Salary Cap/Transactions FAQs

It’s time for more reader-submitted questions about the salary cap and the details and regulations behind day-to-day transactions. If you have more questions than the ones answered below, check out the first and second editions of our Salary Cap/Transactions FAQs from August.

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PyramidHeadcrab: Has the league had any meaningful talks about cap equalization for differences in income tax in different territories? I’ve often heard that many Canadian teams can’t get top talent because the income taxes are higher, while Florida and Tennessee are popular destinations because the taxes are lower. It makes sense to modify the cap based on these numbers. If income tax is 25% in Ontario, the salary cap should be 25% higher, so the actual pay given to players is equivalent.

There’s been a rumbling occasionally, but I wouldn’t characterize any talks about tax-based salary cap adjustments as “meaningful.” If there were, especially given the big markets that would be affected (looking at you, Toronto), that would be snapped up by Sportsnet or TSN immediately and dominate a news cycle for weeks.

Given how the NHL calculates cap space (more on that later), I can’t see what you outlined as a feasible solution in practice, even though it makes sense on a macro level. It would require creating a whole new infrastructure for trades and waiver claims because a player’s cap impact for one team would be significantly different than another.

There’s likely a way for teams to deal with this on their own without the league needing to step in – changing their willingness to pay out excessive portions of contracts in signing bonuses rather than actual salary, as I believe they’re taxed differently in most jurisdictions. Some already do, so the actual dollar difference a player earns in Ottawa compared to Tampa, for example, isn’t as significant as it may seem.

Players also get taxed based on the city where the income is generated (so a Tampa player is getting taxed at New York rates if they’re playing the Rangers at Madison Square Garden, for example), so that would be an incredibly minute and complex day-by-day calculation that I don’t think the league (or teams) is willing to devote the time and money to deal with. I imagine that changes to local tax codes that go into effect during the season would complicate this further. Essentially, I don’t think it’s something that’s seriously being talked about, nor do I think it’s something that will ever be implemented.

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FeeltheThunder: With the CBA discussions beginning early next year, there was a report on the NHL app that many NHL players would be open to the NHL having a luxury cap of sorts to help grow the pay rate for players (which hasn’t grown in the last 20 years or so). It didn’t explain precisely how that would work in the NHL, and I don’t think it would be a blank check for teams like those in MLB. But maybe the NHL does have a luxury cap for teams to be able to go over a certain percentage of the salary cap. Some teams that come to mind, like Tampa, Vegas, New York (Rangers specifically), Boston, Florida, and such, would be entirely willing to pay a luxury tax to bring more top-level talents to their roster. What are your thoughts on this luxury cap notion?

Again, I don’t think there have been meaningful discussions here among owners or GMs, but I believe this is at least in the realm of possibility. I don’t think it would be a considerable percentage – five percent, if that – at least not while Gary Bettman is still at the helm. It would defeat the purpose of the stone-cold hard cap he lobbied for and won in the 2004-05 lockout.

But I’m not sure if the owners would approve of it. I imagine the league would stipulate that “tax” money be added to the revenue-sharing pool, injecting even more cash for smaller-market, smaller-budget teams in the league with the most robust revenue-sharing program among the major North American leagues. If that’s where the league draws the line, I’m not sure the Bruins owner would approve of sending more of their generated revenue to the division-rival Senators, for example.

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Zakis: I thought I saw an article in which the Avs would be able to bank space, but they are in LTIR. How is this possible, if at all? As an aside, can you demonstrate how LTIR works?

Matt Studley: How does accruing cap space during the season work? How does it affect trade deadline transactions? How significant is the benefit of teams like the Avalanche papering down players on off-days?

I’ll answer these questions together, mainly because of the misconceptions about how the Avalanche are using paper transactions. Zakis, you’re on the right track. The Avalanche’s paper transactions this year (constantly reassigning and recalling players like Nikolai Kovalenko and T.J. Tynan) have day-to-day salary cap implications but no long-term ones. They’re not accruing cap space because they use long-term injured reserve to stay compliant.

