Circumventing the Salary Cap

November 16, 2015

contract

By Aasim Hirji – Thompson Rivers University 3L JD Student

The NHL Salary Cap currently has a ceiling of 71.4 million, with a floor of 52.8 million. This means that every NHL team must spend at least 52.8 million, and at most spend 71.4 million on player salaries. The issue with a firm salary cap is team’s will always attempt to circumvent the cap to help them out of situations. Cap circumvention is ruining the equitable arrangement of the salary cap, which is already hinged in favour of rich teams willing to spend to the cap. A prime example is the Mike Richards case with the Los Angeles Kings. In the 2013-2014 season, the LA Kings had a chance to use a compliance buyout on Mike Richards. This means that any buyout would only affect them financially, and would not go against their salary cap.

Compliance buyouts were a two-year measure brought in after the new Collective Bargaining Agreement that would allow each NHL team to buy out two players without any affect to their salary cap. The LA Kings were attempting to trade Mike Richards, with a few potential suitors, then some news came to their attention. Richards was held at the Canada-USA border for bringing oxycodone into Canada, thus giving the LA Kings potential to terminate his contract for “material breach”, despite no arrest at the time. The LA Kings used this to terminate his contract, unprecedented in the NHL. With the recent settlement between the Kings and Richards, it is clear that this is salary cap circumvention.

Elliotte Friedman, a Sportsnet report, stated: “If the Kings had bought out Richards last summer, he would have stayed on their payroll until the end of the 2024-25 season. The cap hit would move from approximately $1.2M this season to $1.7M next year, followed by $2.7M in 2017-18 and a two-season peak of $4.2M in 2018-19 and 2019-20.Then it would stay just under $1.5M for the final five seasons. With the agreement, Richards’ cash lasts until the end of 2030-31 campaign. As part of a pre-capture penalty due to decreasing dollar values towards the end of his contract, the Kings lose $1.32M from their cap this year — and the next four — with the settlement amount added to that total. Starting in 2020-21, the team’s only penalty is the settlement itself — and that’s not a high number, believed to be somewhere in the $550,000 per season range on average.”

Elliotte Friedman went on to say that other general managers are “screaming bloody murder and are threatening to make an issue about it at December’s Board of Governors’ meeting”. The LA Kings are not the only team guilty of such obvious cap circumvention. A much clearer example of cap circumvention was the trade between the Toronto Maple Leafs and the Columbus Blue Jackets. The trade was David Clarkson for Nathan Horton.

On its face, it appears to be a legitimate player-for-player swap. Nathan Horton’s contract had 5 of 7 years left on a $37 million contract. David Clarkson was on a $36.75 mil, 7-year contract. Similar contracts, however one major issue – Nathan Horton is likely permanently injured and the only reason he hasn’t retired is he is owed in excess of $25 million. David Clarkson was a potential buyout candidate, or alternatively, the Leafs would have an overpaid player on the cap. With this trade, Toronto can put Nathan Horton on Long Term Injury Reserve where his 5.28 million cap hit will not count towards the cap. TSN’s Bob McKenzie stated that other GM’s “get it”, but don’t like the fact that trades like this work.

The NHL has already addressed the method of circumventing the cap by burying players in the AHL, such as New York Rangers sending Wade Redden and his $6.5 million contract into the AHL. This rule was changed where teams do not receive full cap relief, rather the cap hit will be contract value- (minimum salary+$375000). Under these new rules, Wade Redden’s contract buried in 2015-2016 would have been 5.5 million instead of $6.5 million.

There were a few trades that raised some eyebrows in the NHL regarding salary cap relief from the use of long-term injury reserve. During the NHL draft, Philadelphia traded the rights to Chris Pronger to the Arizona Coyotes. Similarly, the Boston Bruins traded the rights of Marc Savard to Florida. Both of these players have career ending injuries and will not see another game in the NHL. Pronger’s deal had a cap hit of $4.9 million, with a salary of $575,000. Savard had a cap hit of $4 million, with a salary of 575,000. Prior to the Philadelphia trading Chris Pronger, there were thoughts that the Flyers did not want him to retire otherwise there would be a cap hit due to Pronger’s age. Instead, he stayed on long term injury reserve where the cap hit would not affect them. Once traded, Chris Pronger and Marc Savard were not placed on injury reserve, as the teams wanted their cap hits to count in order to get to the salary floor, thereby manipulating the entire purpose of the salary cap.

It is clear that salary cap circumvention goes against the spirit and purpose of the salary cap. The NHL must adopt measures to prevent this from happening. Changing the salary cap relief from burying players in the AHL is the first step. The NHL has also addressed contract lengths, used to bring down the cap hit of players in the recent Collective Bargaining Agreement. There must be careful monitoring of procedures, particularly in looking at the Mike Richards case, to prevent teams from circumventing the salary cap.

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