Deferred Payment Contracts in the NHL

On August 31, 2024, the Carolina Hurricanes signed Seth Jarvis to an eight-year, $63.2 million contract. While this deal secures one of the Canes’ key players, it also uses a rare contract structure that could set a new precedent in the NHL.

A Contract with a Twist

Typically, a player’s salary cap hit is calculated by evenly spreading the total contract value over its length. For Jarvis, this would usually mean a cap hit of around $7.9 million per year. However, the Hurricanes found a way to lower that to $7.4 million by deferring a portion of his salary.

Now you might be thinking...

How is this possible? Is this a new loophole in the cap system? And why isn’t my team doing this?

Interestingly, this isn’t the first time a team has done this. Back in 2016, the Phoenix Coyotes used a similar strategy with their captain, Shane Doan. At age 39, Doan signed a one-year, $5 million contract. Then-GM John Chayka used deferred signing and performance bonuses to reduce Doan’s cap hit to just under $4 million. CapFriendly (of course) had an in-depth breakdown of that deal. Though the original is no longer accessible, you can still find it on the internet archive

Understanding the Time Value of Money

To get how this works, we need an intuition about the concept of the Time Value of Money. Imagine you’re selling your old car and I offer you $1 billion for it. Sounds great, right? But what if I told you...

“Oh, by the way, the money is not transferable, and you won’t get it for 200 years.”

Well, that’s not so great. Why? Because you might want to spend some of that money now, and there’s some uncertainty about whether you’ll be able to collect in 200 years.

Money today is worth more than the same amount in the future because you can use it immediately. This concept — money’s value decreasing over time — is crucial to understanding deferred contracts.

Signing Bonuses vs. Deferred Payments

Let’s talk about signing bonuses.

Right now, these are the most common way to exploit the time value of money. Take Auston Matthews, for instance. He signed a $53 million contract with a nearly $16 million signing bonus, payable on July 1st. If Matthews invests that bonus at a 10% annual return, he could earn an additional $1.6 million (this is not totally accurate but will help make the point) by the end of the year. Without the signing bonus, the team would have had to pay him an extra $1.6 million against the cap to achieve the same financial outcome. For teams with the means to pay such bonuses upfront, this provides a significant advantage in signing top players — without it being considered cap circumvention.

But what if we flip the scenario? Instead of paying upfront, what if the payment is deferred until after the contract ends? That’s exactly what the Hurricanes did with Jarvis. While the total amount remains the same, the current value of the deferred money is less because of things like interest rates and inflation. Another way to say this, is that the player is loaning money to the team over the course of the agreement, with the team paying it back later, with interest. How much interest? According to the CBA (Article 50, Section 2(a)(ii)(A)), the rate is the prime interest rate at the time of signing, plus an additional 1.25%.

What Does This Mean for Jarvis?

Let’s look at a practical example. Here are Jarvis’ contract details:

And this is a breakdown of the deferred payments:

• Total Deferred Amount: $15.67 million
• Years Deferred: 1, 2, and 7
• Interest Rate: 5.47% (4.22% prime rate + 1.25% CBA)

The formula used to calculate the present value of the deferred payments is:

In total, the Hurricanes will pay Seth Jarvis $63.2 million, with $15.67 million of that deferred. As shown above, the present value of the deferred payments is $11.83 million. This is the amount that will count against the cap over the life of the contract, resulting in a savings of $3.83 million—or $478,750 annually.

Final Thoughts

Why Would the League Allow This?

This structure offers clear benefits to team owners. Besides the obvious cap relief, it allows owners to retain more cash upfront, which they can invest with the expectation of earning higher returns than the interest applied to the deferred payments. It also lets small-market teams to compete with franchises that rely heavily on signing bonuses.

Why Would the Player Agree to This?

For players, deferred payments can provide financial security. While they may limit immediate earnings, they also reduce investment risks. Consider former Canadiens forward Steve Bégin, who recently declared bankruptcy after a real estate investment went south. Deferred payments offer a more stable financial outlook.

Additionally, by agreeing to defer some of his salary, Jarvis helps the Hurricanes remain competitive. The lower cap hit allows the team to sign or retain other key players, improving their chances of contending for championships during his tenure.

A New Trend in NHL Contracts?

Seth Jarvis’ contract with the Hurricanes is a creative approach that could change the way NHL teams manage their finances. While the option to use deferred payments has always been available in the CBA, it’s been a rare move—only a few players like Jarvis, Jaccob Slavin, and Shane Doan have signed deals structured this way. Earlier this year, the Vegas Golden Knights tried to get Jonathan Marchessault to agree to a similar setup, but he turned it down. Why aren’t more players going for this? It comes down to money management. Many players (and their financial advisors) believe they can earn better returns by getting paid upfront, rather than waiting and settling for the prime interest rate plus an extra 1.25%.

Still, it’s a smart strategy and - if teams can convince players it’s worth the trade-off - we could see it catching on across the league.