Teams are taking out insurance to lower the cost of bonus clauses
Shortly after the Bruins' regular season ended, Boston's parsimonious general manager, Harry Sinden, engaged in an unusual conversation with center Jason Allison. Sinden joined Allison in lamenting that the player had finished the season with 76 points, four points shy of the 80 he needed to earn a $1 million bonus. "Too bad," Sinden said. "I guess I wasted my insurance premium."
Sinden isn't the only team executive who has started taking out insurance to cover players' performance bonuses. American Specialty Underwriters, a company that began insuring against the payout of such bonuses in 1992, held about a dozen policies with seven teams, including the Bruins, last season. "It saved us a chunk of change," says Sharks general manager Dean Lombardi, who insured bonuses in the three-year, incentive-clause-laden deal signed by center Patrick Marleau before the 1997-98 season. When Marleau, who had a base salary of $925,000, finished the '98-99 season with 21 goals, 24 assists and a +10 rating, he earned an additional $2.4 million in bonus payments. San Jose spent only $230,000 to insure his deal.
"We paid out more than we took in this year," admits Bill Hubbard, the president of American Speciality Underwriters. "Overall, though, we expect to get a 20 percent return from these policies in the long term." That means that big payouts such as the one to Marleau are likely to jack up the cost of premiums, which are set on a player-by-player basis. Still, some teams will continue to find insurance appealing because premiums can be a fixed part of a club's budget, while large bonus payments are a significant X factor in a team's finances.
The insurance policies offer another benefit as well. Traditionally, when a player approaches a lucrative milestone late in a season, a conflict can arise over whether his team is giving him sufficient ice time to gain the bonus. "If a bonus is insured, we can root for a player more than if we're paying it ourselves," says Bruins assistant general manager Mike O'Connell. "Insurance helps create goodwill."
Few Signed in These Times
For many of the 272 players drafted last Saturday, being selected will end up as the highlight of their careers. Most will never get an NHL contract. "Ten years ago you would sign all your picks," says Capitals general manager George McPhee. "Now if you draft nine guys, you'll sign maybe two or three."
The reason, not surprisingly, is money. Because NHL payrolls are skyrocketing, many teams are unable, or unwilling, to invest in most of their draft picks. Under league rules, teams can hold the signing rights to a player for two years, watch him play in college or juniors and then decide if he's worth a contract. In most cases the answer ends up being no.
Some nonsignees are top prospects, such as defenseman Nick Boynton, whom the Caps selected ninth in 1997. Boynton refused Washington's contract offer, which included a $1 million signing bonus, and elected to reenter this year's draft, an option available to all draftees who aren't signed within two years. On Saturday, Boynton was selected 21st by the Bruins. While he slipped from his original position, he fared better than most players who reenter the draft: Of the 109 players who did so in '97 and '98, only 15 were redrafted and only three moved up.
Unlike Boynton, most draftees never even get the chance to turn down a contract offer. "It's sad," says Mighty Ducks general manager Pierre Gauthier. "Kids are there with their parents, their name gets called, and it's the biggest day of their lives. A year or two later it's just a business."