Analyzing the Ryan O’Reilly Offer Sheet Proceedings

(Photo by Brad Watson/NHLI via Getty Images)

(Photo by Brad Watson/NHLI via Getty Images)

By: Tyler J. Altemose (@TJamesAltemose)

Early Thursday evening, Colorado Avalanche restricted free agent center Ryan O’Reilly signed a two-year, $10 million offer sheet with the Calgary Flames. Offer sheets are a rare order of business in the NHL, and the news came as a shock to some. This was just the eighth offer sheet signed since the implementation of the 2005 collective bargaining agreement and is the first under the 2012 collective bargaining agreement.

Speculation on how the Avalanche would respond would quickly be answered. Just three hours after it was announced that the offer sheet was signed, the Avalanche announced that they matched the offer. Speculation then focused on what provoked Colorado to respond so quickly.

I believe there are two factors critical to understanding why the Avalanche wasted little time in matching the offer sheet for O’Reilly.1 The first and perhaps most important reason is simply a matter of timing. I will explain more about this below. The second reason is just as simple as the first: Colorado was not about to sit idly by and allow their top scorer to go to a division rival, especially when their compensation would come in the form as something as intangible as a first and third round draft pick.2

Timing is important because it may prove to be Colorado’s proverbial ace in the hole. Tendering a qualifying offer or electing arbitration may prove to be less than fruitful endeavors for the Avalanche, and they may end up wanting to deal O’Reilly away in lieu of those options. The only way to do that would be to trade him prior to next year’s trade deadline.

This is where timing becomes interesting. The collective bargaining agreement dictates that Colorado is prohibited from trading O’Reilly for a period of one year from the date in which they match the offer sheet. This means that O’Reilly cannot be traded until February 28, 2014. With the NHL trade deadline usually falling somewhere between the last week of February and the first week of March, Colorado was facing the very real possibility of not being able to relieve themselves of O’Reilly if they waited too long to match Calgary’s offer.

Neither tendering a qualifying offer nor heading to arbitration are particularly appealing propositions for Colorado because of the way O’Reilly’s contract is structured. The two-year, $10 million ($5 million AAV) deal sets his 2013 salary at $3.5m. His 2013-14 salary, however, is set at a whopping $6.5m. Both a qualifying offer and arbitration figure would be established according to the latter year’s salary.

In a nutshell, Colorado has two options for the summer of 2014, both dictated by the collective bargaining agreement. They can either tender a qualifying offer for the first year of his next contract at $6.5 million (100% of O’Reilly’s 2013-14 salary) or they can go to arbitration, where they will be forced to pay a minimum $5.525 million in the first year of his next contract—85% of the $6.5 million figure. Arbitration is further complicated by the fact that the collective bargaining agreement prohibits teams from walking away if the independent arbitrator awards the player an offer of $3.5 million or more. In O’Reilly’s case, this is guaranteed to happen.

Or, before any of this becomes an issue, they can trade him; hence the quick reaction in matching the Flames’ offer. The Avalanche will surely want to leave that option available, especially considering talks until this point have not gone so swimmingly.

If offer sheets are in and of themselves a rare order of business in the NHL, it is even rarer for two intra-divisional teams be the parties to the process. Today’s offer sheet proceedings between the Flames and Avalanche marks the first time two teams in the same division have undergone this process since 1997, when the Tampa Bay Lightning accepted the Philadelphia Flyers’ offer of 5 years, $16.5 million for center Chris Gratton in exchange for four first round draft picks.3

Essentially, the Avalanche had their hand forced by the Flames Thursday evening. Colorado and the O’Reilly camp were mired in negotiations for months before talks turned sour. Colorado even sought to move O’Reilly elsewhere but continually asked for too much in return. Now, the two parties are forced into a working relationship for the next calendar year, perhaps longer. Colorado, a team that continued to offer O’Reilly much less than he felt he deserved, is now stuck choosing between paying him much more than they would prefer and allowing one of their leading scorers to be sent elsewhere.

 

 

 

 

1 Credit to Anthony Mingioni and John Saquella for being the first people I saw mention the division rival and trade deadline factors, respectively.

2 Draft pick compensation is tiered based upon the AAV of the offer sheet divided by the lesser of the term or 5. The amount of this figure determines compensation.

3 The teams essentially worked out a “trade” whereby the Lightning agreed not to match the Flyers offer. In exchange, the Flyers sent Mikael Renberg and Karl Dykhuis to Tampa Bay and received the four first round picks they otherwise would have forfeited to the Lightning for their having not matched the offer for Gratton. The original story is posted in the left sidebar in this link.

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