CBA

The NHL Collective Bargaining Agreement (CBA) restricts player contracts—called Standard Player Contracts or SPCs—in three ways: length, amount, and salary variability. Pro Hockey Rumors will give you a crash course in how the CBA defines legal SPCs, and uses fictional player phenom Francois Yakov to illustrate certain points.

Length

The CBA limits SPCs to a maximum term of seven years. Teams may sign its own players, however, to an eight-year SPC if the player was on its roster as of and since the trade deadline. This added option expires if a player reaches unrestricted free agency

Yakov played for the Toronto Maple Leafs this season, and is four days away from becoming a UFA. Teams can offer Yakov contracts up to seven years in length. Toronto, Yakov’s team, can offer a contract up to eight years in length, but only up until July 1^st. Once Yakov becomes a free agent Toronto loses the additional year advantage.

Amount

No contract can pay less than the minimum salary defined in the CBA, or more than 20% of the CBA’s upper limit (read: cap ceiling) in effect when the contract is signed.

Salary Variability

The CBA’s variability restrictions are a result of the NHL’s effort to curb front-loaded long-term contracts. The rules limit how much a player’s salary changes from year to year, and different restrictions apply if the SPC is front-loaded.

A contract is considered front-loaded if the majority of a player’s salary is paid in the first half of the SPC. The easiest way to determine that is to:

• Divide the contract term in two, and
• Add up all the salary paid in the first half. If the contract is for an odd amount of years, use half the salary in the middle year.

If the added salary in the first term is greater than the SPC’s cap hit, the SPC is front-loaded.

If a contract is front-loaded, two variability restrictions apply:

1. Any change in salary/bonuses from year to year must not be more than 35% of the contract’s first year; and
2. Any year’s salary must not be less than 50% of the SPC’s highest year’s salary.

So, if our Yakov makes 5MM his first year, salary change in any year cannot be more than by 1.75MM (35% of 5MM). Moreover, Yakov’s lowest salary year cannot be less than 50% of his highest salary year.

If a contract is not front-loaded, the CBA imposes two other variability restrictions:

1. The difference in salary and bonuses from the first year to the second year must not be greater than the salary/bonus amount in the lower of those first two years; and
2. In any subsequent year the salary/bonus amount cannot increase by more than the amount of the lower of the first two years, and cannot decrease by more than 50% of the amount of the lower of the first two years.

If our Yakov makes 5MM his first year, the second year cannot be lower than 2.5MM (2.5MM difference) or higher than 10MM (5MM difference. If he makes 5MM his first year, and 4MM his second year, any year-to-year salary increase cannot be by more than 4MM, and any salary decrease cannot be by more than 2MM.

The NHL CBA governs almost every aspect of the relationship between the players and the league. Defining a contract’s term, amount, and variability goes to the heart of the relationship, and was the product of intense bargaining during the lockout.

 

The annual NHL buyout period is almost upon us, and here at Pro Hockey Rumors we are going to give you a quick crash course in NHL contract buyouts so that you can make sense of the incoming news.

What is a buyout? Buyouts allow teams to prematurely terminate a player’s contract. The team is still responsible for paying a portion of the player’s salary, but over a longer term and lesser cap hit. If a player is bought out before he turns 26, the team owes him 1/3rd of his salary over twice the remaining contract length. If the player is 26 and older, he is entitled to 2/3rds of his salary over twice the remaining contract length. The player immediately becomes an unrestricted free agent and can sign with any other team.

Why would a team buy out a player? Players are bought out mainly because their performance does not correlate to their salary. In other words, they are paid too much and provide too little. Sometimes it’s an aging vet with a inflated contract, and other times its a well-paid goalie usurped by an up-and-coming rookie. In every event, a team buys out a player to save salary cap space.

What are the salary cap implications? Even though a player’s contract is bought out, the team still carries a cap hit. The cap hit is calculated in two phases: original contract years phase and extra buyout years phase.

In phase one, the cap hit for the year is equal to the difference between the salary initially owed and the salary paid by the buyout, and subtracted from the original SPC’s AAV:

Cap Hit = SPC AAV – (Original Salary Owed – Salary Paid in Buyout)

This equation is used to determine the cap hit in each year of the contract had it not been terminated.

In phase two, the cap hit is equal to the buyout amount the player is paid that year:

Cap Hit = Buyout Salary

Finally, if a player has a no-movement clause (NMC), the team has to first give the player an option to be placed on unconditional waivers.

When can teams buy out players? The official buyout period begins on the later of (a) June 15^th, or (b) 48 hours after the end of the Stanley Cup Finals, and ends on June 30^th at 5:00pm EST. Teams can buy out as many players as it likes during this time. This year it begins on June 15th.

Teams may also buy out a player outside the buyout period if they meet the following requirements:

1. the team has more than one salary arbitration hearing in a given year;
2. the player was on the team’s reserve list at the trade deadline; and
3. the player’s average salary is $2,750,000* or higher.

If a team meets these three requirements they can buy out up to three contracts outside the regular buyout period.

* in 2013 dollars. This number increases at the same percentage rate of annual increase as the average league salary