Tuesday, August 11, 2009

The One Year Deal - Good Idea?

The last 8 UFA contracts signed by definite NHL players have been 1 year deals. The implication is that it's 1 year deals all the way down - anyone who wants to play in the NHL next year and isn't already signed, be prepared to rent an apartment instead of buying a house.

The reasons for teams wanting to sign one-year deals are simple:

1. If the contract goes bad, there's no extra years to worry about.
2. The team may have cheaper alternatives coming up in the minor league system.

From the player's perspective, the logic is probably more like this:

1. It may be the only kind of deal being offered to him.
2. If his performance increases, it may be advantageous to him to have only signed for 1 year.

This is all very simplistic. Obviously Reason #1 for teams and Reason #2 for players are two sides of the same coin. At this point in free agency, there are still players in their legitimate NHL prime waiting for contracts. These players include:

Steve Eminger, Taylor Pyatt, Mike Comrie, Dennis Seidenberg, Alex Tanguay, Manny Malhotra, Dominic Moore

There is almost no danger of these players' play declining in the second year of a contract (Comrie excepted). With the market for these players having collapsed, a smart team would go after these players with multi-year deals - next year's UFA class is shaping up to be even more competitive than this one.

Let's say one of these players signs a one-year contract. Let's say that 20% of the time, he is $500,000 or more valuable than the contract he signs, 70% of the time he is within +/- $500,000 of the contract he signs, and 10% of the time he is below $500,000 in value of the contract he signs. We realize that here we are begging the question - of course one would want to sign this player to a multi-year contract. That is precisely our point.

In free agency, the phenomenon known as the Winner's Curse frequently comes into play. If a free agent merely wishes to go to the place that will pay him the most money for the most years, teams continue bidding until they reach an agreement. The problem is that the team who values him most highly is almost always making a mistake with that valuation. With these free agents, there is likely no 'Winner's Curse' because it is clear that bidding on them has fallen apart. Teams should want to buy as many years of these players as possible - it is probably the players who want 1 year deals, figuring that if they perform well, they'll be heavily in demand next year, and could get contract offers that nearly double the ones they are getting this season.

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