Crosby’s Extension Fantastic From Business Standpoint

Since Steve is across the pond and this isn’t really Leafs or Marlies Related, I’m taking over his site for a minute with this guest post. - Jeffler

While teams technically can’t have extensions signed, sealed, and delivered until a players contract year, it has come out that Sidney Crosby and the Pittsburgh Penguins will announce a new deal on Sunday that pays the superstar centre approximately $9 million per year over the next 12 years, joining Alexander Ovechkin and Ilya Kovalchuk in the $100M contract club.

Assuming that Crosby can stay healthy, this means he’ll be up for a new deal, be it with Pittsburgh or elsewhere, in his late 30′s.

But there’s a major question there – what if he isn’t healthy? After all, the last year or so has people concerned that his head may not be all there in the physical sense. Sure, the Penguins can lock him up now, but what if he gets hit a week into the season, and the fallout from it leads to a retirement. Pittsburgh is surely screwed, right?

Not quite.

First and foremost are the salary cap implications of such an incident. Reality is, it’s the same to the team regardless of whether he signs for 2 years or 12. As he’s under 35 years old (by a mile) at the time of the deal kicking in, such a move would not count towards the salary cap. Compare to Tim Thomas, who was signed after his 35th birthday, so his hiatus is costing the Boston Bruins plenty of space that could’ve been used this off season.

Secondly, this is a risk that you have to take with a player of Crosby’s caliber. Does he have injury issues? No question. He’ll have to prove himself to be healthy for a couple of years before anybody will hear otherwise. But do you shy away from the best player in the world, risking potentially losing him to free agency down the line for such a reason? Especially with the cap point considered, there’s no issue other than on the company balance sheets if an absolute worst case scenario happens.

And there’s no doubt that Crosby is worth 9 million per season, on the ice. He may have only played 63 games in the past two years, but hes put up an astonishing 103 points in that span, easily the fastest scoring pace in the national hockey league. This of course coming after his 51 goal full season in 2009/10.

But not considered is his value off the ice. With this, I argue that even if Sidney Crosby were to be injured in game 1 of this deal, the Penguins have not been fleeced. Far from it, really.

The reality is, in any sport, star players are underpaid compared to what they get for their franchises. Whether it’s the current fans getting jerseys with that player’s name on the back, new fans buying practically anything with your teams logo, or a mixture of both filling the stands of your arena, potentially at higher prices than you were able to do prior to them, teams make that money back, and quickly.

As someone surrounded by Leafs nation, there is no doubt in my mind that Phil Kessel could make any allowable amount of NHL salary and Maple Leaf Sports and Entertainment wouldn’t care in the slightest. Would a 12M per year Kessel be painful to the teams ability to fill up a roster? Yes, if only for the Salary Cap’s restrictions. Does it mean MLSE would be losing money? No way. Dion Phaneuf is overpaid at 6.5 million per season on the ice, but his contract was probably paid off in jersey sales within a month of the Leafs announcing they’d have new home and away uniforms and that he’d be the captain.

Perhaps the best examples of this aren’t in the NHL. My favourite example is Lebron James. He has made $92.5 million in salary of the course his NBA career, including a current salary around 16 million per year. Seems like a lot, right? A recent article by Forbes begs to differ. When Lebron left Cleveland, the value of the Cavaliers franchise dropped 26% to $355 million almost immediately. That’s a ~$120M drop. The next year, the value of the team dropped another 7%, shaving off another 25 million. So while $60 million of Lebron’s money was courtesy of his former team, his departure cost them over double that. Just imagine how much they actually profited off of him!

And that’s what you have to look at in a Crosby deal. Beyond being the face of the NHL, the face of the Pittsburgh Penguins, and the face of several sponsors, he single handedly revitalized the Penguins from a business standpoint. At the start of the 2005-06 season, the team was valued at $133 million, already a $30 million spike after his draft selection. Today, they’ve got a value of $264 million, and a new $300 million dollar arena. The team brings in more revenue per year today than the team was worth before Sidney. Not to say that all of the $154 million change is thanks to him, but he’s certainly been more than a $39.55M factor of it.

All things considered, Crosby’s salary to date was probably paid off by the end of his rookie contract, be it from the jump in attendance from 11,877 in 2003/04 to sold out buildings by year three, or by the fact that nearly every Penguins fan, and a large chunk of Hockey Fans have some piece of Crosby gear (I’m not even a huge fan and I have two shirts myself). I’d almost go as far to say that the Penguins have profited on him to the point that they’ve almost paid off this current extension of his.

Could Sidney Crosby fall victim to an injury in this contract, letting down the team’s chances of on ice success? Yes, that goes without saying. But is a 12 year, 104.4M contract a concern on the business side of things? Absolutely not. Star players go beyond the playing surface, and simply put, Crosby is the star that shines the brightest in this league.

Besides, having the best player in the world for the time that he’s healthy is a thousand times more important than worrying about when he isn’t, if it happens.