The Cap Cost of Drafting High in the NHL Draft & the New Jersey Devils

Given that the New Jersey Devils came into the halfway point of the season at 10-29-2 (and won their first game of the second half), I don't think there's much of an argument against stating that the 2010-11 season is pretty much done.  The rest of the season is to be played out to get prepared for 2011-12.  Therefore, Devils fans are already looking to the NHL Entry Draft, an unfamiliar feeling to do so in January. 

That's because it has been a rather long time since the Devils had a high pick in the draft.   The last time they missed the playoffs, in 1996, their top selection was tenth overall.   The last time the Devils picked in top three it was 1992 and that's because they had Toronto's first round pick through a trade.  Unless I'm mistaken, 1987 was the last time the Devils got a top three pick (second overall) due to their team's "success" in the prior year.   With the Devils currently having an 8 point "lead" for dead last, I doubt the team's going to fall out of the top 5 without a torrid second half.  Again, this is unfamiliar territory for both the franchise and the fanbase.

Still, the interest is there and justified, as evidenced by the comments to Tom's post the other day (the draft discussion inspires this post). There's not a whole lot else to look forward before next season in New Jersey.     Can I tell you who the Devils should pick if they win the lottery and get the first overall pick? Looking at the mock drafts right now at NHL.com, can I make a case for Sean Couturier, Gabriel Landeskog, Adam Larsson, or Ryan Nugent-Hopkins? Not really.

What I can tell you is that whoever the Devils pick most likely shouldn't be in New Jersey in 2011-12.  If only because high first round draft picks take up a significant portion of the salary cap.  While I can understand wanting to see a top young talent right away, I will show that it is a costly decision to make.

First, let's establish the cost of a draft pick by looking at the cap hits of the top 5 draft picks in the last 5 years.  This will cover the situation of the Devils winning the first overall pick or if they get hot and finish out of the top 3. I personally doubt they'll get out of the top 5, but as you will see, my point will still stand.  A top pick will command a significant salary cap hit.   Through these charts, I'll also explain what the Devils can do to avoid having an 18-year old rookie take up a large cap hit right after the draft.

Two notes about the following charts.  First: A players name with a blue background means they played in the NHL immediately after being drafted. A players name with a yellow background means they are playing in the NHL but not in the season after their draft year.  A players name with a pink background means they are not in the NHL this season.  Second: Any number in italics is an average across years, some players have varying performance bonuses or base salaries from year to year in their first contracts.  I've averaged them just as it is for the cap hit.

First Overall Pick Cap Hits (2006-2010)

Past_5_first_overall

The last four first overall picks of the past five drafts have significant cap hits right of the gate - before they played even just one game in the NHL.   Each has received the maximum allowable salary and performance bonus on a three-year entry level contract (ELC) as defined in Article 9 of the CBA.  CapGeek's FAQ has an excellent summary on the terms of an ELC.

In any case, first overall commands the most money possible.  Therefore, they command the biggest cap hit.  Even if the player has no chance of hitting the performance bonus, it's still part of the cap until the end of the season.

Since each has immediately jumped into the NHL, their contracts began right in the next season. Since ELCs for an 18 or 19 year old player (as of September 15 of the draft year) are 3 years long, this means they become restricted free agents at ages 20-22.  If they've stuck in the NHL for the last three seasons, then that player is (hopefully) acclimated to the NHL, (hopefully) has become a better player, and so can command a significant contract much sooner.  Plus, each will become an unrestricted free agent earlier per the CBA, having played 7 seasons by age 25 instead of waiting until 27.  Or, to put it another way, just as they may be beginning the prime of their career.

The lone exception: Erik Johnson.  He played a year at University of Minnesota before making the leap to the NHL. Therefore, he got his deal a little later - and became an RFA a year later than he would have if he went right to the NHL.  This allowed him to develop and St. Louis to make sure he was progressing before giving him big money. He will become an UFA a year sooner, though the Blues saved on $3.7 million to the cap in the season after the draft.

Basically, if the Devils get first overall, then the player's likely going to be worth a little over $3.7 million on the cap.  That's cap hit worthy for a good NHL regular player.  It's   To me, such a player needs to contribute right away - and I'm talking an actual contribution, not whatever Brian Rolston does.

UPDATE:  As triumph44 noted in the comments, there's no bonus cushion, so unless I'm mistaken, the cap hits of the first overall picks and any other picks on the books are going stick whether or not they hit their performance bonuses.  Therefore drafted player really needs to contribute right away, especially a first overall pick taking up about $3.7 million of a team's salary cap.

Second Overall Pick Cap Hits (2006-2010)

Past_5_second_overall

The second overall picks aren't slumming it either.  All but James van Riemsdyk has jumped right into the NHL.  Maximum base salary for an ELC, but lower performance bonuses than the first overall pick.  While it's really low, the average cap hit for a second overall pick is actually a little over $3 million if you take out van Riemsdyk's lower cap hit.  As stated earlier, the four players will go into free agency as soon as possible; whilst taking up a good part of a team's salary cap right now.

