The bonus bump and the future

Draisaitl and Matthews deals add intrigue before Tavares tax case precedent is set

- DAVE FESCHUK

It’s a relevant NHL question this summer: When is a signing bonus not a signing bonus?

A traditional definition of the concept might suggest a signing bonus is a sum of money paid as an incentive to agree to a contract. But that’s a long way from what signing bonuses have become in some instances. Take Leon Draisaitl of the Edmonton Oilers. He signed an eight-year contract extension earlier this week worth $112 million (U.S.). A full $104 million of the deal is classified as a signing bonus.

That means about 93 per cent of Draisaitl’s pay will be doled out in lump-sum chunks due annually on July 1 — beginning with $15.5 million next Canada Day. Last summer, Maple Leafs captain Auston Matthews signed an extension that’s 94 per cent signing bonus.

Why structure deals this way? There is more than one advantage. It makes the contract essentially buyout proof. It maximizes what accountants call the “time value of money.” Essentially, money now is worth more than money later.

Beyond all that, it offers protection in the event of an NHL lockout. If the battle drums for a labour dispute are thrumming a couple of summers from now, before the current collective agreement expires in September of 2026, Draisaitl and Matthews will have just collected the bulk of the coming year’s earnings in one gigantic payment — a handy survival kit for a work stoppage.

In a league run by Gary Bettman, who won the hearts of the NHL owners who employ him by crushing the players’ union in previous showdowns, one can never assume labour peace.

There’s another potential benefit to loading a contract with bonuses. Players who live in the United States and sign with a Canadian franchise have traditionally enjoyed a substantial tax savings. Such signing bonuses have been taxed in Canada at a rate of 15 per cent — far below, say, the standard rate on regular income in Ontario, which runs about 54 per cent.