clock menu more-arrow no yes

Filed under:

The $37 Million Gamble

New, comments

The Front Office took a major risk in signing Nathan Horton. The worst case scenario followed and the prized free agent from 2013 was eventually dealt to Toronto.

Greg Bartram-USA TODAY Sports

When Nathan Horton was traded to the Toronto Maple Leafs just ahead of the trade deadline, fans were in shock.  Part of the reasoning was that the club did not want to pay Horton more than $26 million over the next five years to sit in the stands on the beach in Florida.  This was the first confusing part in this whole ordeal.  It had been reported for months that Horton's contract was covered by insurance.

I'm not here to comment on the merits of that reporting or whether or not the organization lied to the local paper about the insurance coverage.  As it stood, fans were led to believe since October that Horton's contract was covered by insurance.  At the very worst, the team would recoup 80% of Horton's salary in the event he really was done with hockey at the NHL level.  If needed, the Jackets could put him on LTIR in the future, should they ever need that cap space.  It wasn't ideal, but the team would recover more than $25 million through insurance and could create cap space if they needed as well.

We obviously learned that Horton's contract was not insured.  Thus, the trade became financially motivated.  Ownership will spend money, we know that, but this franchise isn't equipped to spend more than $30 million on nothing.  One issue we have not discussed much here since the trade is how insurance works and why Horton was not covered.

There is not a whole lot available on the internet in regards to NHL insurance.  In 2008, the Raleigh News Observer published a report on the matter.  The policy may have changed since then, but according to the article all NHL teams pay a premium based on the salaries of its five-highest paid players.  The team can then allocate coverage as it chooses - the norm being coverage for seven players.  Private insurance is also available, but has been described as "prohibitively expensive," and therefore we can logically conclude that the Jackets probably did not purchase additional insurance.

We also know that once a player misses 30 games, their team can apply to be reimbursed 80% of the player's salary.  The insurer may exclude "pre-existing" conditions for injuries the players had previously.  It has been speculated that the Penguins insurance coverage on Sidney Crosby no longer covers head or neck injuries due to his history of concussions.

Now, how does all of this apply to Horton?  Well, prior to signing with Columbus in the summer of 2013, it was well known he was suffering from a shoulder injury and was going to require surgery.  This procedure and rehab would keep him out the first few months of the season.  His shoulder was likely not covered by the league insurance.  Head injuries may have been out as well given his previous concussions.  So his "pre-existing" condition with his shoulder was likely going to keep him out for roughly half the season.

The front office made the choice not to elect coverage for two reasons.  I believe they opted out of insurance in the first year of his deal because the insurance would not reimburse them for the shoulder.  I also believe they calculated the number of games he would play in the 40-50 range.  What were the odds he would miss 30+ games from a different ailment?  The insurance did not make sense that season because there was such a little chance Horton would be injured from a "covered" condition/injury.  So they elected to cover a different member of the team for that season.

Insurance never became an option because, as we know, Horton's back had become an issue.  The degenerative back condition would be "pre-existing" and thus not covered by insurance.  As the season went on, it became apparent that Horton would not be playing in the NHL again, barring a miracle.  The front office then had to get creative in moving Horton because they did not want to pay him $26 million while getting nothing in return.  That is why the team traded for what is widely regarded as the worst contract in the NHL in David Clarkson, who of course is out for the season himself with an injury.

I'll let 97.1 The Fan's Lori Schmidt try to make sense of this using cars as an analogy:






Then maybe don't pay an expensive car you can't insure?

Like I mentioned, I don't think the real issue is the initial reporting of insurance coverage on Nathan Horton.  Some fans were perplexed - "How could they NOT insure his contract??" No, the real issue is how could the front office decide to hand out a seven-year, $37.1 million contract to a player with a fairly lengthy injury history.  They also knew insurance would not be practical in the first season and that he likely had several "pre-existing conditions" that the underwriters would not cover anyway.

It was a huge gamble on a long-term deal.  The $37.1 million represented nearly 20% of the team's value (roughly $200 million).  The front office risked a lot of money, likely knowing that insurance coverage would be difficult if not impossible given Horton's injury history.  This past trade deadline and the comments made by the front office definitely indicate that an internal budget is in place.  As such, their hand was forced and they had to trade away their prized free agent from 2013.  In return, the team and fans are hoping David Clarkson can rediscover his game in Columbus.