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Salary Cap Symbiosis: The Way NHL Teams Weaponize Cap Space and Capital

Team Cap Hits

The NHL is a salary cap league. While some sports leagues have a luxury tax system or no cap at all, the NHL’s Salary Cap is a hard cap, with both a cap ceiling and a cap floor. A team’s total cap hit is all of their players’ cap hits added together. In 2018-19, all teams must have a cap hit between $58.8 million and $79.5 million (USD) on their rosters. This is important in a league with huge disparity between large hockey markets, like Toronto and Boston, and small markets, like Arizona and Carolina.

The concept is simple, but there’s a lot that can be done to, shall we say, massage your total cap hit. Necessary reliefs and exemptions for situations like injuries, call-ups, minors assignments, and retirement can help a team squeeze their way under the cap ceiling. Salary structure can also add or subtract value from contracts (we’ll get to that later). Creative financing may also help budget teams hit the cap floor. These two extremes and the grey area in between often catalyze the symbiotic (or sometimes predatory, depending on the General Managers involved) relationship between teams with cap space and those without.

This concept can grandly be called weaponizing cap space.

There are many reasons a team may have extra cap room, either in the short or long term. A team may know they have key players on entry level contracts (under $1 million) who will need to be signed to more expensive contracts within a season or two. Therefore, they may be unable or unwilling to sign free agents to long term deals, leaving them with extra room in the short term. In this case, cap space on a cash-rich team could simply be used to overpay a good free agent for shorter term. Unfortunately, due to the high injury rate in the sport and the overall culture, hockey players tend to be risk averse and are usually looking for the longest contract term possible, making this kind of deal rare. In this case, even a cash-rich team may be facing a year or two with some wiggle room on the books.

Most often, the reason teams have cap room is because they’re a small market team on an internal budget that’s sometimes closer to the cap floor than the cap ceiling.

The flip side of this ecosystem are the big market teams who have extra capital. With a lot more money to spend in any year than they’re allowed to under the salary cap ceiling, they can pen contracts with creative payout structures. They can do this because a contract’s cap hit is simply the total value of the contract divided by the number of years on the deal. For example, a five-year deal worth 15 million dollars has a cap hit, or average annual value (AAV), of three million per year. However, while the cap hit is static, there are multitudes of ways a team can pay out that cash. Through the use of signing bonuses that pay out on July 1st of every year and/or front-loading deals so they pay out more money in the earlier years than in the later ones, these “expensive” contracts become much more attractive to teams on a budget because the real dollar paycheck is much smaller than the cap hit.

In this environment, the most common way that cap space is weaponized is through cap dump trades. Teams that need to reach the floor or simply have extra cap space might take on overpriced contracts from teams who are up against the cap ceiling. But why, you might ask, would a team on a tight budget take on an expensive contract for a player who is likely not worth the dollar amount? They do it because not only do these teams receive better and/or cheaper players or future assets (draft picks and prospect rights) in the deal, but often they pay far less salary in cash than the figure attached to the cap hit.

This is the way that big market teams weaponize their capital.

As briefly referenced earlier, creative contracting results in a sort of luxury insurance that can be purchased by cash-rich (and often cap-tight) teams, willing to risk paying out these large sums of money early to make the contract easier to move later.

In some situations, if there is only one more year on the burdensome contract, a team could take on a multimillion-dollar contract and only pay out close to league minimum salary. Patrick Marleau’s contract is a good example of this. His three year $18.75 million deal has a cap hit of $6.25 million per year. However, the payout is broken down like this:

This structure means that after July 1st in the third year of this contract, a team could trade for Marleau and have $6.25 million against their salary cap, but would only have to pay him $1.25 million total. And in Patrick Marleau’s case specifically, you’d likely still be getting a hell of a player.

But what if you aren’t getting a good, if expensive, player? What if you’re considering taking on a player who is likely to be out with injuries or not produce like their team believed they would when the deal was signed? In that case, the team who’s in a cap crunch might have to sweeten the pot, sometimes significantly. This is where weaponizing cap space become lucrative whether you’re a small market team or just have a bit of room in the books for a year.

A perfect example is the Bickell/Teräväinen trade. In June of 2016, almost twelve months to the day after the Blackhawks won the Stanley Cup for the third time in the salary cap era (which began after a hard cap was instituted following the 2004-05 Lockout), Chicago was in a bind. They were coming off the first year of paying their centerpieces, Patrick Kane and Jonathan Toews, a combined $21 million a season, a huge portion of the then $71 million salary cap. Along with a number of other heavy sum payouts to members of their Cup-winning teams, they were against a rock and a hard place.