The Flyers actually were very smart with van Riemsdyk, the lone exception in this group.  Despite whatever temptation there may be to put the second overall pick of the 2007 draft right in the NHL, they preferred that van Riemsdyk go to University of New Hampshire to develop his game.  The Flyers and van Riemsdyk didn't agree to an ELC until he was a sophmore. This allowed the player to hone his skills at his pace and stand-out in college hockey instead of immediately throwing him into the NHL and hope that he doesn't drown.  The Flyers saved on his ELC - note the significantly lower performance bonuses contributing to his cap hit - for two years; got him on the books at a lower cap hit than his drafted peers; didn't have a high ELC take up cap space for two seasons; made sure he wouldn't turn into a RFA or an UFA sooner than necessary; and signed the player only when they felt he was ready for this level.

While I loathe the Flyers, I have to give their management credit here. They did what was best for both parties involved and van Riemsdyk is still a burgeoning talent.  Even if the Devils don't pick second overall, this would be a good blueprint for them to follow.

Third Overall Pick Cap Hits (2006-2010)

Past_5_third_overall

The third overall pick has some variety.  Atlanta brought Zach Bogosian in right away and Colorado got Matt Duchene in Avalanche colors as soon as possible.  Therefore, they got their significant cap hits on the books and they'll become free agents sooner rather than later. Chicago and Phoenix were a little more patient with Jonathan Toews and Kyle Turris, each allowing both to go to their respective colleges for a year.  Then, they signed ELCs with their teams and played in the NHL.  Again, note their smaller performance bonuses compared to Bogosian and Duchene.

Florida and Erik Gudbranson didn't come to terms on an ELC in 2010.  This is another out for New Jersey. A team has a drafted player's rights for 2 years unless they go off to college.   Gudbranson's in major junior hockey up in Canada, so Florida could have signed him to an ELC and still sent him to play in the OHL without enduring a cap hit this season.  However, without a contract, Florida has nothing on the books for Gudbranson.  They can't use him, but he's one less contract on the contract limit and one less potential cap hit.  They still have the rights to the player.  So while Gudbranson is doing his thing for Kingston in the OHL, the Panthers can monitor him and give him an ELC after the season.  

I don't recommend this approach for the Devils because the lack of a contract may start the player and the team off on the wrong foot.  Still, Florida has demonstrated another option to avoid a big cap hit right away.  While these five didn't get big performance bonuses like the first overall picks, the cap hits have still been significant.

Fourth Overall Pick Cap Hits (2006-2010)

Past_5_fourth_overall

At fourth overall, the cap hits become smaller.  Two players didn't get maximum base salary for all three years; and all five didn't get maximum performance bonuses in their deals.  Hence, the smaller cap hit.  Two players have yet to play in the NHL, Thomas Hickey and Ryan Johansen; the other three have.   Atlanta felt good enough to play Evander Kane right away and so he's a $3.1 million cost to their salary cap.  The other two current NHL players are worth touching on further.

Washington didn't sign Nicklas Backstrom right away, having him play another year in Brynas IF in Sweden for another season (it's possible he was still under contract for Brynas). He did very well in a third season with the senior club, and so the Caps then gave him a good-sized ELC for his efforts. Backstrom proved his worth in the SEL, then got the deal and became a productive player in the NHL right away.

St. Louis took full advantage of an ELC being able to slide.  If a player signed to an ELC doesn't play more than 10 NHL games and he's under 20, then the contract slides into the next year.  The Blues played Alex Pietrangelo for 8 NHL games in 2008-09 and then sent him back to junior; the Blues did it again last season before sending him back to junior; and then this season he's fully in the NHL.   While a $3.1667 million cap hit isn't small, they delayed having it come into effect for two years by playing him under the 10 game requirement before sending him to junior.  For the player, it's essentially an evaluation at the NHL level; and from that he can realize what he needs to do at the lower level to stick in the next level.  And, of course, Pietrangelo won't become a free agent any sooner than necessary.

Should the Devils draft a major junior prospect, they should seriously consider following this approach.

As an aside, the sliding ELC is also the main reason why Alexander Urbom and Jacob Josefson shouldn't be in New Jersey full-time. Yes, the season's lost, but it's no reason for have their cap hits kick in and have them become free agents one season sooner than necessary.  They'll be 20 next season, when they can be played as much as desired with no ill-effect.

Fifth Overall Pick Cap Hits (2006-2010)

Past_5_fifth_overall

Even at fifth overall, the cap hits on the ELC still averages a little over $2.5 million. It's lower than the other four as one may expect, but it's not nothing.   Boston and Toronto threw Phil Kessel and Luke Schenn respectively into the NHL and so their cap hits were on the books. As with Backstrom, Washington waited a year to sign Alzner to an ELC (or it slid and CapGeek didn't have it).  After a season of development in junior, the Caps were apparently pleased enough with his progress to have him go professional and split time between the Capitals and the Hershey Bears in 2008-09.

