The NHL's first buyout period of the season officially opened on Saturday, and will remain open until June 30 at 5 p.m.
What is a buyout? How does the process work? Let's break it down.
WHAT IS A BUYOUT?
When a team buys out the remainder of a player's contract. And it doesn't just come off of the books, there are consequences.
A buyout allows the team to greatly reduce the salary cap hit of a player, but the period of time in which a player's contract remains on the books after a buyout is increased. The percentage of salary a team is still responsible for after a buyout depends on the player's age at the time of the buyout.
HOW IS THE IMPACT OF A BUYOUT CALCULATED?
If a player is older than 26, the team is still responsible for two-thirds of the remaining salary. If a player is younger than 26, the team is only responsible for one-third. Full signing bonuses are still paid out in any case.
To be clear: That is salary. Straight cash. Not the salary cap hit. That's calculated differently.
The amount of time a team has to pay out the remaining salary is equal to double the amount of time remaining on the contract at the time of the buyout.
For example: Jack Johnson is 32. He has four years left on his contract with a total base salary of $12.25 million. Two-thirds of the remaining total salary is $8,166,667. That amount would be paid out over a period of eight years, which is double the amount of the time remaining on the contract.
The actual cap hit is calculated the following way, per CapFriendly:
- Multiply the remaining base salary by the buyout amount (as determined by age) to obtain the total buyout cost
- Spread the total buyout cost evenly over twice the remaining contract years
- Determine the savings by subtracting the annual buyout cost from Step 2. by the player's base salary
- Determine the remaining cap hit by subtracting the savings from Step 3. by the player's average annual base salary.
That number is calculated for each year of the buyout, meaning the actual cap hit likely will not be the same for each year. It is also possible through that calculation that the buyout cap hit can be a negative number, meaning the team can potentially receive a credit.
For Example: Sticking with the example of Johnson, the total combined cap hit over eight seasons would be $8,916,664, which is $749,997 higher than the actual salary he would be owed. When you break down the calculation for each season that his contract would be on the books, you get the following cap hits for those eight years:
WHO CAN BE BOUGHT OUT?
No clause -- even a full no-movement clause -- can protect a player from a buyout. Everyone is eligible in that regard.
The only players who cannot be bought out are injured players. If a player is not medically cleared to play, he cannot have his contract bought out without his consent.
The contract of a player also has to actually be in effect to be bought out. That means if a player signed an early extension, and that new contract has not yet kicked in, the new contract cannot be bought out.
WHEN DURING THE SEASON CAN A PLAYER BE BOUGHT OUT?
There are two buyout periods during the year. The first occurs either June 15 or 48 hours following the conclusion of the Stanley Cup Final, whichever is later. The first buyout period always ends June 30 at 5 p.m.
The second buyout period only applies to teams that have salary arbitration cases that year. That period lasts for 48 hours, beginning on the third day following the team's last salary arbitration award or settlement. However, if the case was sent to arbitration by the team and not the player, and the team did not give the player a qualifying offer, then the team must have at least two total arbitration cases for the second buyout period to be allowed.
WHAT HAPPENS BEFORE A BUYOUT?
A player must first be placed on unconditional waivers. If a player does have a no-movement clause, it is their choice if they are first placed on waivers. If a player is claimed by another team, it functions as any other waiver claim. The initial team isn't responsible for any of the contract.
A player is notified of the buyout with the following form:
[caption id="attachment_842733" align="aligncenter" width="891"] NHL buyout notice. -- CBA[/caption]
The buyout is then filed with Central Registry, the NHL, and the NHLPA.
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