This week we are taking a look at contract variability which is essentially the amount that salary can vary from one year to the next within a player’s contract.
Previously, only the 100 Percent Rule existed, which essentially states that salary can’t vary by more than 50% of the lesser salary in the first two years of the contract.
Now the summary of terms states:
“For multi-year SPCs that are “Front-Loaded Contracts,” i.e., where the average of the Player Salary and Bonuses in the first one-half of the contract is greater than the AA over the full term of the SPC:
a) Year-to-year variability in compensation (each year’s Salary and Bonuses) will be limited to 35% of the compensation (Salary and Bonuses) in the first year of the SPC. For example, if a Player earns $10 million in compensation (Salary and Bonuses) in Year 1 of his SPC, his compensation (Salary and Bonuses) cannot increase or decrease by more than $3.5 million in any subsequent year of the SPC.
b) The lowest year’s compensation (Salary and Bonuses) cannot be less than 50% of the highest year’s compensation (Salary and Bonuses) of the SPC. For example, if in the highest year’s compensation (Salary and Bonuses) of a Player’s SPC, he earns $10 million in total compensation (Salary and Bonuses), he may never earn less than $5 million in any single year during the term of his SPC.
For all other multi-year SPCs (i.e., not Front-Loaded Contracts as defined above), the 100% Rule shall apply.”
As the first and last sentences indicate, the 100% Rule still lives for any contract that isn’t front-loaded. Front-loaded meaning the average of the first half is greater than that of the second.
For contracts that are front-loaded, the compensation cannot vary by more than 35% of the first year, and the lowest year cannot fall below 50% of the highest year.
This rule is designed to prevent Shea Weber type contracts where the player receives exorbitant sums of money early on in the contract. It was hard for small market teams to compete with those types of contracts, and this is designed to keep everyone on a more level playing field…err…ice.