Toronto’s Dicey Salary Cap Situation: The Limits of the Bonus Cushion

150401-sm-110-TSG_9401
Photo Credit: Christian Bonin/TSGPhoto.com

It’s pretty evident that the Leafs are in a very tight situation in regard to the NHL’s salary cap at the moment.  As of the time I’m writing this, General Fanager has the Leafs at just $55,916 in cap space.  CapFriendly, which uses a slightly different list of players, has the Leafs with a little bit more room: $435,000.  Since the Leafs still need to sign a back-up goalie, that’s obviously not a great place to be in.  But both cap sites are actually over-estimating how much space the Leafs have left, and that’s because of the way that rookie bonuses work.

A couple of days ago Jeff Veillette listed all of the possible bonuses that the Leafs might have to pay out over the next couple of seasons.  There are 15 players under contract to the Leafs who have the potential to hit performance bonuses next season.  However, many of them will play few or even no minutes for Toronto in 2016-17, so we don’t need to take account of all of them.  But if we add up all of the players who are likely to make the opening night roster, the potential damage from bonuses is still pretty large.

HOW THE BONUS CUSHION WORKS

NHL teams are allowed to go over the salary cap ceiling in order to pay bonuses in any given season.  Any team that goes over the cap to pay bonuses in this way has their upper limit in the subsequent season reduced by the amount of bonuses paid out above the cap.  For example, this year’s salary cap limit is $73M.  If a team spends $73M on salaries this season and then pays out $2M in bonuses at the end of the year, then their salary cap limit in 2017-18 will be lowered by $2M.  This is laid out in section 50.5 (h) (iii) of the Collective Bargaining Agreement, which says:

At the conclusion of each League Year, the amount of Performance Bonuses actually earned, including, without limitation, and for purposes of clarity, (i) Exhibit 5 Individual “A” Performance Bonuses and “B” Performance Bonuses paid by the Club that may be earned by Players in the Entry Level System and (ii) Performance Bonuses that may be earned by Players pursuant to Section 50.2(b)(i)(C) above, shall be determined and shall be charged against the Club’s Upper Limit and Averaged Club Salary for such League Year. To the extent a Club’s Averaged Club
Salary exceeds its Upper Limit as a result of: (i) Exhibit 5 Individual “A” Performance Bonuses and “B” Performance Bonuses paid by the Club that
may be earned by Players in the Entry Level System and (ii) Performance Bonuses that may be earned by Players pursuant to Section 50.2(b)(i)(C) above, then the Club’s Upper Limit for the next League Year shall be reduced by an amount equal to such excess.

Because of the way this works, salary cap web sites typically do not include potential bonuses when calculating how much cap space teams currently have available.  Most of the time that’s fine.  But the bonus cushion is not unlimited.  The “bonus cushion” can not exceed 7.5% of the salary cap ceiling in any given year:

A Club shall be permitted to have an Averaged Club Salary in excess of the Upper Limit resulting from Performance Bonuses solely to the extent that such excess results from the inclusion in Averaged Club Salary of: (i) Exhibit 5 Individual “A” Performance Bonuses and “B” Performance Bonuses paid by the Club that may be earned by Players in the Entry Level System and (ii) Performance Bonuses that may be earned by Players pursuant to Section 50.2(b)(i)(C) above, provided that under no circumstances may a Club’s Averaged Club Salary so exceed the Upper
Limit by an amount greater than the result of seven-and-one-half (7.5) percent multiplied by the Upper Limit (the “Performance Bonus Cushion”).

With a $73M salary cap this season, that means the bonus cushion is $5.475M.  If a team owes potential bonuses over that amount, then the additional potential bonuses are counted against the current year’s cap, even if they have not been earned yet.

TORONTO’S BONUS SITUATION

As Jeff calculated in the link above, the Leafs have the potential to owe nearly $9M in performance bonuses in the 2016-17 season.  However, the only bonuses that count from the standpoint of the salary cap are those obtainable by players on a club’s current NHL roster.  So how many bonuses are the Leafs likely to need to account for on opening night?

I believe the following players with bonuses will definitely be on the Leafs’ opening night roster: Auston Matthews, Mitch Marner, William Nylander, Connor Brown, and Nikita Zaitsev.  Their bonuses add up to $5.5825M. That puts them slightly over the bonus cushion, meaning that $107,500 of their bonuses must be counted against this year’s cap.

