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Sunday, June 14, 2015

How Bonuses & Retained Salary Affect Big & Small Market NHL Teams

July 6, 2013 - Jerome Iginla signs a 1-year deal with the Boston Bruins. Contract has a base pay / cap-hit of $1.8 million… but contains an additional $4.2 million in potential performance bonuses

July 23, 2013 - Jaromir Jagr signs a 1-year deal with NJ Devils. Contract has a base pay / cap-hit of $2 million… but contains an additional $2 million in potential performance bonuses

June 15, 2014 - Kimmo Timonen signs 1-year deal with Philadelphia Flyers. Contract has a base pay / cap-hit of $2 million… but contains $1.5 million in potential performance bonuses

   As the NHL prepares for a stagnantly minor increase in the 2016 salary cap… teams that are already up against its ceiling will look to maneuver economically this summer. Of course, the New York Rangers are no exception. There are two particular methods of cap-friendly methodology that big-payroll clubs like Broadway will especially explore (and probably patronize). They are:

  • Signing free agents to short-term contracts with small cap-hit base salaries, but hefty performance bonuses
  • Acquiring a player in a trade in which that team wouldn’t especially pursue, but does this summer so long as the team they’re trading with retains salary

   The NHL bonus cushion is defined as 7.5% of the given salary cap ceiling. This means a team can dish out a set amount of money in performance bonuses. If bonuses exceed the bonus cushion, they are counted against the team’s cap directly for the following season (aptly called “bonus overages”). 

   Thanks to the wonderful website RangersUnlimited, we see Kevin Hayes’ potential performance bonuses he is eligible to unlock in the 2015-16 campaign. Each category would earn Hayes $212,500 in bonuses, with $850,000 being the max payout (he stops getting paid after four categories are achieved).

   $212,500 if Top-Six in NYR forward ice time per game (minimum 42 games)
   $212,500 if Top-Six in NYR forward ice time total (minimum 42 games)
   $212,500 if 20 goals scored
   $212,500 if 35 assists made
   $212,500 if 60 points scored
   $212,500 if .73 points-per-game (minimum 42 games)
   $212,500 if Top-Three in NYR forward +/- rating
   $212,500 if selected to/plays in NHL All-Star Game
   $212,500 if named NHL All-Star Game MVP

   Then there is a maximum of $2 million total in attainable performance bonuses for the following end-of-season achievements:

  • Top Five voting/placement for Hart, Selke and/or Rocket Richard Trophies
  • Top Three voting for Lady Byng award
  • Winning Conn Smythe Trophy
  • Being named to 1st or 2nd NHL All-Star team by hockey writers
  • Finishing Top 10 in NHL goals, assists, points or points-per-game

   So, while Hayes can earn up to $2.85 million in performance bonuses next season… It’s very likely his actual bonuses earned will fall under $850,000... unless Hayes has a breakout season and actually unlocks the league-elite $2 million bonuses. So for all intents and purposes, we’ll treat Hayes’ maximum performance bonus for 2015-16 at $801,000.

   Many of New York’s prospects on their entry-level contracts have performance bonuses as well, yet its unlikely anyone other than Brady Skjei to make the jump to the pro roster next season. (It’s currently unknown what Skjei’s max performance bonuses may be, but its extremely likely they exist on his contract).

   If next season’s NHL salary cap is $71.5 million, then 7.5% of that (the bonus cushion) would be $5,362,500.

   So if we treat Hayes’ estimated performance bonus “threat” as $801,000… then:

   $5,362,500 - $801,000 = $4,561,500 

   That’s just north of $4.5 million theoretically available in performance bonuses to be expended on the free agent market this summer for the Rangers. Or, should we take Hayes’ chances at a seriously impressive season into more liberal account, plus Skjei’s unknown… Perhaps a figure of $4 million is a more realistic figure.

   Should the Rangers sign coveted free agent defensemen Mike Reilly or Robbie Russo, it would almost assuredly include performance bonuses akin to Hayes’ contract. Since the new Collective Bargaining Agreement mandates a maximum entry-level base salary of $925,000 per year, the league wide bidding war for such assets will come down to bonuses.


