might seem insignificant now, those dollars could turn out to be crucial in the years to come.

Thanks to our friends at General Fanager, below is Calgary’s updated cap situation with Gaudreau’s deal on the books. As you can see, there’s not a lot of wiggle room.

In the short term, the Flames will be able to get some space under the collar by putting Ladislav Smid on LTIR early in the regular season. They’ll also get some cap relief in the coming years with the following deals coming off the books.

The problem is, as nice as having those contracts drop off the cap, Calgary will likely use all of that relief on getting extensions for other key players done. In the immediate future, both Sam Bennett and Brian Elliott need contracts for next season. While Bollig, Wideman, and Engelland combine for $9.5 million in new money, it’s a good bet the duo of Elliott and Bennett will command that much or more.

A little further down the road new deals, and raises, will be needed for the likes of Mikael Backlund (2018), Matthew Tkachuk (2019 or 2020) and yes, even T.J. Brodie (2020). Having Gaudreau signed at $6.75 million as opposed to $7.5 million will give the team some flexibility to get those deals done, too.

Yes, the Flames would have been best served to Gaudreau signed to a deal longer than six years. However, whether it be because of reported (and unfounded in my eyes) questions about durability, a self-imposed internal cap, or the desire to keep some future cap flexibility, paying the price for that eight-year deal wasn’t in the cards.

Much like Gaudreau satisfied his wish to get paid at market value, Calgary was able to keep his cap hit reasonable while still getting a crucial player signed over a sizeable term. No, it’s not 100% ideal, but much like the player made some concessions, the team had to, too; that’s how a compromise works, after all. In this case, it means Gaudreau is going to suit up to start the season. For most Flames fans, that makes this the perfect compromise.