Courtesy of Point Park University

How signing Legare, Poulin early benefits Penguins

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Samuel Poulin. -- MATT SUNDAY / DKPS

The Penguins signed their top two picks this summer -- Samuel Poulin and Nathan Legare -- to entry-level contracts.

The Penguins did consider keeping both players in the NHL for a nine-game tryout, but ultimately sent both back to their respective junior teams.

So, why sign them now, when it could be another two years before either goes pro?

Part of the reason is that it shows management's confidence in the two players. However, there are actual, tangible benefits to signing players this early.

Poulin's contract is structured as $832,500 in base salary, plus the $92,500 signing bonus, to equal a $925,000 average annual value and cap hit.

Legare's contract is slightly different. His base salary over the three years is $700,000, then $700,000, then $750,000, with the $92,500 signing bonus in each year, plus performance bonuses of up to $132,000, $132,000 and $82,500. That works out to an average annual value of $925,000 including the performance bonuses, or a cap hit of $809,167 without the performance bonuses.

Those contracts don't kick in until either turns pro, be it in the NHL or minor leagues. The technical term is that the contracts "slide."

The signing bonuses do not slide, though. As explained in the bonuses primer, despite the term "signing bonus," the bonuses aren't always paid out just when the player signs. They can be written into each year of his contract, as they are in Poulin and Legare's contracts.

Even if the contract slides, the signing bonuses are still paid out. If a contract has signing bonuses in each year of a three-year deal, the player gets the signing bonuses in the three years that follow, regardless of where they are playing or if the contract has actually kicked in.

That means that Legare and Poulin, if they spend these next two seasons in juniors, would get their signing bonus for each of those years.

This lowers their cap hit when they do go pro.

Let's say Poulin does that (I'm using Poulin's contract specifically as an example because it doesn't include performance bonuses), stays in juniors for these next two years and receives his signing bonus in those two years. That means when the contract kicks in, he would receive the final year of a $92,500 signing bonus in the first year, then no signing bonuses over the final two years of the deal because he already got it.

A player's cap hit is his average annual value (minus the performance bonuses written into the contract unless he hits them). This is calculated by taking the total value of his base salaries and signing bonuses and dividing it by the number of years. Other than when performance bonuses come into play, the cap hit stays the same for the duration of the contract, even if the salary isn't the same in each year.

In a typical maximum entry-level contract that does not slide, the cap hit would be $925,000. That's because the total salary and bonuses would come to $925,000 for each year, so there's no math involved.

For a player who had his contract slide, though, those signing bonuses are taken out of the equation. In the first year of the contract, the total salary would be $925,000. In the next two, since there is no $92,500 signing bonus, the total salary would only be $832,500. This would make the total value of his contract $2,590,000 ($925,000 + $832,500 + $832,500). Divided over three years, this makes his new average annual value, and therefore cap hit, $863,333.

An example of this would be the contract of Mathew Barzal, who signed his contract in his draft year and played the following two seasons in juniors.

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Barzal is now playing for the Islanders with a reduced cap hit of $863,333 because of the slide while he was receiving his signing bonuses.

Jordy Bellerive is a current example of this on the Penguins, although to a lesser degree as he did not sign for the maximum entry-level contract value and he did not receive the maximum signing bonus allowed for his contract:

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While Bellerive most likely won't see NHL time this year, if he did, his cap hit would be $733,333 instead of the $750,000 it would have been if his contract did not slide while he received his signing bonuses.

There aren't any downsides to this, either. If a player is 18 or 19 years old, has not played in the NHL before, and is playing in juniors, their contract doesn't count towards the team's limit of 50.

So, what is the point here?

When Poulin and Legare go pro, if they play in the NHL their first pro seasons (and they should), their cap hits will be lower because Jim Rutherford signed them earlier than he needed to.

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