   Looking over our guesstimated NYR salary cap spreadsheet, the team (at first glance) looks like this:

   If next year's salary cap is indeed approximately $71.5 million... this team simply won't fit.

  However, as we’ve noted in previous article, we predict Kevin Klein & Cam Talbot to be traded away to accommodate the cap. We’ll theoretically assume this once again, replacing them with cheaper players at their respective positions…

   Now this roster is coming in snugly at $71.5 mil (Skjei could be 7th D, or a UFA signed for $925k cap hit).

   How could the Rangers taking advantage of performance bonuses affect the buildup of this team?


   “A backup goalie for 1-year, $750,000? Isn’t that a massive downgrade?”

   Talbot had a spectacular season, and it’ll be hard to replace his quality as a backup in any event. But… what the Rangers sign a veteran free agent goalie to a 1-year, $750,000 contract… with additional hundreds of thousands of dollars in bonuses? Broadway has all the bonus room in the world to sign a $1 million/yr goalie for only 75% of the (cap-hit) price.

   “Are you suggesting singing a 4th line winger to a $925,000 contract with bonuses?”

   This is unlikely. Usually forwards on the 4th line are so replaceable that it almost never makes sense to include performance bonuses. But… what if instead of a 4th liner getting a $925k deal with bonuses attached… we go after a 3rd line forward.

   In this regard, a pertinent question is “Does New York rely on Kevin Hayes being the team’s 3rd center going forward? Or is it better to revert him to his natural position as winger?” Looking over the impending list of Unrestricted Free Agents this summer, how about targeting a veteran centerman?

   Brad Richards, Mike Ribeiro & Mike Fisher are all 35 years old. Matt Cullen is 38. Fan-favorite (/sarcasm) Olli Jokinen is 36. 

   What if we sign one of the centers to a 1-year, $925,000 contract with performance bonuses, and slide Hayes to the 3rd line wing? Now the team could look like…

... or ...


   Under the new Collective Bargaining Agreement, teams can now acquire players in trades, with the trading team retaining up to 50% of an asset’s actual salary & cap hit. The NY Rangers exercised this liberty twice in the 2014-15 season: Arizona retained half of Keith Yandle’s remaining salary, and Minnesota retained $100,000 of James Shepherd’s contract. Both were imperative moves for Broadway to acquire these players while barely staying below the salary cap ceiling.

   We’ve seen other teams do it as well, particularly with big-payroll teams doing business with low-payroll teams. 

   And there’s the rub.

   Now that players full services can be imported at cap discounts, the new CBA has carved out a brand new aspect of trade compatibility. Suddenly a team with low payroll can literally use their vast cap space as an advantage against big-market teams whom have little or none. An interesting concept, as that disconnect had historically provided small-market teams a distinct disadvantage against the big boys.

   As the Rangers seem to have little cap room for maneuverability this offseason, this concept allows for the Rangers (or any team) to fit players they normally shouldn’t be able to fit, perhaps by paying a little extra for the incoming player to come along a tad cheaper. Franchises which previously had little leverage in these matters suddenly find themselves with actionability, just as teams which had little chance at acquiring big-name players in a tight payroll can now do so feasibly.

   Instead of a 4th line winger making $700,000 per year (which would probably be a low-value asset to sign)… what if the Rangers acquire someone with a $1.4 million cap hit for a 50% retention? Suddenly Fast or Miller could be put on 4th line, and a 3rd-line-or-better player can be brought on board for the price of a 4th line plug!


   With performance bonuses & retained salaries now in play for NHL teams, the off-season potential for moves, signings and trades have taken on an expanded realm of possibility. Major teams (like the Rangers, Blackhawks, Flyers, Maple Leafs & Bruins) can still impose their big-market advantages on free agents with that of bonuses. And yet, the teams unlikely to win bidding wars or make competitive offers find themselves holding the cards when major teams are looking to save cap space via retained salary.

   For better or worse, we find ourselves in the post-post-salary-cap-era NHL.


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