Penguins

Primer: Understanding long-term injured reserve

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Justin Schultz. - MATT SUNDAY / DKPS

The Penguins were dealt a blow today with the news that Justin Schultz will be out of the lineup for four months following a surgery to repair a fracture of his lower left leg.

Schultz, despite having a long-term injury, was placed on injured reserve and not long-term injured reserve. There's a reason for that.

Long-term injured reserve comes with cap relief. In short, it doesn't remove the player's salary from the team's cap hit, it gives a team a temporary new salary cap. There is a formula to determine this new cap, and it is calculated the day the player is placed on long-term injured reserve.

This is the example in the NHL's CBA:

A Player with a Player Salary of $1.5 million becomes unfit to play for more than 24 calendar days and 10 NHL Regular Season games. At the time the Player becomes unfit to play, his Club has an Averaged Club Salary of $69.5 million, and the Upper Limit in that League Year is $70 million. The Club may replace the unfit-to-play Player with another Player or Players with an aggregate Player Salary and Bonuses of up to $1.5 million. The first $500,000 of such replacement Player Salary and Bonuses shall count toward the Club's Averaged Club Salary, bringing the Averaged Club Salary to the Upper Limit. The Club may then exceed the Upper Limit by up to another $1 million as a result of the replacement Player Salary and Bonuses. However, if the unfit-to-play Player once again becomes fit to play, and the Club has not otherwise created any Payroll Room during the interim period, then the Player shall not be permitted to rejoin the Club until such time as the Club reduces its Averaged Club Salary to below the Upper Limit.

Essentially, the new salary cap would be calculated like this: The current league-wide salary cap, plus the player's salary, minus current available cap space.

Schultz has no performance bonuses written into his contract. Schultz's salary is $5,500,000. The 2018-19 league-wide salary cap is $79.5 million. The Penguins currently still have $733,575 in cap space.

If the Penguins were to place Schultz on long-term injured reserve now, the new salary cap would be the $79.5 million salary cap plus Schultz's salary of $5,500,000 minus $733,575 in cap space. That works out to be $84,266,425.

Therefore, placing Schultz on long-term injured reserve would carry the most benefit and only be necessary once the Penguins are just at the cap, or as close to it as possible. Pretend the Penguins are exactly at the salary cap when they place Schultz on long-term injured reserve. Their new cap would be $85,000,000 (salary cap plus Schultz's salary minus $0 in cap space) rather than $84,266,425.

Of course, this is only the case while Schultz is on long-term injured reserve (if he goes on long-term injured reserve at all). When Schultz comes back, the Penguins need to be cap-compliant.

It is important to note that salaries and cap hits are pro-rated on a day-to-day basis. The Penguins' projected cap hit this season (the daily cap hit for each day this season averaged with the anticipated daily cap hits for the remainder of the season given the current roster) is $78,766,425. Their cap hit on this day, Oct. 15, is $78,755,000 based on the current roster alone. As the daily cap hit changes, the projected cap hit is impacted because it is an average. Daily cap hits can temporarily be over the $79.5 million limit, but the total cap hit at the end of the season (and therefore the projected cap hit during the season) has to be under $79.5 million.

As the Penguins operate on a daily payroll that is under the salary cap, they accrue cap space that can be used later in the season. As noted before, when a player is put on long-term injured reserve, their cap hit does not come off the books, there is essentially a temporary new salary cap. Therefore, putting a player on long-term injured reserve does not allow the team to keep their cap-space savings that can be accrued for future use if the the team ever temporarily operates above the salary cap.

This is a lot to take in, but it can be summed up by saying that the Penguins benefit the most from avoiding putting Schultz on long-term injured reserve for as long as possible, if they put him on long-term injured reserve at all.

The relief that comes from placing a player on long-term injured reserve is intended to allow a team to replace that player during their absence -- nothing more.

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