To buy themselves some room, the Blackhawks traded Brian Bickell and Teuvo Teräväinen to the Carolina Hurricanes for a second- and third-round pick in the 2016 and 2017 drafts respectively. After averaging less than a million dollars per year for his entire 7-year NHL career up to that point, Bickell had been awarded a four-year, $16 million contract after the 2012-13 season, when he and the Blackhawks had hoisted the Stanley Cup for the second time in the new millenia. The following season, Bickell scored 15 points in in 59 games. In 2014-15, he tallied 28 points. The season after, he played just 25 NHL games and only produced two assists.

It’s fair to say Bickell’s trade value was negative that following spring. To offload the final year and $4 million (in real dollars and cap hit) of his contract, the Blackhawks paid a hefty price: young Finnish winger Teuvo Teräväinen. The 21-year-old was coming off a 78 game, 35 point season. At that age, Teräväinen was far from a sure thing, but his upside was clear.

Bickell only played 11 games and scored 1 goal for the Carolina Hurricanes—Teräväinen, on the other hand, has played 163 games and scored 106 points for the Canes in the two seasons he’s been with the team.

The math on that one certainly worked out for Carolina, who basically played the role of loan shark for Chicago.

Some teams have turned this practice into a go-to business, namely the Arizona Coyotes. Our view of this practice is slightly hampered by their continued inability to ice a playoff team—though they still make the offseason favorites list every year before goaltending or a historically bad start to a season takes them out of contention.

However, just because it hasn’t paid off yet doesn’t mean the Coyotes aren’t being smart by taking on most of the dead contracts in the league, trading for the contracts of players like Pavel Datsyuk and Marian Hossa, neither of whom ever played a single game for the desert dwellers. The Coyotes are always open to letting you park your broken down car on their lot as long as you’re willing to pay a small fee.

Then there’s Vegas, headed into the expansion draft just over one year ago. They’re a non-traditional market, but with how much money had to be put on the table to obtain the franchise, they weren’t likely to be working with a tight internal budget right off the bat. And yet, there was almost no way that the Knights were going to be able to spend to the cap in their first year, even if that was what they’d wanted. Due to the expansion rules that allowed each team to protect 9-11 players, Vegas wasn’t likely to draft a heralded superstar, and that’s really what eats up the bulk of most teams’ cap space. A true first line center at their peak (in free agent years) usually costs over 10% of a team’s cap space. Vegas wasn’t likely to have even one big money player.

So, whether they wanted it or not, Vegas was going to have room that they could use, going into the expansion draft and throughout the following season. It didn’t take long for a trade to materialize—one that would become infamous within the following 12 months.

In exchange for leaving a high scoring young winger Jonathan Marchessault off their protected list in favor defenseman Alex Petrovic, the Florida Panthers allowed the Knights to choose Marchessault in the expansion draft. In exchange Vegas traded a fourth-round pick for Reilly Smith, whose $5 million contract the Florida Panthers didn’t want to pay. This seemed like a strange deal at the time—giving up a cheap young scorer and a good but slightly expensive scorer for a fourth-round pick and the ability to keep a middling defenseman. It looked even worse a year later, with Marchessault and Smith scoring a combined 135 points (!!!) for the Knights in their historic first season.

The Knights were also active with their remaining cap space around the trade deadline, when a cap-strapped Pittsburgh team was attempting to acquire luxury third line center Derick Brassard from the Ottawa Senators. On the tightest internal budget in the league, the Senators were unwilling to retain the portion of the salary Pittsburgh needed to fit Brassard under their cap. In came Vegas. The three-team trade was a little complicated but, to simplify, in exchange for a prospect and retaining $2 million of Brassard’s cap hit per year, Vegas obtained a fourth line winger and a fourth-round pick.

While the Marchessault/Smith deal was such an unmitigated disaster that it likely means teams will be a lot more conservative when making deals in the next expansion draft, these examples show ways that teams can heavily benefit from weaponizing cap space if they keep their ear to the ground. There is always a veteran team in need of relief and willing to mortgage the future to help their chances to win now, ready to send off a handful of picks or a solid young prospect. While teams are rarely made on the back of fourth-round picks, depth wingers, and dicey prospects, the more tickets you have in the raffle the more likely you are to come out a winner.

Cap space weaponization is a valuable tool for any team, and for an expansion team guaranteed to have money left over, being ready to make an ugly deal to stock up on lottery tickets may make the difference between a five year plan and a trip to the Stanley Cup Finals in year one.

 

Statistics courtesy of Hockey-reference.com. Trade information courtesy of NHL.com. Contract information courtesy of CapFriendly.com. For further information about the salary cap or NHL contracts, visit the wonderful CapFriendly.com.

emilyjomichele
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