There are other players with potential bonuses who have a chance to start the season with the Leafs, however.  Nikita Soshnikov seems reasonably likely to make the team, meaning his $182,500 in bonuses would count in full against the cap.  There’s a chance that Kerby Rychel will be playing for the Leafs rather than the Marlies.  All $350,000 of his bonuses would count against the cap immediately (assuming the players I listed above are also all on the team).  Brendan Leipsic has $207,500 in available bonuses, and it seems like there’s an outside shot that he makes the team.

The Leafs are also rumoured to want to sign hot NCAA free agent Jimmy Vesey.  As Jeff Veillette has noted, Vesey would surely get potential bonuses at least equivalent to those of Trevor Moore, who signed for the maximum allowable $850,000 in Schedule A bonuses.  Vesey’s bonuses, were he to sign with the Leafs, would count in full against the salary cap.

There are a lot of different potential permutations of the Leafs roster to start this upcoming season, but one thing that seems clear is that the sum of the bonuses earnable by players on the opening night roster will be greater than the 7.5% allowed by the bonus cushion, meaning some of them will count against the salary cap immediately.  For that reason it’s quite likely that the salary cap sites are misreporting how much cap space the Leafs have.  In all likelihood, the Leafs are currently over the salary cap ceiling, and that’s before they add a back-up goalie.

While some people would argue that it shouldn’t matter, since Nathan Horton can be placed on long-term injured reserve, I’ve written in the past about why the Leafs should try to avoid LTIR as much as possible, especially with so many potential performance bonuses available this season.  One month into this off-season, the Leafs still need to do some work in order to get their salary cap situation in order.

  • Gary Empey

    This is worst case scenario for the cap and bonus structure. As a lot of these bonuses are for things like “rookie of the year”, “making the top ten in NHL scoring”, “MVP” and other NHL awards, I don’t think we really need to worry that much about all our ELC’s making all their bonuses.

    With our Leafs only committed to about $50 million next year I don’t see any reason to be too concerned about the cap.

    Someone here pointed out if we go over the cap now it will give us bigger relief when we place Horton on injury reserve. So the Leafs are likely attempting to do that.

  • Stan Smith

    I read another article, can’t remember where I read it, and I can’t find it now, but that author basically said the Leafs would benefit more if they were slightly over the cap at the start of the season so they could benefit from Horton’s LTIR. They stated they would either have to be a few dollars over, or get rid of $5M in contracts by then, to have a comparable cushion to play with this season. They had also stated they could not add Robidas’ and Lupul’s contracts to the LTIR due to the 10% rule. Is whomever wrote that wrong?

  • Trevor5555

    I read on Cap Friendly that a player who played no games the previous year can qualify for season opening injured reserve and their cap hit wouldnt apply to the teams cap total at all. If this is true Toronto gets full relief of Hortons 5.3 million.

    Anyone else confirm this as fact or did I misinterpret? It makes sense that guys like Savard, Horton and the like shouldnt restrict teams cap situation. Its not like teams are trying to circumvent the cap, its just bad luck by the player. If injured players counted against the cap it would put a major chill on long term contracts as injuries are a common part of the game and shouldnt totally handcuff teams.

  • magesticRAGE

    I agree with drag, LTIR is like overdraft, you should operate you life from, let alone big business. It’s there if you need it. There are unwanted contacts on the roster, which would free up space.
    Playing rookies only 41 games is not an answer, it seems a bad message to that player, it’s not good faith.
    If Vesey actually does sign, Leivo will be traded and avoid his bonuses. Right now, I don’t think Brown a spot available yet.

  • Kanuunankuula

    Reading the CBA one this painfully clear, lawyers need to learn about variables. So much duplication could be eliminated improving the overall maintainability of the document.

  • Kanuunankuula

    If it turns out to be necessary, there’s a fairly easy fix for the problem raised in this article.

    One day before the start of the season, assign Matthews (or someone else who doesn’t need to be subjected to waivers) to the Marlies.

    The following day, the first day of the season, Horton can be placed on LTIR and Matthews (or whomever was papered to the Marlies) can be recalled and play the entire season with the Leafs.