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.

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).

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.

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 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.