TSN’s Bob McKenzie posted a series of tweets regarding the Colorado Avalanche’s Ryan O’Reilly earlier today. The implication that O’Reilly could be taken to a third-party salary arbitrator caused a bit of a ruckus in the Avalanche social media world. The ruckus intensified when McKenzie confirmed the rumour shortly thereafter. Here’s the lot tweets in a more convenient format:

Lots of talk within NHL circles that COL has or will file “club-elected salary arbitration” on Ryan O’Reilly. If so, it will make waves. O’Reilly is set to become a restricted free agent. If COL wants to retain his rights, they must give him qualifying offer of $6.5M. Or they could negotiate a long-term deal. Or take him to club-elected arbitration. Latter is not unprecedented but it is highly unusual.

If COL did or does file for club-elected arbritation, O’Reilly could choose a one- or two-year award after an arbritration hearing in late July. If arbitrator awarded O’Reilly less than the $6.5M he made this past season, the question is: how do you think O’Reilly would react to it? Bottom line: club-elected arb on O’Reilly would appear to add a whole new dynamic to relationship between player and COL. #itscomplicated

Then news broke that the team has elected to take O’Reilly to arbitration after all. But is this news the catastrophe some are making it out to be? Does the move forecast another summer of bitter contract negotiations and fat Feaster offer sheets? Likely not.

Ryan O’Reilly had a contentious negotiation with the Avalanche’s front office during the 2012-13 season, the last time he was a restricted free agent. The story is a familiar one to Avs fans: during the lockout, O’Reilly signed a two year agreement with Metallurg Magnitogorsk in the Russian KHL with an opt-out clause if he and the Avs could come to an agreement. Despite returning to North America, he held out on signing a deal with the Avs and missed the first month of the lockout-shortened season, then signed a hefty $10m offer sheet from the Calgary Flames. The Avalanche matched the offer, and O’Reilly resumed his place on the team.

That two-year, ten million dollar contract has expired with the end of this season, and Avalanche fans were collectively dreading that the Ryan O’Reilly Salary Arbitration Situation was the Revenge of O’Reilly Contract Negotiations. But this move isn’t the crisis some fear it to be, nor does it necessarily mean negotiations between the two parties have gone nuclear.

The first thing to clear up about salary arbitration initiated by the club is that negotiations can continue right up until the hearing date, and often agreements are made before then. This is not the Avalanche telling O’Reilly, “fine, we won’t make a qualifying offer, see you in court.”

Secondly, it’s important to remember that while O’Reilly’s deal was two years for ten million, his contract was heavy on the second year. He made $6.5 million last season, and likely the Avs don’t want to make a qualifying offer to O’Reilly of that amount or more. Meanwhile, O’Reilly certainly wouldn’t want a pay cut after a career season.

There is much debate as to whether or not O’Reilly is actually worth $6.5mil per season, and that is where the third-party arbitration will come in. There are two varieties of contract arbitration allowed under the NHL players’ collective bargaining agreement: club-elected and player-elected. The arbitration process allows both parties to make a case to a neutral third party who will determine an accurate salary for the player based on the following information: the player’s performance, the number of games he played, the number of games he missed due to injury/illness, the player’s history and length of service with both the team and the NHL, his overall contribution to the success of the team, and the player’s special qualities of “leadership or public appeal.”

Interestingly enough, the arbiter can take into account the salary and performance of “comparable” players, but not if they were signed as unrestricted free agents. This is sensible as UFAs are often on the receiving end of inflated contracts due to the off-season free agent bidding war.

By taking O’Reilly to a third party for arbitration, the Avalanche are hoping that a third party will agree on a suitable contract below the $6.5 million per season qualifying offer mark. If the team and O’Reilly can’t come to an agreement before the hearing, then the arbiter will deliver their verdict and the team is not allowed to decline the amount. O’Reilly will have the option to take a one- or two-year contract based on the arbiter’s figure.

The number-juggling is all well and good here, but the primary motivation behind the move for the Avalanche is O’Reilly’s free agent status. O’Reilly is a restricted free agent presently, but if the Avs don’t make him a qualifying offer of at least $6.5 million dollars per season, he becomes an unrestricted free agent. That is what the team is trying to avoid.

Essentially, this is not an ultimatum for O’Reilly’s camp. Nor is it an indication that the Avs intend to make him a laughably low offer to stave off a major cap hit. All this move indicates is that the Avalanche want to make an offer to O’Reilly below the $6.5 million per year threshold, and an arbitration hearing is the only way to accomplish that while retaining O’Reilly’s status as a restricted free agent.

O’Reilly can still be offer-sheeted in a narrow window from July 1st to July 5th, which is a provision under the new players’ CBA that wasn’t previously allowed. This means if the Avalanche are absolutely unwilling to pony up the qualifying offer, they could still potentially lose him. But we knew that already. Teams could have made offers to O’Reilly as of July 1st regardless. The arbitration news changes nothing there, save for narrowing the window.

All in all, this move was a bit of insurance on the Avalanche’s part. Unless we hear otherwise from a reputable source, it’s not wise to assume negotiations have gone to pot between the Avalanche and Ryan O’Reilly just yet.

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