LTIR Isn’t Free Cap Space And The Leafs Need To Be Cautious In Using It

The NHL’s Long-Term Injury/Illness Exception to the Upper Limit, generally shortened to “LTIR”, is one of the most misunderstood concepts of the salary cap era.  Many fans believe that LTIR provides what is essentially free cap space for teams to use.  As a result, there are a lot of fans who clamor for the Leafs to add as much bad salary to LTIR as possible.  For example, there’s a relatively frequent call for the Leafs to “Robidas” Joffrey Lupul and place him on LTIR for the remainder of his contract.  However, the way the injury exception works is not so simple, and it could cause the Leafs a lot of headaches this season.

I’m going to discuss three ways that LTIR could limit the Leafs this season.  The first is related to the fact that LTIR space isn’t available during the off-season, the second is due to a relatively obscure rule called “tagging room”, and the final one is due to the way bonuses on entry-level deals work.

THE PROBLEM WITH THE OFF-SEASON

Players can not be placed on long-term injured reserve until after training camps have ended.  That means that during the off-season, including training camp, players like Stephane Robidas have their full cap hit count towards the league’s upper limit.  They can only be placed on LTIR once the season has started (which is one reason teams often perform a lot of roster moves on paper in the final day or two of training camp).

To accommodate for the fact that rosters are more fluid in the off-season, the Collective Bargaining Agreement allows teams to go temporarily over the salary cap by up to 10% of the upper limit until the last day of training camp.  This means that teams must become salary cap compliant before they can place players on LTIR since the injury exception to the cap does not come into effect until the season has started.  That could cause problems for a team like the Leafs if they intend to spend near the salary cap and can’t (or don’t want to) pass sufficient salary through waivers.

It’s also worth noting that the Leafs already have more than the 10% “bonus” cap space already tied up.  With a $74 million upper limit estimated for the 2016-17 NHL season, the extra space available in the summer would be $7.4M.  Nathan Horton and Stephane Robidas have $8.3M in combined cap hits, which means that, even after accounting for the 10% summer overage, the Leafs have $900,000 less cap room to work with. 

If you add more players to that total, like Joffrey Lupul and his $5.25M cap hit, the available room becomes even smaller.  Because teams can’t replace players on LTIR until the regular season starts, they can’t add salary past the 10% summer overage, meaning that there isn’t any benefit in the summer to the possibility that Joffrey Lupul may wind up on injured reserve a few months later.

Let’s say that the Leafs intend to have Robidas, Horton, and Lupul on LTIR.  After accounting for the 10% summer overage, the team would have $6.15M less than the upper limit available to spend.  Assuming a $74M upper limit, meaning their actual available space would be $67.85M, not $74M (and even less than that once you account for the Tim Gleason buyout and retained salary on Phil Kessel).

THE PROBLEM WITH TAGGING ROOM

Tagging room, or “Section 50.5(e)(iv)(C)(2)” as the CBA succinctly calls it, is one of the more arcane salary cap rules in the NHL.  The basic premise is relatively simple: a team can not have more money in cap hits on the books for any subsequent season than the upper limit in the current season (the rule is slightly more complicated, but that’s close enough for this discussion).  

So, for example, if the salary cap upper limit next season (2016-17) is $74M, no team can commit more than $74M in cap hits to the following season (2017-18).  That includes players who may be eligible for LTIR as well as performance bonuses.  If a team like the Leafs has an unusually large amount of money tied up in LTIR in one season, that money counts against their potential tagging room for the next season.  That limits the team’s ability to sign contract extensions or acquire new players in trades.

The tagging room is not necessarily a problem as long as there is a sufficient amount of money coming off the books in the form of expiring contracts, which is why the rule almost never comes into play.  However, if a team were to have many big money deals like Horton and Lupul on LTIR for multiple seasons, the prospect of running into the tagging room rule is significantly increased.

Stephane Robidas’s contract expires after this season, so it doesn’t need to be taken into account for tagging room.  Joffrey Lupul and Nathan Horton, though, would.  Since their combined cap hits are $10.55M, that means the most the Leafs could commit to the 2017-18 salary cap before the end of the 2016-17 season would be (assuming they intend to keep both players on LTIR) $63.45M.  That’s a problem if they intend to be a team that spends right up to the cap, which might be quite likely if they want to sign a player like Steven Stamkos.

THE PROBLEM WITH ENTRY LEVEL BONUSES

One of the most exciting things about the Toronto Maple Leafs right now is the amount of high-end talent they have on entry-level contracts.  For the most part, the fact that the Leafs will have elite players like Matthews and Nylander on entry level deals will be great.  They’ll outperform their salaries by pretty large amounts.  Having great players on ELCs can be a huge advantage in a salary cap system.  But there is one possible downside, and the Leafs are likely to run into it this season.

Performance bonuses are not counted against the salary cap until the end of a season.  As long as a team has enough cap room to cover any bonuses they owe, that’s not a problem.  But any team that spends to the upper limit has any bonuses above that amount applied to their salary cap in the following season.  Since teams must be at the upper limit to activate the LTIR exception to the salary cap, that means any team that uses LTIR and has any of its players hit performance bonuses is going to have those bonuses applied to the cap the next season.

In the case of a team like the Leafs, this could be a pretty big problem as they have many players who could earn bonuses next season.  At the top of the list are William Nylander, Mitch Marner, and Nikita Zaitsev, each of whom has $850,000 in potential bonuses available next season.  Whoever the Leafs draft at 1st overall this season is also going to have some fairly hefty bonuses (the past two #1 picks each have $2.85M in available bonuses).