The two most recent fifth overall picks are following the path that Pietrangelo took. Brayden Schenn and Nino Niederreiter got brief tastes of NHL action before being returned to their respective junior teams.  Schenn will turn 20 after this season, so he'll primarily ply his trade in the AHL or NHL next season.  Either way, LA won't have to worry about him becoming an UFA sooner than needed.  The Islanders may have liked what they saw out of Niederreiter, but sending him back to the WHL allows him to develop at his own pace and without burning a year up of his ELC.

A Reminder of the Devils Cap Situation

Let's quickly review the New Jersey Devils salary cap for a bit.  As of right now at CapGeek, the Devils have $50,275,832 tied up in 15 players for 2011-12.  Even if the cap ceiling goes up a couple million for next season, most of the cap space is going to be used on Zach Parise, retaining other restricted free agents (e.g. Vladimir Zharkov) and filling in other spots on the roster created by players traded or not re-signed.   There's not going to be a whole lot of space available next season unless some drastic changes are made to the roster.  Especially for a $2.4-3.7 million player, much less a prospect.

There will be plenty of space after that season, as Brian Rolston, Martin Brodeur, Colin White, and Bryce Salvador will all become UFAs.  Of course, a new CBA may be on the horizon and could change everything - but for now, that's when significant cap relief will arrive. 

Conclusion

The major point of all of these charts is that top draft picks command significant cap hits right away. First overall is pretty much $3.7 million for three years right away.  It gets a little lower by order of selection, and there is variation by team and player; that said, past drafts have shown that those picked in the top five will command cap hits of at least $2 million with few exceptions.

Therefore, whoever the Devils draft in the first round in 2011 - which should be a high pick at this rate - should not be playing in New Jersey in 2011-12.  Even if they win the lottery and use that first overall pick, the selected player should be returned to their team.  The Devils should follow what Philadelphia did with James van Riemsdyk; St. Louis did with Alex Pietrangelo or even Erik Johnson; what Los Angeles has done with Thomas Hickey and Brayden Schenn; what Washington with Karl Alzner and Nicklas Backstrom; what Phoenix did with Kyle Turris; what Chicago did with Jonathan Toews or even what Florida did with (or, rather, did not sign a deal with) Erik Gudbranson.    All are examples of waiting at least a season before kicking them - and their deals - right into the NHL.   Ideally, it should be two seasons, but delaying that cap hit is desirable.

The Devils will probably not have a lot of cap space next season, cramming in an average cap hit of $2.4 to $3.7 million would just create a cap management issue that can be avoided. That average may rise a bit since the maximum base salary on a ELC will rise to $925,000, according to Article 9.3(a) of the CBA.  Even if New Jersey clears out a lot of space for next season, it's to the team's advantage in the short term to avoid an unnecessary cap hit and in the long term to avoid having their drafted player become a free agent sooner than necessary.

The only exception to this desire is if the drafted player is significantly good.  Again, the main issue I see with the potential ELC deals is that the prospect is going to command a significant part of the salary cap regardless of the prospect's quality. While he's developing, which has it's own growing pains on the ice, the player is costing a cap hit more reasonable for an established player. Unless the prospect is like Sidney Crosby or Alexander Ovechkin - someone who can make a big impact right away in the NHL, there's nothing wrong with having the prospect go back to their junior, college, or European team for one or two seasons.  And if I'm reading this article at NHL.com by Mike Morrale correctly, there isn't a Crosby-like player in this draft. Couturier, Landeskog, Nugent-Hopkins, and Larsson may all become great players but there is no expectation for an immediate impact.  Nevermind the unreasonable expectation for an 18-year old hockey player to join the Devils and some how be a driver for a massive turnaround next season.

So let the potential top-5-pick player develop into a someone more worthy of the ELCs given to players drafted that high.  I would rather have the prospect grow at their pace, develop without hurting the NHL team cap-wise and performance-wise, and have them prove on the ice that there's nothing more for them to do at that level.   A high draft pick only means the team gets an early shot at drafting a prospect with high potential; that potential needs to be realized to a point before putting them in the top hockey league in the world. A season or two of doing that won't kill the prospect's talent, it'll only frustrate the impatient.  

Essentially, I don't see a real downside to patience for drafted players, regardless of how high they were picked.  Based on their past with prospects, neither do the New Jersey Devils.  After all, Zach Parise, Nicklas Bergfors, Mattias Tedenby, and many more didn't see significant time in New Jersey before turning 20. They have generally avoided activating ELCs on prospects unless they felt they were truly ready for the NHL.   I hope they will not deviate from these past tendencies just because they are on pace to get a top-5 pick in the 2011 NHL Entry Draft after a horrible season.

Thanks to Tom and the commenters in the original post that inspired this one.  Having read all this (and it's a lot, but do read it), please let me know what you think in the comments.   Incidentally, for those who want to bring up the "Chicago model" or "Pittsburgh model" of rebuilding or as a rationale to play drafted players right away, I recommend this post Derek Zona wrote at Copper & Blue, which pours cold water on both "models" whilst lamenting the Oilers way of "management" in recent seasons.

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