The Importance of Understanding NHL Arbitration

By
Updated: July 31, 2014
Montreal Canadiens v New York Rangers - Game Four

Contrary to popular belief, disrespect played no part in the Montreal Canadiens one-year $5.25 million contract offer to franchise defenseman PK Subban while Subban’s camp is said to be asking for $8.6 million. This is not an instance of the team undervaluing what Subban has brought to the Canadiens organization. No, the Canadiens and Subban are not actually $3 million apart in their negotiations. It is an instance of a savvy management staff correctly playing their role in the arbitration process. No need to torch downtown Montreal just yet.

This is something that has not really been properly explained by conventional media because, at this point in the summer, it doesn’t make sense. For one, an explanation would take up extra ink, or space in an online sense. But it would also abate a story that is one of the biggest in a less than full hockey newsreel right now. Making it sound like there is a massive negotiation gap will get an article far more exposure than the more specific explanation of the NHL Arbitration process.

The bit of context that has been consistently missing from the Subban negotiation, and multiple other negotiation pieces, is a breakdown of the arbitration process. Here is proof that it only takes a paragraph. In simplest terms, arbitration is a ruling on what a player is worth relative to his NHL peers for a one or two year deal and the team selects the term. This is done so based mostly on stats, therefore it makes sense for the team to submit the numbers of the lowest earning stats comparable, while the players submits the highest. This way both sides ensure that the middle ground is more advantageous for them. There’s the basics.

So in the case of Subban, the Canadiens do not truthfully believe that he is only worth slightly over $5 million at this stage in his career. Likely, this is based on the numbers of Keith Yandle, who earns, you guessed it, $5.25 million. In the case of the Subban’s camp, someone like Shea Weber who was an RFA when he signed a contract and earned around the $8.5 million Subban is seeking, is a comparable. If this were to go to hearing, it is likely that the arbitrator would find something like $6.5 million, Erik Karlsson’s contract, to be a suitable middle ground for one year.

It is also important to remember that players like Ryan Suter, Zdeno Chara, Dion Phaneuf and others can not be used as comparables in an arbitration hearing. Only contracts that cover RFA years can be used by either side.

Subban is actually at a slight disadvantage in this instance because the highest earning defenceman in the NHL at the moment is Weber at a $7.85 million cap hit per season. All of the deals for top defenceman in the league were negotiated before the recent hike in the cap, and therefore Subban is not going to be able to file anything in the ballpark of the $10.5 million a forward could because of the recent deals signed by Patrick Kane and Jonathan Toews (whose new deals also cover only UFA years). The market for defensemen just hasn’t gotten that high yet and though a player like Subban is capable of raising that bar, it doesn’t look like it will happen while he remains an RFA.

Which brings us to the other piece in this story that has been bemoaned by the Canadiens fanbase: the second part of the arbitration process and the fact that the team has only filed for a one year contract for Subban. There has also been worry expressed in the fact that Subban’s reported demand was also only one year. This isn’t an instance of the team not having long-term faith in him, nor vice versa.

Instead, the Montreal Canadiens do not want to give Subban a two year deal because that would mean they would have to negotiate a long term deal under the threat that he could become a UFA, which he becomes in summer 2016. Next summer he will again be an RFA, hence the one year deal. On the contrary, Subban also has to file for one year because the club gets to pick the term in the arbitration process. This is smart for the Canadiens, as next summer they will once again have arbitration as a negotiating tool.

For the most part, arbitration is just that, a tool used by both the team and player in their negotiating process if they do not feel they are getting respectable value. There is also a reason that arbitration hearings so rarely take place, as a deal is usually done prior to their occurrence. Even when not intended to be, they can be destructive to relationships. Essentially, because the team has to prove that the player is not worth what he is claiming. There are plenty of negative things to be said about an individual that they have always both defended and built up in the past.

Despite the fact that he has shown a willingness to use less favorable negotiating tactics before, such as sitting out games, it is unlikely that Subban will ever sit in an arbitration. The numbers and term are likely a lot closer, and a lot longer respectively, behind closed doors as Subban seems genuinely committed to the organization. The fact that the only numbers to come out publicly are the arbitration numbers has been a misnomer on what is likely a deal far closer to being done.

If we look over the last few years, typically less than 5% of players who file for arbitration actually reach a hearing. The majority of the pre-hearing settlements occur in the last 24-48 hours before such a hearing. As such we are only now reaching the key hours of the Canadiens/Subban negotiation, one in which both sides have said they are looking at a long-term deal.

So what do the numbers submitted to the arbitrator mean to the long term negotiations that include UFA years? Not much. One must remember that earlier this week it was reported that Lars Eller had submitted a request for $3.2 million in arbitration. The Canadiens countered at $1.6 million. As is typical, the team and player reached a long-term agreement in the day before arbitration was to occur. The AAV of that four-year deal? $3.5 million.

So next time arbitration numbers are released that make a contract negotiating situation seem infinitely more controversial than they are, ignore them. It is likely just a slow news week and a juicy story if written in an advantageous way. As is the case with most news, look to the middle ground for the real story.

Thank you for reading. Please take a moment to follow me on Twitter – @mitchrtierney.  Support LWOS by following us on Twitter  – @LastWordOnSport – and “liking” our Facebook page.

 

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3 Comments

  1. Frank Sammut

    July 31, 2014 at 9:13 am

    Great and concise explanation. Thanks.

  2. UtahHabsFan

    July 31, 2014 at 10:47 pm

    Great explanation of the arbitration process. One question though…can a team choose a one year deal so a player is a RFA rather than an UFA at the end of the term and then go through the arbitration proces over and over again?

    • Ben Kerr, Admin

      July 31, 2014 at 10:55 pm

      If PK is a free agent in 2 years (ie the age of 27), he will be a UFA, not an RFA.

      He can be RFA next summer, but in the summer of 2016 he will be a UFA if not given a long term deal before then.

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