NHL Salary Cap 101

Monopoly_20man_medium With the Rangers in the midst of a pivotal off-season, and facing it with a limited amount of cap space, we've all been trying to understand the fundamentals of the NHL Salary Cap.

The cap is a complicated lady, she is not easily understood. But thankfully, Blueshirt Banter found a mentor,  an Obi-Wan of sorts to help take us through the rules, regulations, and ridiculousness of the Cap.

I present to you Dave, the editor of Blue Seat Blogs. Dave has a brilliant breakdown of how the Cap works, and has graciously agreed to share it with us.

To see Dave's whole story on understanding the cap, it can be found here.

Here are some of the highlights:

Salary Cap Ceiling: The maximum amount of money a team can spend on player salaries. This number varies from year to year based on the NHL's revenue from two seasons ago. For example, the salary cap for the 2008-2009 season was set based on the NHL revenues from the 2006-2007 season. The NHL is looking at a decreasing cap figure for the 2010-2011 season due to less revenues during the 2008-2009 season.

  • No player can earn more than 20% of the salary cap
  • The minimum player salary will rise to $525,000 by 2011-2012

Waivers: When a player is waived (sent to the minors), each of the 29 NHL teams can put in a claim for the player. In the case that more than one team puts in a claim for a waived player, the team with the worst record gets the claim. The player is moved to the claiming team for the full (or, if mid season, pro-rated) salary cap hit. If a player clears waivers, he can be reassigned to the minors, and the salary cap hit is cleared until the player is recalled. Only players with one-way contracts pass through waivers. Players with two-way contracts do not pass through waivers.

Over 35 Signings: If a player who, as of June 30 of the upcoming season, is over the age of 35 signs a multi-year deal, the signing team will take a cap hit for each year on the contract, regardless of if the player retires. For example, if Chris Chelios signs a 3 year deal worth $2 million per year, and retires after the first year, the signing team still takes a $2 million cap hit for the remaining years on the contract. However, since Markus Naslund's 35th birthday was after June 30, he was 34 as of June 30, thus his retirement removes his cap hit.

And here is the one we've all been wondering about:

Buyouts: Buyouts are a more complicated business, as it requires some serious calculations.

  • A player can be bought out for 2/3 of their remaining contract worth
  • The cap hit for the buyout is calculated as follows:
    • Calculate the buyout amount (2/3 of the remaining contract worth)
    • Spread the buyout amount evenly over twice the remaining years on the contract. This is the cap hit the team will have.

This is fairly complicated wording, so let's use Wade Redden as an example. As of the end of the 2008-2009 season, Wade has 5 years and $31 million remaining on his contract. The buyout amount is ($31 million * 2/3 = $20.67 million). Twice the remaining years on his contract is (5 years * 2 = 10 years). Now, spread the buyout amount evenly over the years ($20.67/10 = $2.067 million). If the Rangers were to buyout Wade Redden, they would have a cap hit of $2.067 million over the next 10 seasons.

There you have it guys, that's what it would take to buyout Wade Redden. Realizing that buying him out would mean a 10 year cap hit makes a bad contract look even worse.

Those are just a few of the points of the salary cap, make sure you visit Dave at Blue Seat Blogs for the whole story.

By the way, Dave also registered for our site yesterday, we welcome him, and hope he will become a regular reader of ours, and we look forward to checking in with him in the future.