7 ways to (legally) circumvent the NHL salary cap 101

In the era of the salary cap ($59,400,000 this season), some NHL teams must juggle with numbers to find a way to stay under the maximum salary payroll allowed by the league and be cap-compliant. Before we have a look at the different ways teams have found to circumvent the salary cap, let’s have a look at different pieces of information about the matter:

First, who counts against the salary cap?

DURING THE SEASON
During the season anyone on a team’s NHL roster counts against the cap. This includes players on the Active Roster, Injured Reserve, Injured Non-Roster and Non-Roster. It also includes players who have a “bona-fide long-term injury” or LTIR as well as players sent to the minors on conditioning assignments (Jiri Tlusty for example) and players placed on waivers (Jeff Finger for example) (until such time that they have cleared waivers and are assigned to the AHL). Also included are any deferred salary and bonuses earned as a result of playing in a league year under the new CBA, and any ordinary buyouts (George Laraque for example).

DURING THE OFFSEASON
In the offseason, the following players count:
1. All players on 1-way contracts, regardless of where (or if) they were playing the previous year.
2. All players on 2-way contracts, in proportion to the number of days spent on an NHL roster the previous season.
3. All RFA’s who have been extended a qualifying offer (while the offer is valid), with 1-way QO’s counting in full and 2-way QO’s counting as described in #2.
4. All RFA’s signed to an offer sheet (such players count against the team extending the offer sheet while it is still valid).
5. All ordinary buyouts [those buyouts not executed immediately after the ratification of the current CBA].

Second, who doesn’t count against the cap?

DURING THE SEASON:
Players assigned to the minors – even if on one-way contracts – do not count (as long as they are not on conditioning assignments) as well as players signed to a contract that are in Major Junior hockey (CHL) or overseas (Europe). Players suspended by either the team or the NHL will not count for the duration of the suspension as long as the player is not receiving his salary; however, teams must keep enough payroll space available to be able to accept the player should his suspension end immediately.

 

DURING THE OFFSEASON:
Players signed to a 2-way contract, but who were not on an NHL roster at any point during the previous season, and any player not under contract. That’s it – everyone else counts as described above.

Third, when can teams exceed the Upper Limit?

From the last day of training camp until June 30, the only time teams may exceed the Upper Limit is if a player is placed on the LTIR (Mark Streit for example) and replacing the player would put the team over the Upper Limit. The team can replace the injured player with a player with a salary that is lower or equal to that of the injured player. In addition, from July 1 to the last day of training camp, teams may exceed the Upper Limit by no more than 10%.

Teams must also consider performance or signing bonuses earned by players when calculating the team’s overall salary cap, which can become tricky and pose problems to certain teams (The Blackhawks are a good example as they have $4,157,753 in carry-over bonus penalty to fit under the salary cap this season).

Different ways to circumvent (legally) the NHL salary cap:

1. Put a player on the Long Term Injury Reserve (LTIR):
A player is considered to have a long-term injury if, in the opinion of the team’s doctors, the player has an injury which will cause him to miss at least 10 games and 24 days. The team is allowed to exceed the cap by up to the amount of the injured player’s salary with as many replacement players as needed, provided that when the injured player is activated the team comes into compliance with the cap immediately.

The New Jersey Devils used this strategy to stay under the cap by putting Bryce Salvador ($2,900,000) and Anssi Salmela ($612,500) on the LTIR.

2. Bury a player’s contract into the minors (AHL):
Players assigned to the minors, even if on one-way contracts, do not count against the NHL salary cap. However, the team still has to pay the player full-salary despite him playing in the AHL.

The New York Rangers used this strategy to stay under the cap by sending Wade Redden to Hartford of the AHL. His $6,500,000 annual salary doesn’t count against the cap, but the team still have to his full salary.

3. Sign a player to a front-loaded multi-year contract:
The new trend in the NHL is to sign bona-fide free agents to multiyear deals worth millions of dollars, and as way to fit that huge salary under the cap, teams decided to front load the contracts and add several years at the end of the contract to reduce the cap hit of player. We all know that the Kovalchuk Saga was about this type of deal this summer.

