Focus on the cap hit percentage, not the total dollars
Now that free agency is fading, and the Penguins have nothing other than the Zach Aston-Reese extension on their list to accomplish, an eye should start to turn to the next order of business.
That being franchise icons Evgeni Malkin and Kris Letang are in the final years of their respective contracts in Pittsburgh.
General manager Ron Hextall said in June that, “we see a future with this core”, but was speaking more directly to retaining both for this upcoming season. Last week he was more direct with a comment of:
“Once we get through the draft and free agency, we’ll get more on [negotiations with Malkin and Letang]. But at this point, we’ve just had more general discussions or mentions of wanting to re-sign the players.”
The parting thought of “mentions of wanting to re-sign the players” is a meaningful declaration to take for a fairly under-stated manager in Hextall. This statement of the Pens’ desire to want them back is long believed to be a directive from the very top, where Mario Lemieux knows a thing or two about the value of an iconic player staying with one team for an entire career.
The Penguins, for the moment anyways, have something rare since about 2008: they actually have available salary cap space in 2022-23! Pittsburgh has approximately $46.8 million of salary commitments for the season, which leaves a projected $32.7 million in cap space.
Of course, with that space brings significant holes. There is Malkin and Letang to deal with, for starters. Then their are expiring deals for Bryan Rust and Jeff Carter (both unrestricted free agents) and Kasperi Kapanen (restricted free agent) as well as supporting players like Casey DeSmith, Danton Heinen, Evan Rodrigues and Chad Ruhwedel.
That’s a lot of important pieces of the puzzle to replace or retain, on top of any further moves to shed players signed for 2022-23 that the team may deal by that point.
In terms of importance however, the Malkin and Letang deals are at the top of the priority list and wisely are going to be taken care of first. A team has to fit in the star players and work down around them, and that is the path the Pens are going to take.
Malkin and Letang find themselves in interesting positions with this negotiation. For Malkin, an extension kicks in for his age 36+ season(s). With Letang, it will be for his 35+ age season and beyond.
These are still key players that will be in prime roles, this is not a situation where a franchise player is all-the-way in greybeard status like a Joe Thornton taking very cheap deals for age 39, 40 to continue playing.
Elite players in top roles, even if aged, are still going to be paid for that. The Pens’ division rival, and team that mirrors them in many strange ways, has provided something of a road map when it comes to extending aging but still capable franchise players. That, of course, would be the Washington Capitals with recent new contracts for Alex Ovechkin and Nicklas Backstrom.
Alex Ovechkin’s recent five year contract extension (for his age 36-40 seasons) comes in at virtually the same cap hit dollar amount as his previous, mega-11 year contract. Despite the dollars, the real key is the percentage. Ovechkin was sapping up a super-high 16.8% of the total NHL salary cap (NHL player salaries are capped at 20% of a team’s upper limit) in 2008 at the start of that contract.
Ovechkin bumps down to 11.6% now at the start of this current contract, which will conceivably go down as the cap eventually goes up in the future. That is a break to the Caps, and probably worth too, given the age Ovechkin will be reaching.
On the other side of the ledger is a totally different strategy for Backstrom’s extension. His salary cap hit in dollars went way up for his five year contract that began in 2020-21. But that’s not really the point, look at the percentages — it worked so Backstrom is counting as much now as what he counted against initially in the 2010-11 season, which clearly is no coincidence. Backstrom ended up being a huge bargain in the latter 2010’s, as eventually his cap hit% dwindled to 8%, this latest contract gets him back up to that level he initially started at.
Those are two ways to look at the possible next Malkin and Letang contracts. The takeaway is to not get too caught up on the actual dollar amount of the hit when it comes to franchise cornerstones, you want to look at the percent of the pie that they are eating up.
If Malkin signs for $12 million annually, he will be taking the Backstrom path to keep the same percentage cap hit (14.7% in this case) as his earlier contract. If Malkin signs closer to $9.5-10 million, it will be the Ovechkin route of giving the team a better deal than the contract in his prime years.
Similarly, if Letang were to sign a contract for $8.5 million, he would be replicating his 2014-15 percentage. For comparison to the recent open market, Alex Pietrangelo’s 2020 free agent contract pays him a $8.8 million cap hit through his age-37 season.
It may be thought, “wait, why is a legendary, cornerstone player getting a similar cap hit and percentage in his late-30s as he did a decade earlier? That doesn’t seem like a great investment”. And, to be sure, there are risks and a greater possibility an older player doesn’t perform to the highest level. But icons are on a different level than 99% of players and set their own rules, from contract to performance. Mario Lemieux putting up 91 points in 67 games (second highest points/game that season in the NHL) at age-37 is an example that the normal aging curve and worries don’t apply to a legendary player.
For the Pens and their roster building, that means if Malkin+Letang take a combined $20.5 million cap hit ($12 + 8.5 if you’re keeping track), that would represent the same amount that the team had to work with in the 2014-15ish stage where they found a way to add enough talent to win Stanley Cups in 2016 and 2017 around big contracts for those players.
If the Pens can get both superstars signed for under a total of $20.5 million, they will be coming out ahead of the numbers compared to the last signings. Given age (star players can fight Father Time, but no one defeats it) and injury concerns, it would be wise and always more beneficial to the team’s salary structure if they are able to save money and lower the cap hits.
To that point, the lower end estimates of about $17 million would gain the team extra wiggle room. This could come in very valuable when negotiating with Rust, who is due a bump on his $3.5 million salary. If the Pens can get relative deals on Malkin and Letang and come in closer to $17 than $20, that provides the extra $2ish million that they can direct as a raise to Rust, or use for a Rust replacement.
Negotiations with legendary players can be very delicate processes. Ovechkin was in no rush to leave DC, but he also wasn’t a quick signing. While his overall salary cap hit is the same, there is somewhat of a hidden benefit. Ovechkin secured a fifth year to pay him in his age-40 season and grabbed a $47.5 million total commitment in future salary for his golden playing days.
With Sidney Crosby under contract until 2024-25, it naturally makes sense for three year contract terms. However the term is likely something that the player can dictate, as Ovechkin did. If Malkin is willing to sign for $10ish million, but wants a fourth or even a fifth year on his extension (a five year deal would take Geno through his age-40 season to match Ovechkin’s contract in that regard), that could be a common ground for both.
In that scenario, Malkin would guarantee himself a total of about $50 million still to come, and the team would ensure their star center stays for all his playing days in Pittsburgh on a palatable cap percentage.
That is how the math looks, but negotiations at this high level will encompass more than cut and dry numbers and percentages and include what the player is looking for. If Malkin desires a one or two year extension to see what his future might hold for a possible relocation with his young family to Russia, the Pens would surely be amenable. If Malkin’s priority is locking in the rest of his days in Pittsburgh with a longer term, it’s probable given ownership attitudes that would be on the table too.
Given that negotiations haven’t really started, they could play out with a resolution right away — or not. But if the Pens do get pen to paper for Malkin and/or Letang, watching the cap percentages and how much the team might be able to bank will be the key end result, other than the obvious of keeping iconic players for the end of their careers.