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Photo Credit: © Bob DeChiara-USA TODAY Sports

How to Maximize the Long Term Injured Reserve

When it comes to understanding how injury reserve works in relation to the salary cap there are three key points to get your head wrapped around.

First, the injured player’s average salary is not subtracted from the total cap hit. Instead, the cap limit is increased. Second, when injury reserve is evoked, the salary for the injured player can be replaced by any combination of players as long as their total aggregate average salary is equal to or less than the player they are replacing. Third, the cap limit is only increased enough to accommodate the additional salary incurred by the replacement player(s).

If the team is below the cap limit when a player is injured, injury reserve is only invoked if the replacement brings them over the cap limit.

Consider an example where a team has a total cap hit of $79 million and a player worth $3 million becomes injured. The player will only be placed on injured reserve if his replacements are worth more than $2.5 million and bring the team over the $81.5 million salary cap limit. He can be replaced by any combination of players worth up to $3 million and the team’s cap limit is increased to $82. The $2.5 million that existed previously is gone. If the replacement player’s cap hit is less than $2.5 million then injury reserve would not be invoked as the team would still be at or below the salary cap limit.

Now, if a team is above the cap limit prior to opening day with a player on injured reserve, the cap limit is only increased for the portion of the replacement player’s salary that is above the cap.

As per Article 50.10 (d)(4) Illustration #4, if a player is placed on injured reserve prior to opening day, “The Club is deemed to have already fully replaced the unfit-to-play Player with any Player or Players on the Opening Day Roster”, meaning that even if the cap limit is raised to accommodate the additional salary of the player placed on injured reserve, they do not get to replace that salary and they do not get any extra cap space.

In any case, it is most beneficial to be as close to the cap as possible prior to exercising long-term injury reserve.

Which brings us to David Clarkson. Why would the Leafs want to bring back a player who they couldn’t wait to get rid of four years ago and who will never play another game in the NHL?

It’s all linked to a key unsigned restricted free agent. Perhaps you’ve heard that Mitch Marner still doesn’t have a contract. You might have also heard that his eventual deal could end up in the $10 million range. Coincidentally enough, Clarkson’s deal, along with Nathan Horton’s, add up to a $10.55 million salary-cap hit.

With Kyle Dubas and Laurence Gilman in charge of the salary cap, it’s actually not a coincidence at all.

Offseason Cap Management

As per Article 50.5(c)(ii)(B) of the CBA, the upper salary cap limit can be exceeded by 10% during the off-season, meaning that the total payroll a team can be at is $89,650,000 up until the last day of training camp. From July 1st until the last day of training camp, the total salary cap hit comprises all players on one-way contracts with the team, therefore making injured players included.

As per article 50.5(d)(i)(A)(5) of the CBA, the off-season cap hit for players on two-way contracts is reduced by multiplying their NHL salary by the number of days that a player was on an NHL roster the previous year and dividing by 184 days in the season. This applies to Travis Dermott and Kevin Gravel.

Dermott spent 44 days in the AHL last season. Therefore, his off-season salary cap hit is reduced to $656,884. Gravel was in the AHL for 16 days, which makes his cap hit reduced to $639,130. Frederik Gautier appears to have spent the entire 2018-19 season on the Leafs roster, so his $675,000 cap hit is fully included.

Nick Shore’s one-way $750,000 deal is also included in the off-season total despite not being currently listed on the roster. As is Michael Hutchinson’s $700,000 one-way deal.

Phil Kessel’s retained salary of $1.2 million dollars remains on the books for another three seasons.

In total, the Leafs have 30 players counting against their cap this summer, not including Marner. These players add up to a total of $85,579,880. This leaves them with just $4,070,120 in cap space. Unless the rumours that we’ve been hearing are way off and Marner is prepared to sign at a steep discount, there is no way that he will be at training camp without significant salary being moved out first.

The full accounting can be seen below.