That doesn’t mean that these transactions are without benefit, though. Keeping veteran players like Tynan who aren’t waiver-exempt on the roster for as few days as possible helps extend their temporary 30-day, 10-game exemption until they must clear waivers again to return to the AHL. In Kovalenko’s and Ivan Ivan’s case, they’re waiver-exempt, but since they’re on entry-level contracts and, by extension, have a two-way salary structure, stashing them in the minors for a couple of days at a time on non-game days does save the Avalanche organization actual money, because they’re paying out their prorated minor-league salary for those days instead of their NHL salary. That’s often significant financial savings daily – for example, Kovalenko’s NHL base salary this season is $775K, but his minors salary is only $70K.

For “how LTIR works,” let’s keep using the Avalanche as an example. It’s not cut and dry. The Avalanche have $9MM worth of cap hits on LTIR in Gabriel Landeskog ($7MM) and Tucker Poolman ($2MM), but they can only exceed the cap by $8.938MM while staying compliant, not the full $9MM.

That has to do with something called LTIR capture, which is why you’ll see teams making a bunch of small moves for their opening night rosters before reversing them the next day. How much space you gain from LTIR is directly related to your current cap space when entering LTIR. Some teams do well with this – the Maple Leafs are consistently among them. Essentially, for teams needing to use LTIR, the goal at the beginning of the season is to construct a roster as close to the upper limit ($88MM) as possible. If a team could enter the season with exactly $0 in cap space, they would have full access to the cap hits they’re placing on LTIR. In the Avs’ case, they started the season with $62.5K in cap space, which was deducted from their LTIR “pool.”

As mentioned earlier, the accruing cap space discussion can be thrown out for teams who stay in LTIR the whole season up to deadline day to remain compliant. For most teams that don’t, though, it’s essential to know that cap space is calculated by the league daily, meaning all those paper transactions add up significantly. If a team starts the season with $1MM in cap space and makes no changes to their roster, they could have banked enough cap space to acquire a player with a $2MM cap hit on the 96th day of the season, exactly halfway through the 192-day in-season calendar. Making little changes to increase their cap space on non-game days where extra players aren’t required could add up and give them significantly more flexibility to add (I won’t bore you with the actual math, but I hope that’s broken down well conceptually).

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Raymond: With so many teams nearing the cap limit, shouldn’t the NHL finalize the new salary cap limit sooner so these clubs can better plan?

There’s not a whole lot of choice in the matter, at least with how the upper limit is currently calculated. It’s derived directly from a percentage of hockey-related revenue from the previous season, so the upper limit for 2025-26 can’t be determined until there’s an accurate enough figure for 2024-25’s HRR. That’s why the cap for the following season is usually announced multiple weeks before free agency, enough time to give teams enough planning for draft-day trades, RFA extensions and UFA pickups, but not any earlier – they don’t have the numbers necessary to make an exact determination.

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Dan Mar: Could a team hypothetically put themselves in a position where they can’t field a 20-man on-ice roster due to salary cap shenanigans? For example, if the year before, they had a lot of 35+ contract/ELC bonuses they rolled over, bought out/retained salary on transactions, then had suspensions, putting their allowable max at something like $15MM? What would happen in that case, just an automatic forfeit?

I assume you mean a cap situation so dire that they wouldn’t be able to ice a full roster of league-minimum players at any point during the season. Teams have had to play games a skater short because of day-to-day cap restraints, actually relatively often in recent memory. As far as I can tell, there’s no clear-cut language regarding the situation in the CBA, assumingly because it’s operationally impossible with an NHL-level management group. The solution/result would be at the commissioner’s discretion; without precedent, it’s not easy to speculate what that would be.

Image courtesy of USA Today Sports.

This is the second edition of PHR’s Salary Cap/Transactions FAQ. If you’re not seeing your question answered here, check to see if we got to it in our first edition.

