Courtesy of Point Park University

Primer: Understanding the NHL’s salary cap

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Jack Johnson and Sidney Crosby. -- MATT SUNDAY / DKPS

I've done a few of these primers now regarding some behind-the-scenes, business-y aspects of the NHL. There's been one on one-way and two-way contracts, one on long-term injured reserve, and one on the trade deadline, among others.

We're backtracking a bit with a topic that probably should have been the very first primer, and taking a look at the salary cap itself.

WHAT ARE THE SALARY CAP LIMITS?

There is an upper limit (the actual cap) and a lower limit (the salary floor), both of which change from season to season.

In the 2019-20 season, the upper limit is $81.5 million, and the lower limit is $60.2 million.

The figures are determined by the previous season's revenue.  The upper and lower limits are calculated in conjunction with one another -- the cap will always be 15 percent above the midpoint, and the floor will always be 15 percent below the midpoint.

HOW IS THE TEAM'S SALARY CAP STATUS CALCULATED?

The answer to "How much cap space do the Penguins have?" isn't always a clear cut answer.

The daily cap hit of a team's roster changes on a day-to-day basis depending on who is on the roster. This is why team cap hit and cap space figures are often reported as "projected" values.

A player's daily cap hit is calculated by taking their actual cap hit, and dividing it by the number of days in the regular season. By the end of the year, the sum of those daily cap hits can not exceed the upper limit of $81.5 million.

WHAT COUNTS TOWARDS THE SALARY CAP?

• Each player on the NHL roster's average annual value, which is calculated by adding up the contract's total salary and signing bonuses, divided by the number of years in a contract.

• The average annual value in excess of $1.075 million of any players on one-way contracts who are in the AHL. If a player is on a one-way contract and has an average annual value of $1.075 million or less, none of it counts towards the cap. Only anything over $1.075 million counts.

• The average annual value of any NHL player suspended for on-ice conduct or any player who is injured.

• Any salary retained in previous trades.

• Any buyouts, which are calculated using a formula explained here.

• Any performance bonuses, which are explained here. Teams are allowed to exceed the cap's upper limit during the season by 7.5 percent with performance bonuses. If performance bonuses still push a team over the upper limit at the end of the season, the excess rolls over into the following season.

• The average annual value of a contract of a player who signed a multi-year deal at or after age 35 and then retired.

WHAT DOESN'T COUNT TOWARDS THE CAP?

• Any player on a two-way contract who is in the minor leagues.

• Any player on a one-way contract in the minor leagues, as long as their average annual value is $1.075 million or less.

• Any prospects under contract who are still playing in juniors or Europe.

• Any players who are suspended for off-ice events, like failing a drug test or domestic violence.

• The average annual value of a contract of a player who signed a multi-year deal before age 35 and then retired.

WHAT HAPPENS IF A TEAM IS OVER THE CAP?

It's not possible during the season. While other leagues like the NBA use a luxury tax system and pay a penalty for exceeding the cap, the NHL uses a hard cap.

Sometimes this results in teams being short a man or two in a game. In 2015, the Penguins played a game near the end of the season with only five defensemen because of a lack of cap space. The only defenseman in Wilkes-Barre/Scranton who had a cap hit low enough to fit into the Penguins' cap space was Reid McNeill, and he was injured at the time, so the Penguins had no other options.

If a team attempts to circumvent the cap or floor in any way, the CBA allows any games that were deemed affected by the circumvention to be forfeited.

Teams are allowed to exceed the cap in the offseason, but only by 10 percent. They must be cap compliant by the time the season starts.

In the postseason, there is no salary cap. Teams can recall anyone who is needed.

WHAT DOES LONG-TERM INJURED RESERVE DO TO THE CAP?

It's a common misconception that placing a player on long-term injured reserve makes their contract "come off of the books." That's not true. Rather, the team is given a new salary cap while the player is on long-term injured reserve.

It's a complicated process, so I have a separate primer fully explaining how the new salary cap is calculated and why long-term injured reserve is a last resort.

WHAT OTHER LIMITS ARE THERE FOR CONTRACTS?

Teams are only allowed to have a maximum of 50 players under contract at all times.

This figure includes all contracts -- players on the NHL roster, players signed to NHL deals playing in the minor leagues, and prospects who have signed their NHL deals but have not yet gone pro in North America.

As of Aug. 3, the Penguins are using 47 of their 50 contracts.

For more hockey-related primers like this one, click here.

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