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Photo Credit: © Nick Turchiaro-USA TODAY Sports

CBA Update: Entry Level Contracts

Each season we see a new crop of rookies break into the National Hockey League, and each season it seems the group grows larger and more talented. Players like Auston Matthews, Connor McDavid, and Jack Eichel sign their ELCs immediately after they are drafted, then immediately become top players in the league.

Those players are the exception though, every year there are 200 players drafted that take a different path in their first season after being drafted. Timothy Liljegren and Rasmus Sandin jumped to the American Hockey league, Nicolas Robertson and Mikhail Abramov returned to the CHL, Pontus Holmberg remained in Europe. For these players an ELC is something that must be worked towards and negotiated, the first step in a long process of making it to the NHL.

Regardless of which group a young player falls into, the upper limit on their contracts were virtually the same for a very long time. Any player drafted beginning in 2011 had a maximum ELC of $925,000, with Schedule A performance bonuses of $850,000. and Schedule B performance Bonuses of $2m. The minimum ELC would be equal to the minimum league salary, which has comparatively changed a lot over the same period. When the current CBA began in 2012-13 the minimum salary was $525k, but that has since increased to $700k.

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When the floor rises but the ceiling doesn’t it means that there is less negotiating room on ELCs, and as a result more ELCs were signed at the $925k maximum. Now, the league is at a point where over a quarter of the ELCs signed are for the maximum, and the majority of ELCs have the maximum signing bonus. I’ll circle back on signing bonuses shortly.

New Limits

The Memorandum Of Understanding (MOU) on the CBA encompasses many changes to the current sytems, specific to ELCs there are two changes:

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To clarify, this means that players drafted in 2022 are eligible for a maximum ELC of $950k, a player drafted in 2024 is eligible for a maximum ELC of $975k, etc. Minor league compensation limits on ELCs will increase to $80k for players drafted in 2020, and that limit will increase $2.5k every 2 years. On top of that league minimum will be increased in 2021-22 to $750k, and $775k in 2023-24. For the most part this means over the course of the MOU the minimum and maximum ELCs will be $200k apart. That’s half of the gap that existed at the beginning of the current CBA.

This will place more of a focus on performance bonuses, which are set to increase after the 2022 draft. The $1 million in Schedule A bonuses will still be divided into 4 categories, now of $250k. To clarify under the current system players are eligible to earn up to 4 performance bonus categories of up to $212,500 each, and they can qualify for those bonuses in any of the 8-10 categories in CBA Exhibit 5 depending on position. Schedule B bonuses will also increase from $2m to $2.5m, bringing the total value of the maximum ELC to $4.5m by the end of this CBA.

Signing Bonuses

On Entry Level Contracts, the signing bonus can be no more than 10% of the total Paragraph 1 salary. Under the current rules that is why we see so many contracts with $92,500 signing bonuses. The interesting thing is that salary, signing bonuses, and games played bonuses all contribute to Paragraph 1 salary, and games played bonuses often fly under the radar as performance bonuses.

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In simple terms this allows teams to lower the cap hit of an ELC while still delivering the maximum signing bonus, which is of much importance to an 18-24 year old. Whether the player is coming from the CHL or Europe or especially the NCAA, hockey is an expensive sport and getting nearly $100k US on the day you put pen to paper can be a much larger motivator than the NHL salary. This is even more true for players who are still potentially 3-5 years from reaching the NHL, as they may not even earn the NHL salary on the face value of their contract.

For players that are likely to play NHL games, the threshold for games played bonuses can be set as low as 10 games for the full bonus. In the event an ELC player spent half the season on the roster and played half the games, they would earn more with a league minimum salary and a large games played bonus at 10 games. It allows teams more flexibility as performance bonuses are not paid out until the end of the season, leaving them with more space to accrue during the season.

Considering the benefit for both sides and the option to use games played bonuses, it is no surprise that over the past few seasons so many ELCs with maximum signing bonuses.

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In this chart you can see the dark blue line represents all the ELCs in a given year with a $92,500 signing bonus. There is a decline for the current season, however this is a result of fewer ELCs being signed. The percentage of all ELCs with a $92,500 signing bonus has increased every single season under the current CBA. The bars represent all of those contacts that were signed at a face value of $925k, the maximum.

