Potential Bonuses: How potential performance bonuses can cause problems

6 years ago

There are many ways to be a hockey fan. Some go to the games, cheer for the goals and the fights, and have a lot of fun.

Others spend hours digging through the Collective Bargaining Agreement to find an explanation for why their team just made some marginal transaction.

I’m more the latter, and if you’re reading this, I hope you are too. But it’s days like today where I seriously envy the fun-having fan.

We’re about to get deep into the NHL’s inner workings. Buckle up.

Performance Bonus Cushion

First of all, a whole bunch of credit goes to Earl Schwartz, a friend of mine who helped me with a lot of the details here. You may have run into him on reddit as /u/Earlisaboss.

Here’s what the CBA says…

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”).

But what does it mean?

The summary is this:

No team’s salary + potential performances bonuses can exceed the upper limit of the cap by more than 7.5%. So with the cap at $75M, that means that the upper limit of salary + performance bonuses is $80.625M. I think that’s pretty simple. So if you have $75M of cap hits, and $5.625M of potential performance bonuses, you’re in the clear.

The performance bonus cushion is what this post is focusing on, because it has some limitations and some of its elements aren’t exactly clearly laid out in the CBA. (Nothing is clearly laid out in the CBA).

There are a couple notable things that we’ll look at now, using two existing teams’ cap situations as examples.

Oilers + Puljujarvi

First, an example of how it doesn’t work.

If you read the information about Performance Bonus Cushion, you might be inclined to interpret it as a Performance Bonus “Limit”. Many first interpret this cushion as being the maximum amount of performance bonuses you can have on your roster. This is not the case, as the Edmonton Oilers have proven.

The Performance Bonus Cushion is 7.5% percent of $75M, equaling $5.625M. In the 2016-17 season, the Oilers managed to fit McDavid ($2.85M), Draisaitl ($2.475M), Puljujarvi ($2.5M), and other ELCs (total >$7.825M) on the roster at the same time.

Obviously, this demonstrates that the 7.5% is only a factor when you’re near the Upper Limit of the cap, which for right now the Oilers definitely are not. This is very important for a basement team trying to build a roster of young players. If you were limited to $5.625M of performance bonuses no matter what your salaries are, it would turn a lot of good young players into cap casualties.

LTIR

Before we look at an example of how it does work, a more in depth understanding of LTIR is required. There are two elements that require explanation here. Accruable Cap Space Limit (ACSL), and Relief Pools. When you place a player on LTIR, these two things are created, and their both needed for a complete understanding of the Leafs’ cap situation.

The ACSL is a calculated value based on what your club salary is and what the player salary of the player you’re placing on LTIR is.

Every team starts with a Salary Cap Limit of $75M. When you place a player on LTIR, you move away from this standard upper limit into the ACSL. How this is calculated is as follows, from CapFriendly:

Once your ACSL is calculated, that’s what it stays at. Putting another player on LTIR does not change the ACSL.

We figured out how to calculate the ACSL but what does it do? That will have to wait until I explain the other concept: Relief Pools.

There are two relief pools: Salary Relief Pool, and Performance Bonus Relief Pool. When you place a player on LTIR, the two pools are created. The pools contain the amount of money on that players’ contract, so their cap hit goes into the Salary Relief Pool, and any potential Performance Bonuses go into the Performance Bonus Relief Pool.

Now, when you call up a player, any amounts that exceed the ACSL or the Performance Bonus Cushion come out of the appropriate pool. Their cap hit comes out of the Salary Relief Pool, and their potential Performance Bonuses come out of the Performance Bonus Relief Pool. Additionally, if you exceed the Performance Bonus Cushion, you’re allow to dip into the Salary Relief Pool after you’ve exhausted the Performance Bonus Relief Pool.

So, the ACSL acts as your Upper Limit, but the Relief Pools are a set amount that you’re allowed to exceed your Upper Limit by.

Get it? Got it? No? Honestly, me either. Let’s work out an example to figure this out.

Leafs + Rosen

Some time ago, the Leafs placed Nathan Horton on LTIR. When they did that, they created an ACSL of $74,604,167. They also created a Salary Relief Pool of $5.3M. No money went into the Performance Bonus Relief Pool, as Horton does not have any performance bonuses.

After sending Calle Rosen to the Marlies, but before sending Lupul to the LTIR, the team salary cap hits (salaries, last year’s bonuses, retained salary, everything) totalled $79,854,167, which exceeds the ACSL by $5,250,000, but that comes out of the Salary Relief Pool. They would have only $50k remaining in the Salary Relief Pool.

At this point, the Leafs have $5.4M in potential performance bonuses. Since they are above the $75M cap limit, they have to remain within the 7.5% Performance Bonus Cushion of $5.625M, giving them $225k of room there.

If the Leafs waived Marincin now, they’d reduce player salaries by $1.025M, leaving $1.075M of room in their Salary Relief Pool. Then, if they added Rosen, who carries a salary of $925k, they would have $150k of room in the Salary Relief Pool. But Rosen also carries an $850k potential performance bonus, meaning you exceed the cushion by $625k. With no Performance Bonus Relief Pool, and only $150k of room in the Salary Relief Pool to cover it, this transaction cannot happen.

They later added Joffrey Lupul to the LTIR after failing his physical, which increased the Salary Relief Pool to $10.55M, and created more than enough room for the Rosen/Marincin swap. The Leafs are currently using just $5.15M of their Salary Relief Pool.

Conclusions

The first conclusion obviously is that LTIR and Performance Bonuses are super confusing.

There are a lot of intricacies here but I think, overall, I’ve made sense of the rules. Any questions please comment and I’ll do my best to reply and explain. Thanks for reading and I hope it wasn’t too confusing.

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