There are reports out there that the Leafs can make use of Long-term injury reserve in the summer and exceed the cap by $10.55 million. There are two things to look into when it comes to this. 

Article 50.10(d)(ii) covers long-term injured reserve and states that “the Player Salary and Bonuses of the Player that has been deemed unfit-to-play shall continue to be counted toward the Club’s Averaged Club Salary as well as count against the Players’ Share during the League Year in which the Player is deemed unfit-to-play”.

Article 50.5(d)(i)(A) states that “from July 1 until and including the last day of Training Camp of each League Year, ‘Averaged Club Salary’ for each Club for that League Year shall be calculated as the sum of the Player Salary and Bonuses for that League Year for each and every Player.” This includes “the averaged Amount of the Player Salary and Bonuses for that League Year for each Player under a One-Way SPC with the Club”, but there is no mention of exceptions for injured reserve.

Even if it were true that they could exceed the cap by $10.55 million (it’s not), they are still only left with $6,470,120 in space which is insufficient to cover Marner’s contract.

Setting up the Opening Day Roster to Maximize Cap Space

In this scenario, Garrett Wilson, Pontus Aberg, Shore, Justin Holl, and Gravel are sent to the minors. Their demotions bring the salary cap total down to $82,297,199 with one too many players on the roster. Dermott is expected to miss at least the first month of the season and is placed on injured reserve prior to the end of training camp which increases the Leafs cap limit to $82,297,199 and brings them into compliance with the 23-player limit.

There is no salary cap space remaining, but Clarkson and Horton are on the opening day roster.

On opening day, Clarkson and Horton are placed back on long-term injury reserve along with Zach Hyman who is also expected to miss the first month of the season.

Placing Clarkson and Horton on injury reserve at this point allows their combined $10.55 million to be replaced by any combination of players that add up to that $10.55 million total and their roster spots will likely be taken by two players making around $700,000 each. Hyman’s $2.25 million cap hit won’t end up on injured reserve as there will still be space for his replacement opened up by Clarkson and Horton.

So, What is the Cap Advantage?

One can’t help but wonder whether Dubas and Gilman are incorporating a hold-out to start the season as part of their plan to open up more cap space, but this strategy is not without its risks.

Dubas has to have some level of comfort that Marner won’t sign an offer sheet prior to the start of the season. If he did, at least one of Clarkson or Horton (or possibly both) would have to be quickly moved out at a cost of further assets before they could match.

Looking beyond the salary numbers, a player who holds out is starting the season a step behind. In Nylander’s case last season, he never really seemed to get his game up to speed and finished the season with a disappointing 7 goals and 20 assists in 54 games. 

There is also the risk that one or more of the players who were sent down could be claimed on waivers. Typically, though, most teams are facing similar roster crunches to start the season and don’t have room to be taking players off the waiver wire.

Brining in Clarkson made signing Marner prior to opening day more difficult, not easier. But if he doesn’t sign before the season starts the Leafs would be left in no man’s land with just Horton on the books. They would be below the salary cap by around $2.3 million and unable to invoke injury reserve without adding more salary. When Marner did sign, they couldn’t go any higher than something around $9.75 million (depending on who is sent to the minors) and they would not have any more cap space available.

Had Clarkson not been brought in they would have $9.32 million to work with this offseason, but even if they could get Marner at that price they wouldn’t have any more cap space after invoking injury reserve for Horton.

By executing the strategy laid out above, they will be able to use the difference between $10.55 million and whatever Marner signs for as cap space for the rest of the season. If Marner signs for $9.5 million, the remaining $1.05 million could be used on a $3.39 million player at the trade deadline, and this increases to over $4 million if we assume a $700,000 player will be sent down to make room for the new guy. Even if he signs for $10 million, the remaining $550,000 is pro-rated to an additional $1.78 million at the deadline, or around $2.5 million after another player is sent down.

It’s a complex and costly process for only a small benefit, but when you’re running a team that considers itself a cup contender and has seemingly endless financial resources, every dollar gained in salary cap advantage helps.

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