The light blue line is every other ELC with a $92,500 signing bonus, meaning teams utilized games played bonuses to get a maximum signing bonus with less than maximum salary. We can see that the majority of all ELCs with maximum signing bonuses utilize this strategy.

The variations in colour on the bars has to do with Entry Level Slides.

New Standard ELCs

If you’ve ever been scrolling through PuckPedia and noticed many repeating-digit contracts, they are likely due to Entry Level Slides. When a player age 18 or 19 is under NHL contract but fails to play 10 NHL games their contract ‘slides’ for a year, essentially delaying the start of the contract. The notable difference is that signing bonuses cannot slide, so when a contract slides one signing bonus falls outside the 3 year period where the average value of the contract is calculated. In this way a typical maximum ELC can go from $925,000 > $894,167 > $863,333 as 1/3rd of a $92,500 signing bonus is removed from all 3 remaining years.

Under the new CBA the year a player signs will likely dictate the maximum salary in every year of their contract, as was the case when the ELC maximum increased from 2005 to 2011. This means that maximum ELCs signed in 2022-23 will decrease in slides as such: $950,000 > $918,333 > $886,667, and in 2024-25: $975,000 > $942,500 > $910,000. This isn’t necessarily useful information, but if the past few seasons are any indication we will be seeing these numbers often in the coming years.

Following the trend of utilizing games played bonuses, we can expect to see a significant number of ELCs to have minimum salary but still carry a maximum signing bonus.

For Leafs fans this may be a good time to note that Kyle Dubas is not fond of handing out performance bonuses. Since he was promoted to GM in May 2018, Toronto has signed exactly one ELC with performance bonuses. That is noteworthy when over 70% of the 593 ELCs signed for 2019-20 have performance bonuses. The lone contract belongs to Ian Scott, and unsurprisingly Dubas utilized games played bonuses on it.

To give you an idea of the advantage teams gain, we will examine Scott’s deal. It had league minimum base salary in the first two seasons, and enough games played bonuses for Scott to get the maximum signing bonus. In the final year, the season Scott is most likely to play NHL games, there are no games played bonuses and a base salary of $832,500 so it can still carry the full signing bonus. For Scott he will earn the exact same amount he would on a maximum ELC, and if the Leafs recall him in the final year of his deal they can do so for over $100k less against the cap.

As for why Dubas is so opposed to signing ELCs with performance bonuses, I would look to the LTIR rules. Whether it was Joffrey Lupul or Stephane Robidas or Nathan Horton or David Clarkson, the Leafs have had at least one player on LTIR for the majority of Dubas’ time in Toronto. If a team is over the cap using LTIR they cannot use any of their LTIR cap space to pay off performance bonuses, and any earned bonuses would become overages that impact the cap the following season. While the Leafs seem poised to avoid using LTIR next season, I think Dubas is extremely cognisant of the impact that seemingly innocuous ELC performance bonuses can make.

Conclusions

Ultimately these changes are very minimal, and the overall strategy with ELCs will remain the same. Teams are happy any time they can insert an ELC player into their lineup, whether it be from the AHL or Europe. Most of the time players signed out of the CHL do not play in the NHL on their ELC, but it is still worthwhile to sign them early and get a slide in. The number of active ELCs that had gone through at least one slide was on the decline, but it should start to rise again under these rules.

There is already 488 ELCs signed for next season, and an even higher percentage of them than any season in the past are the ELC maximum. There will be more single-year slide ELC maximum contracts active than any season before. After the 2020 NHL Entry Draft there will almost certainly be more maximum ELCs signed than any season prior. This is a good sign that an increase on the maximum was overdue.

I’m not sure that as many players will qualify for maximum performance bonuses after they increase in 2022, but it will be a huge incentive for top European free agents and lottery picks. Teams cannot have more than 7.5% of the salary cap in potential performance bonuses, or it limits their usable cap space. On an $81.5m cap that is $6,112,500, and a single maximum ELC will take up more than half of that. The Oilers and Blackhawks have both been in situations in the past where they cannot spend to the cap due to their potential performance bonuses, so teams will closely scrutinize who is worthy for $3.5m in performance bonuses.