Today’s topics include some waiver insight, salary retention, buyout specifics, and more. Some questions have been edited for style and clarity.

cpd26: We see cap-strapped teams send young, waiver-exempt players down to AHL on paper transactions often to bank up cap space daily. Why don’t we see the same with overpaid, underperforming veterans who would clear waivers? Thinking Justin Holl, Ville Husso, Nate Schmidt (pre-last year’s buyout), Marc-Edouard Vlasic (if Sharks needed space), and Conor Sheary would be candidates… Obviously, this doesn’t work with NMCs, but none of them have one. Why do vets only get sent down for the longer term, like Jack Campbell and Calvin Petersen?

That’s a great point. The short answer is that the waiver process takes longer, and it’s easier for teams to accrue cap space by sending waiver-exempt players down to the AHL on off days, as the Stars did with Logan Stankoven. It’s a zero-risk move, especially since the player is informed it’s a paper transaction.

There are a few cons to waiving veterans, as you propose. There’s obviously little doubt they’d clear waivers, as you laid out, but you are losing a day of accumulating cap space by waiting for the waiver process to finish up. It also doesn’t give you complete cap relief, only up to $1.15MM, as that’s the maximum buriable threshold at the moment. Of course, after initially clearing waivers, there’s a grace period in which those veterans can be shuttled between leagues at will until they’ve spent 30 days on the NHL roster or played 10 NHL games, whichever comes first.

But because they’re giving you $1.15MM in relief, they also cost $1.15MM to call up again, which a lot of those cap-strapped teams can’t stomach for short-term, game-day moves. It’s more complicated to plan out long-term, and you risk damaging your relationship with the veteran and, with it, any hope that they may rebound to being worth their cap hit. That last point is probably less of a stressor/worry for front offices, but it still comes to mind.

fafardjoel: When a team retains money in a transaction, for example, 50% for a $6MM player for two years in exchange for a third-round pick, do they actually pay this money to the player? Who pays what?

Correct. The team trading the player away is on the hook, in that case, for exactly half of the player’s base salary and signing bonuses after the trade. The acquiring team pays the player the other 50% of the deal’s life.

frozenaquatic: I’m always seeing news that players opt for lower AAV contracts for a shorter term but hold out for higher AAV for longer. Wouldn’t it make sense to be guaranteed $4MM a year for eight years rather than $2MM annually for two years? What if you are terrible in those two years and can’t command $4MM? Is it worth that much of a gamble that you’ll get $6MM AAV on your next contract, which you would have to catch up money on your lower AAV short term contract?

It’s mostly about aging curves. Players don’t want to take a low-AAV, long-term deal in their early to mid-20s because it robs them of their maximum earning potential as potential UFAs in their prime in their late 20s. Yes, they run the risk of regressing and losing their value. But every contract negotiation is a gamble from one side, essentially—either the player or team. It’s quite reasonable for a player on the right side of the aging curve to bet on themselves.

Now, for a more established veteran, you’re exactly right. Recent examples of those players (Taylor Hall, John Klingberg, Vladimir Tarasenko, etc.) have almost all gotten burned by taking one or two-year deals when the market wasn’t what they wanted for long-term offers. That trend seems to have died out already this summer. But for RFA-eligible players, lower-cost bridge deals make a good amount of sense. Just ask Elias Pettersson, who bet on himself and won with his three-year, $7.35MM AAV deal that turned into an eight-year, $11.6MM AAV extension.

goosehiatt: In a buyout situation, does the player get the full balance of the contract or does he only get the portion that the team is penalized?

The player only gets two-thirds or one-third of the base salary they were originally owed, spread out over twice the remaining length of the contract at the time it was bought out. It depends on their age. Most players (26 or older) will receive two-thirds. For all players, buyouts don’t affect their signing bonuses. Those are guaranteed/paid in full after the deal is bought out.

It’s that messy calculation that determines the cap penalties for the team executing the buyout and why long-term signing bonus-heavy deals are so desirable for superstars. It’s not all about having the money paid up front, it’s also about having it protected in the event of a buyout.