Most players don’t hit all of their bonuses, but they all have to be taken into account.  It’s entirely possible that the Leafs could have somewhere in the range of $3M-$4M in performance bonuses to pay out at the end of the 2016-17 season.  If the teams go into LTIR with players like Robidas and Horton, that money comes off the next season’s salary cap, potentially making it harder for the Leafs either to keep key players or add new ones via trade or free agency.

[Thanks to @drivingplay for being the one to point this problem out to me earlier this year.]

THE PROBLEMS WITH LTIR

The combination of all of these issues means that the Leafs would be wise to try to avoid having to use the long-term injury exception this season.  Mainly, it means that, if they do have to use LTIR, they should try to limit how much of it they use to the greatest extent possible.  If the Leafs start putting a large number of players with big-money deals on LTIR, it could present some pretty serious problems concerning putting together the roster for the 2017-18 season.  I think the Leafs can and should be a playoff team by then, and having a major cap crunch right at the moment a rebuilding team is putting things together on the ice is not a smart plan.

So while it might seem like a good idea to suggest that the Leafs just “Robidas” players like Lupul and Milan Michalek by making them spend all season on LTIR, doing so would likely be detrimental to the team’s efforts to improve.  It would limit flexibility concerning roster construction and cause all sorts of headaches concerning managing the salary cap.  LTIR is not free money, and the Leafs shouldn’t treat it like it is.

    • DragLikePull

      Of course so few people realize that Pridham was 1 morgan rielly goal from going over the cap due to bonus overage. This glorification of leaf management is what happens when you buy into the main stream kool aid that Simmons, Cox and Kyper are peddling.

      Wax poetic all you want but the leafs are paying kessel 1.2M for the next 6 years. And the leafs are effectively paying kessel to worsen the draft pick in the penguins first round pick.

      Something they get less credit for is is how they have vastly improved the cap position by providing cap flexibility. There are both pros and cons and the hard work of building a contending team is next.

      But please let’s stop with the #plantheparade nonsense

      • BarelyComments

        Brandon Pridham knows the CBA like the back of his hand. I am sure he is well aware of any and all potential current and future cap issues. Not to mention that Pridham had nothing to do with Morgan Rially’s ELC so being one goal away from an overage isn’t how fault.

      • TGT23

        Ironically, the only people who ever talk about #plantheparade are people like you. The ones telling people to stop talking about it or insulting Leaf fans for doing it. Even though they aren’t.

        Sort of sad, when you think about it.

        The “glorification”, as you put it, is actually just well earned praise for doing a good job building a foundation for future success.

        It’s also sad that the only people who care about paying Kessel $1.2 to get Harrington, Kapanen, and a 1st, are the people trying to grasp at straws to find a reason to put down fans who support the organization and it’s leadership.

  • Mitch92

    These are all good points. I am sure the Leafs are well aware of the benefits as well as the pitfalls of adding any more dollars to the LTIR list. As you stated, the possibility of adding Lupul to that list could have the effect of tightening the noose at a time where that is ill advised. It looks like a buy out may be more prudent in Lupul’s case. It will save us $3.0 million while reducing his cap hit to $1.5 million albeit for another four years.

    The signing of Robidas to a three year +35 deal was the gift that keeps on giving left to us by the previous regime. We will just have to wait that one out. Horton is the same and we will be enjoying that dance for four more years. These Nonis deals may not be all bad in that they force the Leafs to play more of the kids on ELCs for a few more years rather than spending on older free agents who will just take away ice time and slow the development of a young team that needs time to grow together.

    I wonder if the next CBA can address the issue of providing cap relief for disabled players. Perhaps if a player is medically deemed unable to continue his career the team gets %50 cap relief on his contract while still paying out the full salary to the player? I am sure the NHLPA would go for it because it would mean more money for their players in the long run. Teams would be more willing to gamble on veteran players if they had some built in protection if things go south.

  • DragLikePull

    Kind of seems like those two problems cancel out. If the Leafs can’t spend all the way to the cap in the off-season, then they have built-in space for ELC bonuses at the end of the year. Plus they would still have a few mill left over for midseason FAs or trades.

  • DragLikePull

    @thinkaboutit

    That’s not how LTIR works. You can only claim the credit from LTIR if you’re spending at the salary cap maximum. As soon as you hit that point, any bonuses you pay out at the end of the season roll over into the next year’s salary cap. You can not use LTIR space to pay out bonuses.

  • magesticRAGE

    Nice piece, informative. I had thought the Leafs should try to play him, alternate him in the lineup with Marner, or something like that. Put him on LTIR if (when) injury occurs.
    Michálek or Bozak hopefully gets traded in the off-season, especially if they’re front runners to land Stamkos.
    I wouldn’t buy or Lupul yet, but wait for the 17/18 season, and it would only be on the books for two years.
    It would be awesome to have Lupul retire, the remainder of his contact terminated, and get hired in the front office to get paid the difference if his previous contract money. A thought anyway.

  • Tomas Oppolzer

    Bigger challenge will be at the start of the season(s) when teams need to get under the cap but can’t take advantage of LTIR just yet. This is when it is useful to have players who are waiver-exempt. Allows you to have some flex without exposing players you know won’t clear.

    Leafs probably okay as lots come off the books by 2017-18. Expansion draft will be a factor as well in who gets protected and who gets exposed!