The Chicago Blackhawks used this strategy when they signed Marian Hossa to a 12-year $62.8M contract for a yearly cap hit of about $5.23 million over the entire 12 years. However, he is being paid $7.9M per year for the first seven years, then $4M, and the last four years he will receive $1M or less. Hossa was 30 years old when he signed the contract, so he would have to play until he is 42 to fulfill the whole contract.

4. Loan a player to an independent team overseas:
A team is entitled to loan one of its player under contract to an independent team overseas for the remainder of his contract. However, the player in question has to approve such a move. The Tampa Bay Lightning and Radim Vrbata agreed to such a loan a few years ago.

The Chicago Blackhawks also used this strategy to get Cristobal Huet’s $5.625M salary off the books, and make room under the salary cap. Huet decided to accept his fate and earn big money playing in Europe instead of voiding his actual contract and testing free agency. It was a wise decision by Huet as free agency has not be kind to goaltenders this past offseason.

5. Dress less players than the mandatory minimum imposed by the league:
As per the CBA: Except in case of emergency, there shall be no reduction of the required minimum Playing Rosters of the Clubs set at 18 skaters plus 2 goaltenders.

On Monday, the New Jersey Devils only dressed 15 skaters (nine forwards and six defensemen) due to injuries to Brian Rolston and Anton Volchenkov and a suspension handed to Pierre-Luc Letourneau Leblond. Since the Devils have no margin under the salary cap, the team was unable to call up players from their AHL affiliate to replace the missing players. The Devils have since signed Adam Mair to a contract and sent P-Luc Létourneau to the AHL. It is expected they will dress 16 skaters tonight in Buffalo.

6. Sign a free agent for a “reasonable” deal, and all of a sudden the same player signs a huge endorsement deal with a team sponsor:

Suppose the Toronto Maple Leafs sign Brad Richards, slated to become an unrestricted free agent next summer, to a four-year $16M deal, which would be below his fair market value. Then Air Canada signs an endorsement deal with Richards that will pay him $2M per year during the length of his contract with Toronto. Obviously, Air Canada is the owner of the Air Canada Centre where the Maple Leafs play their home game. Would that be a circumvention of the salary cap?

7. Sign a recently drafted player to an entry level contract and make him spend years outside the NHL:

Toni Rajala of the Edmonton Oilers is a good example of this method. The Oilers signed Rajala on July 16th 2009, to a three-year deal that had a cap number of $875,000. One season later, Rajala’s cap number is now down to $845,833 because Rajala spent that year with the Brandon Wheat Kings in the WHL, outside the NHL. Rajala is currently playing with Ilves Tampere of the Finland Elite League which means his cap hit will decrease again. Why? Because Rajala was already paid his 10% $87,500 signing bonus at the start of last year and thus that money no longer counts against the team cap. He will also receive a 10% signing bonus this season. That’s what we call an entry-level slide.

It means that if or when Rajala plays in the NHL, his entry-level deal will carry a lower cap-hit than if Rajala had began his NHL career last season. Should Rajala start the 2011-12 campaign with the Edmonton Oilers, he will only carry a $816,667 cap-hit instead of the original $875,000 he was supposed to have. That’s why we see more and more entry-level deals signed early as it benefits both the players (they receive a nice signing bonus) and the teams (they can lower their cap-hit if the prospect doesn’t make it to the NHL right away).

SOURCE: THE NHL2005 COLLECTIVE BARGAINING AGREEMENT.

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About the Author: Working as a freelance sports writer and translator, Fred, 33, graduated from Laval University in Quebec City, earning a bachelor of translation in 2002. An avid fan of the Northeast division teams, he's also a long time fan of the Washington Capitals and the Montreal Canadiens. Fred also speaks fluently French and Spanish. http://twitter.com/FredPoulin98 www.traductions-quebec.com

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  1. Mike says:

    wow, thats good! any ideas for my annual taxes now?

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  3. shruew says:

    Point 6 clearly violates Article 26.

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