MixtureBill: For waiver order, is it always based on reverse standings order, or are teams moved to the “end of the line” after making a claim? Would the last place team have priority on all waiver claims until the order is changed at the given date during the season, or once making a claim do they no longer have top priority?

Nope. If a team remains in 32nd place for eternity, they have first dibs on players on waivers for eternity.

That given date you mention is Nov. 1, by the way. So, for any players who get placed on waivers between now and November, the Sharks will still have priority, then the Blackhawks, then the Ducks, and so on.

Gmm8811: Does the AHL and ECHL operate under the NHL CBA, or do they have their own CBA?

Not only do they not share a CBA, they don’t share a players’ association. AHL and ECHL players aren’t part of the NHLPA. They’re members of the Professional Hockey Players’ Association (PHPA), which then negotiates CBAs with the AHL and ECHL on behalf of the players.

The first installment of our Salary Cap/Transactions FAQs covers performance bonuses, buyouts for players involved in retained salary transactions, how teams navigate offseason salary cap rules, and more. If you have a question that isn’t answered here, check our FAQ callout and add yours to the comment section!

Schwa: I would love to learn more about bonuses. I understand rookie and 35+ bonuses. But how about something like Connor Brown last year – injury recovery bonuses? Also how do they affect the cap – if bonuses put you over the cap by end of playoffs, you are penalized the following season? Thanks!

Great opener. Technically, in someone like Brown’s case, they’re not injury recovery bonuses. They’re regular performance bonuses, akin to what you’d find in a 35+ contract. Usually, they’re tied to how many games a player appears in during the season or, in rarer cases, tied to other statistical benchmarks (points, playoff series wins, Cup win, etc.).

The bonuses themselves aren’t what changes, it’s the player’s eligibility that does. Obviously, a “normal” player reaching unrestricted free agency and signing a standard player contract isn’t eligible for them. But players who missed most of the prior season due to injury are eligible for performance bonuses with three key stipulations:

1. They have more than 400 NHL games of experience before signing the contract AND
2. They spent a minimum of 100 days on injured reserve the prior season (standard and/or long-term) AND
3. They’re signing a one-year contract

That is to say – if Brown signed a multi-year deal with the Oilers last summer coming off that injury (ACL tear, I believe?), he wouldn’t have been eligible for any performance bonuses. A deal can’t be structured so that he’d have potential performance bonuses in Year 1 and none in Year 2.

And the second half of your question is correct. If a player earns a performance bonus that’s a higher value than what the team has remaining in cap space at season’s end, it’s a penalty (called a “bonus carryover”) on next season’s cap.

Grocery stick: Hurricanes and Kuznetsov did agree on a mutual termination. What if Carolina had decided to buy him out instead: Would that have any implication on the Capitals? Or would they have continued to pay him the retained money (and using a retention slot on him)?

So, there’s precedent for this – a very recent one, in fact. The Canucks bought out Oliver Ekman-Larsson last summer while he was involved in a retained salary transaction with the Coyotes. Arizona (now Utah) retains the same percentage of the buyout cost that they did on Ekman-Larsson’s initial salary, which does still use up a retention slot.

Buying out the final season of Kuznetsov’s deal would have resulted in a $3.8MM cap charge in 2024-25 and a $2MM cap charge in 2025-26, per PuckPedia’s buyout calculator. Since the Capitals were retaining 50% of Kuznetsov’s salary, they would have split the buyout costs 50/50 with the Hurricanes. Both teams would have had cap charges of $1.9MM in 2024-25 and $1MM in 2025-26.

highflyballintorightfield: How about an explanation of rules for the offseason cap hit limits, that would be sufficient to explain how and why the Capitals can comfortably be well above next season’s cap.

Teams are allowed to exceed the salary cap by 10% during the offseason. This year, with an upper limit of $88MM, that means teams can have cap hits as high as $96.8MM over the summer and still be compliant as long as they get down to $88MM by the time opening night rosters are due.

