The Calgary Flames offered and signed restricted free agent Ryan O'Reilly to a two-year contract, with an average annual value of $5 million, with the second year of the contract hitting $6.5 million. The purpose of the backloaded deal is that for the two seasons after the deal ends, until O'Reilly is an unrestricted free agent, all qualifying offers made to him have to be at least $6.5 million, and arbitration could only bring him down to $5.525 million. The way the offer sheet was constructed in regards to average value, Calgary would have to surrender their first and third round pick. If the value increased slightly, they would have had to include a second round pickbut they do not own a second round pick in the 2013 NHL Entry Draft.
There are three major variables to evaluate for Colorado here in terms of whether or not they should have matched this contract:
1. The current and future value of Ryan O'Reilly relative to his new contract
2. The value of Calgary's first round pick
3. How O'Reilly fits into this Colorado team's plan.
I'll hit these in order.
Note that this column was written prior to the Sportsnet report of O'Reilly having to clear waivers if Colorado declined. This column is merely analyzing the validity of the decision of matching the offer sheet not considering that variable.
Value of Ryan O'Reilly
Opinions are divided on O'Reilly's ability. Craig Custance from ESPN polled NHL sources who said O'Reilly's projection is that of a a strong #2 center, yet in that same column, his former teammate Chris Stewart said that he thinks O'Reilly is the best player on Colorado. O'Reilly's main assets come from his hockey sense, intangibles, and considerable defensive value as opposed to blazing speed or flashy puckhandling, although he does have significant offensive ability. That type of skill set can be hard to pin down, but I tend to lean towards Stewart in being very optimistic about O'Reilly's current and future value. Still, in my discussions with pro scouts, I can find one that thinks O'Reilly will be just an above-average regular, and another who thinks he will be a star.
Here at Hockey Prospectus, Rob Vollman delved more into the analytical merits of O'Reilly, pointing out crucial factors, such as how he was the 12th best "passer" in the NHL last season and his great discipline despite his hard-working style and the high amount of defensive responsibility that is asked of him.
O'Reilly is a player who you can plug into a lineup today, and over the course of a full 82-game season he can likely make a team 4-5 points better in the standings. That assessment is both based on his Goals Versus Thresholdwhich was 11.0 in 2011-12along with my scouting assessment. As he just turned 22, he obviously could still have some room for improvement.
Also per Vollman, a salary of $3 million on the UFA market should be roughly to 1 win or 6 GVT. In order to know O'Reilly's value, you have to take that variable and project what he will be in the future. My personal estimate is that he will be a 2.0-2.5 win player on average during the next four years. Two wins would make him a top-80 NHL player while 2.5 would make him a top-50 NHLer. Assuming O'Reilly stays at $6.5 million for the two seasons after this deals endsin a cap that's stagnatingI would expect him to provide surplus value to his cap hit of $5 million next season and marginal surplus in the two following years. This is an important factor when considering the next section.
Value of Calgary's first round pick
While Colorado would also have gotten the Flames' third round pick, the decisions certainly did not revolve around that asset. Calgary sits 25th in the NHL's standings, which would mean a sixth overall pick, which may change due to the draft lottery.
In order to determine the value of the pick, we use the surplus value expected in the first seven seasons of the selected player's career relative to his contract. For example, the median first overall pick provides 8.8 wins over their salary, which using a win value of $3 million and factoring in the minimum salary, gives us a value of a first overall pick of about $27 million. If you wanted to compare that to O'Reilly's contract, he would need to play about nine wins over his current contract value (or compile 54 GVT) to break even with a first overall pick. That isn't very likely. Using the same type of formula, your median sixth overall pick should be worth around $17 million, so O'Reilly would need to be around 3 wins better than his contract to break even value. That seems close enough to reality that a tipping point in the decision should be Calgary ending with the seventh to eighth overall pick.
Additionally, the top seven prospects of the 2013 class look especially strong, and their projected average value seems to be of greater value in their first seven seasons than O'Reilly's next four assuming a $6.5 million cap hit in the third and fourth seasons.
So where does Calgary project to finish this season? They are currently in 25th, but are they that bad? Team metrics like 5v5 Fenwick tied and Fenwick close tend to be helpful when projecting teams into the future after a small sample of games. Calgary sits seventh in Fenwick tied and 17th in Fenwick close. Indicators of luck like team shooting and save percentage are the next stats to look at. Calgary's team shooting percentage is 9.6% and their save percentage is .886. That last metric is clearly the one to look at for a big reason for their struggles. If they had gotten .910 goaltending, that would have been an extra 13 goals for them, which would result in a four-point boost in the standings, which would have them tied for 12th in the league. And yes, the NHL standings are that clustered.
While anything can happen in 30 games, Calgary's skater base have played at the least like an NHL-average team. The chances of their goaltending remaining this poor is unlikely—none of the four goalies they have played have a save percentage over .900. There will be some (good) regression in all likelihood. The safe bet is for the Flames to end the season with between the eighth and 13th overall pick, with a good chance of improving with 30 games of Ryan O'Reilly in the lineup. Considering that the 13th overall pick has a surplus value of only 3-4 million, it is likely that O'Reilly's contract would provide more value.
Colorado's future plan
Colorado needed to get O'Reilly signed. They are currently a bottom-10 NHL team, built around budding young pieces like Matt Duchene, Gabriel Landeskog, Tyson Barrie, and O'Reilly. Beyond that, their system is simply not too strong. Defenseman Stefan Elliot has been up and down in the AHL, first round pick Joey Hishon has been out nearly two years with a concussion, and their other first rounder Duncan Siemens looks like an NHLer in the WHL, but not one with a particularly high upside. There are certainly bright spots, like forward Mike Sgarbossa, but the main point is if Colorado is going to try and win in the near future, it's going to mostly be because of players already in the NHL, not outside. That means they are approaching their "window" to win, and can't afford to lose a key young piece, and go into the draft hoping they hit on a player and pray that player's development gets fast tracked.
Adding a first line center with great defensive value can take Colorado from what is currently the eight to 13th worst team to a league-average team. That's a positive step. As their kids continue to developand although they seem like a budget franchiseif they add some outside pieces, they could be a playoff team in the near future.
The first round pick Calgary would have likely ended up with, considering the addition of 30 games with Ryan O'Reilly, was not likely worth more than keeping O'Reilly for the next four seasons, even at a large cap hit. The third round pick has value but is mostly inconsequential to the decision.
Even if it was a close call, it would not have been in Colorado's best interest to take a step back and restart the rebuilding clock. Based on their organizational prospect strength and young players on the NHL team, they are built to win in the near future, not in four or five years from now.
The X factor here is Colorado's principle stance, never mind the bad blood with O'Reilly. They wanted a "bridge contract" like they gave Matt Duchene, using the leverage of having the right of first refusal from offer sheets to suppress cap hits on second contracts. How Greg Sherman and his staff will now deal with Gabriel Landeskog's future negotiation will be interesting given these recent events and this precedent. The Avs clearly felt this factor did not outweigh the value of matching the offer sheet.
However, this analysis put aside Colorado's unique circumstances. Based on the value O'Reilly will provide now and in the future, considering his current and likely future cap hit, the likely value of Calagry's first round pick, and Colorado's current building plan, matching the offer sheet was a good decision by the Avalanche. How their management deals with this situation going forward, though, is a topic for another column.
Corey Pronman is an author of Hockey Prospectus.
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