Friday, July 25, 2008

LONG TERM CONTRACTS - Part II [Goaltenders - Mathieu Garon]


Please refer to Part I of Long-Term Contracts motivations, before continuing this read.

There are several legitimate motivations for General Manager, Kevin Lowe to extend goaltender Mathieu Garon this summer. These are outlined and briefly discussed below:

MOTIVE #1 – RISK & REWARDS OF CONTRACT TERMS ARE EQUITABLY DISTRIBUTED

Presumably, the contract terms, from the organization's standpoint present at least a moderate possibility that the benefits of the Garon's services will exceed the value of the cumulative paycheques. The Oilers would be seeking player overperformance of the contract. Garon, meanwhile, would be seeking the security of the paycheques that will allow him, his immediate family, and grandchildren a life of sailing on yachts, eating bonbons, sipping refreshing drinks in tropical climates subsequent to retirement. In short, financial security.

MOTIVE #2 – LACK OF SUITABLE ALTERNATIVES

General Manager Kevin Lowe would sign Garon to a long term extension if he reasonably feels there are:

  1. No internal replacements in the system, or at least not so over the life of the extension
  2. No legitimate replacements via the foreseeable 2009 UFA class
  3. No legitimate replacements via the trade route at reasonable cost

This motivation presents profound leverage to the player in contract negotiation

MOTIVE #3 – CONTRACT STRUCTURE PRESENT UNIQUE OPPORTUNITIES

General Manager Kevin Lowe would sign Garon to a long term extension if the contract can be structured in a manner that provides the Oilers with unique opportunities, in the case of significant underperformance, such as:

  1. Frontloading the contract and buying him out in later years, and
  2. Back-loaded salary gives rise to the consideration to retirement
  3. Burying the contract in the minors

Of course with this option to be viable, strong ownership commitment would need to be prevalent. Given Garon is still relatively young, option (b) is unlikely if such an extension is equal or less than 5 years.

DEMOTIVATION #1 – INHERENT RISK

On a collective basis long-term contracts to goaltenders carry more inherent risk than do long-term contracts to defensemen and forwards.

In other words, there are greater potential adverse consequences as a result of subsequent poor performance by a goaltender than of other roster players!

Why? By virtue of the number of designated roster spots for a specified position. There is only one starting goaltender per team, while six starting defensemen, and a whopping twelve starting forwards every game.

Case in point: Sheldon Souray, who is paid like a top pairing defenseman. Despite the fact that he won't ever live up to his paycheques in his present contract, the damages can still be mitigated by playing him in a role in which he can still help the team win hockey games [i.e. bottom pairing, penalty kill, and arguably the powerplay]. With a goaltender like Mikka Kiprusoff, the opportunity for mitigating damages is narrow, given the inherent risk present. Continuing playing him, in the event of poor performance, leads to poor results on the ice; relegating him to backup duty represents a significant waste of otherwise available cap space. In other words, consistently poor performance generated by a goaltender with a long-term contract is filth; and filth carries limited to negligible value around the league.

FINDING THE BALANCE

The key here is balance. Extending Garon to a long term contract is fine, if at inception of contract, the presumable benefits exceed the costs. That is, the strength of the motivations exceed the strength of the demotivations. If I am Kevin Lowe, I have assessed risk for Garon at moderate. The exhibit below represents my comfortable contract offers (please note 1 and 2 year contracts are not classified as long-term contracts):

Number of Years

NHL Salary Cap Hit (USD)

1

4.00M

2

3.75M

3

3.50M

4

3.25M

5

3.00M

6

2.75M


Does that get it done? Perhaps. Perhaps not. The key is assessing the risks, and accordingly acting upon them. Kevin Lowe likely has the hammer [leverage] right now, given Garon's presumable desire for security. It would make good sense to utilize and derive benefit from this very hammer.

What do you offer, if you are Kevin Lowe?

8 comments:

Kish said...

6 yrs/$20.25m... which takes him to 35 years old.
If i'm Klowe, I do this, and if I do this its because I've made up my mind to trade Roli and go with Garon on JDD.
If I'm Garon... I don't know what I'd do...I've never understood goalies. I guess he'd take it since, based on his first few years in the league, it would have been a long shot to get a guaranteed $20mil.

jd said...

Who represents Garon? I would maybe scale it back a bit in years and give him 3 years at Penner money (4.25).

Jonathan said...

I don't like the idea of a long-term contract for Garon at this point in time, because he's never showed the ability at any level to handle 60+ games. 2-year contract, 6-7 million.

PDO said...

I wait till January 1st, and go from there. If he proves to be average, I think I'd set $10,000,000/3 years as my high water mark.... basically the Roloson contract.

Black Dog said...

Lots of goalies out there next summer. I like Garon but I think they needn't overpay. If he has a good season - 3 for 10.5 is doable I think.

Scott said...

I think one needs to look at what the market has been giving for these goalies.

First off, a six-year deal for a goalie who has shifted between backup and starter seems like a poor idea. Garon finished 17th overall in save percentage last year. That's nothing special. Certainly not worth an investment that would make him the starting goalie for the next five or six years. And it was his best season.

I would describe Garon as a goalie that has yet fully established himself as an NHL starter. He will be an unrestricted free agent at the end of his current contract. If the Oilers are interested in signing him to be their starter the following goalies were in similar situations and were signed in the last two years:

Chris Osgood - 1.417M for 3 yrs.
Dan Ellis - 1.75M for 2 yrs.
Manny Legace - 2.15M for 2 yrs.
Mike Smith - 2.2M for 2 yrs.
Chris Mason - 3M for 2 yrs.
Martin Biron - 3.5M for 2 yrs.
Vesa Toskala - 4M for 2 yrs.
Ilya Bryzgalov - 4.25M for 2 yrs.

Big differnce in price, but probably not a particularly big difference in performance over the next six years. The average price is 2.783M over 2 or 3 years. In my opinion, it should be pretty easy to get someone of Garon's quality to sign for around 2.5M for the next two or three years. If he'll do it, that's great. If not, move on to somebody else.

PunjabiOil said...

If he'll do it, that's great. If not, move on to somebody else.

Good analysis Scott.

I believe the key is ensuring, if extended, the contract is not untradeable at inception.

I believe Garon can provide league average goaltending, with above-average results in the shoot-out. Paying him upwards to 3M would not be a problem with me. I wonder though, if he has another solid season and decides to head into free agency, who do the Oilers replace him with?

I'm especially not fond of the UFA class next year, other than Backstrom.

Scott said...

I'm not especially fond of it either. Still, Backstrom is probably the only guy that you could confidently say is above average. I don't think Garon is in that group.

Over a two or three year period I'm not convinced that Garon could or even should outperform Thomas, Norrena, Conklin, LaBarbera, Legace, Gerber, Biron, Nittymaki and Tellqvist.

If Garon won't come down to 2.5M it seems like you could pick up a guy like LaBarbera on the cheap and the difference in expected performance wouldn't be much.