But you make an astute observation – not only are the Capitals well above next season’s cap, they’re above the 10% threshold as well with a projected cap hit of around $98.25MM, per PuckPedia.

They’ve likely done this by placing Nicklas Backstrom on offseason LTIR, a difficult but necessary move to execute to ensure offseason compliancy. It operates mostly the same as in-season LTIR in that it essentially gives the Capitals an extra $9.2MM in space to work with over the summer. But using offseason LTIR restricts a team’s LTIR pool once the season starts, as it doesn’t allow them to add to it or otherwise optimize it as long as at least one player remains on LTIR. In-season LTIR is much more flexible.

In short, the Caps are sacrificing in-season salary cap flexibility for offseason salary cap flexibility.

Zakis: Read somewhere that signing players early to ELCs helps tamp down the future AAV. How does that work? Also, what’s the difference between ELCs for high school, NCAA, CHL and European players?

It does help decrease the future cap hit/AAV of the deal by a slight amount, but only if the player is subject to an entry-level slide. That’s because signing bonuses don’t slide with the rest of the deal. Let’s look at an example.

When signing 2024 third-overall pick Beckett Sennecke to his entry-level contract last month, the Ducks gave him a $97.5K signing bonus (the maximum allowable) in each season of the deal. Let’s say Sennecke plays fewer than 10 NHL games in 2024-25, sliding the beginning of his ELC to 2025-26. His $97.5K signing bonus for 2024-25 gets paid out anyway, leaving him no signing bonus in 2027-28, which is now the final season of his contract due to the slide. That reduces the AAV of the three-year deal slightly from $975K (including base salary) to $942.5K.

In terms of the difference in how ELCs are structured across players coming from different leagues, there are none. An ELC is an ELC no matter who’s signing it. The key difference lies with who’s still eligible to receive an ELC compared to a standard player contract. If a player is coming out of a North American league, they’re no longer eligible to sign an ELC if their signing age (age on Sep. 15 of the calendar year when the deal is signed) is 25 or older. If they’re above that age threshold, they have to sign a standard player contract.

But for European players, that age limit increases to 28 or older. That’s why Isles international free agent signing Maxim Tsyplakov, whose signing age was 25, was eligible for an ELC this summer. If he was coming from a North American league, he would have needed to sign a standard one-way or two-way deal, removing his $1MM in potential performance bonuses.

Spaced-Cowboy: How often can the NTC be modified or changed in a given year. What is the full process of waiving the NTC. Is it retained after the team acquires them (pre deadline trades that result in a player being traded again; at or before the deadline) Is it always the player or can the organizations stipulate which teams are on the NTC. Does the NHL have specific language for these contracts or is it completely up to the agent/player & organization?

Full NMCs or NTCs can’t be modified, only M-NTCs can (hence the modified qualifier there). Usually, a player’s M-NTC will go into effect on July 1 each year, but sometimes a player/team can agree on a different date. Players and/or their representation need to submit their no-trade list to the team by that date. If they don’t, the M-NTC is voided. That happened with Patrik Berglund back in 2018. He had a 20-team no-trade list, but didn’t submit it to the Blues in time. The Sabres were on his no-trade that, but he was dealt to them anyway in the Ryan O’Reilly blockbuster.

If a player waives an NMC, NTC, or even M-NTC for a trade to go through, or they’re traded before it goes into effect, it remains in effect for its previously dictated duration with the acquiring team. That’s a recent change in the 2020 CBA update – it used to be that if a player was traded before an NMC or NTC went into effect, the clause would be removed unless the acquiring team agreed to keep it.

The only exception to that rule is if a player makes it clear they’re waiving the clause permanently for the trade to go through, which to my knowledge has never happened. Clauses are always waived only for the purposes of a specific transaction, and they then travel with the player after a transaction.

As for the last few parts of that question, it’s up to the player to decide the teams that comprise their M-NTC. Unfortunately, I don’t have a good answer for you on the specific language used to stipulate clauses in contracts.

Image courtesy of USA Today Sports.