Hockey 101 – Part 2: Business

The business side of the NHL is one that I’m not to familiar with and had to do a lot of research on. By any means necessary is this an expert blog post, but more of the basics of business in the NHL. This blog post is the final part of “Hockey 101”. Read Part 1 – The Rules here. All of the following notes are under the current CBA.

During this time, the new CBA proposal between the NHL and the NHLPA are in negotiations. Many of this information very well could change depending on the outcome of the new CBA agreement. Otherwise, there will be another lockout in the NHL for the second time in a decade. It wouldn’t be good for the game at all if a lockout occurs because the fan base would never recover.

The 2012-13 salary cap is currently at $70.2 million. If a team happens to go over $70.2 million in their payroll, that team will be fined and audited for the amount spent over the cap. 

The salary cap is set by assigning a percentage of all “hockey-related” revenues to player salaries. As more revenue grows, the salary cap will be higher. Since the lockout has ended, revenue has increased, and in doing so, the salary cap has increased. In the 2005-06 season, the cap was only $39 million. This upcoming season will be $70.2 million.

If there happened to be a lockout and the salary cap was to be lowered or raised somehow, all contracts would still stay the same. There can not be any renegotiations of a contract.

The salary cap is calculated dialy from the start of the regualar season to the final day of the regular season. What is counted against the cap is all players on the NHL roster, injured reserve, and players who’s contract has been bought out.

What isn’t counted against the cap are players in the minors and junior hockey.

The cap floor are simply calculated by looked at the salary cap and subtract around $16 million. There you have the cap floor. For this upcoming season, the cap floor will be $54.3 million. It is very simple, really. 

Many people wonder what happens of a team doesn’t reach the cap floor. J.R. Lind, the most knowledgeable hockey writer in Nashville of the business side of the NHL, says it is vague and doesn’t say. So, one can only assume the penalty for not reaching the cap floor is a fine of the money needed to reach the floor. That money should be given to the NHLPA. However, this is not confirmed and very well could be wrong.

Finding a player’s cap hit is fairly simple as well. The definition of “cap hit” is how much an individual player counts against his team’s salary cap in one season.

If a player signs a multi-year contract, that player will only receive the average annual value of that contract, not the salary itself.

For example, Tim Woo signs a 4 year deal worth $10 million the first year, $6 million the second and $4 million the third and fourth. Add it up and divide it by four and that would equal your cap hit, $6 million.

There is a rule to the amount a player can receive in a salary. The maximum amount of the annual salary given to a player can not be more than 20 percent of the salary cap. For example, an average annual contract can not be more than $14,040,000 with a salary cap of $70.2 million.

New players in the NHL between the ages of 18-21 have to sign an entry-level contract for their first three NHL seasons. If a new player in the NHL is entering the league between the ages of 22-23 have to sign an entry-level contract for two seasons. Those who are 24, must sign an entry level contract for one season.

The maximum salary for an entry level deal last season was $925,000. However, the maximum salary rises under the current CBA.

If a team wants to buy out a contract for a player 25 years or younger, the buyout would cost the team one-third of the remaining contract value. For a player 26 years or older, the buyout would cost two-thirds of the remaining contract value. The team would take a cap hit for a percentage of the buyout value spread over twice the length of the remaining contract years.

Bonus based on a player’s performance can only be given to those with entry-level contracts, veterans (400 games or more) signing one-year contracts after coming back from long-term injuries (100 or more days on IR in last year) and players older than 35 who signed a one-year contract.

Last month, the NHL released the 2012-13 Restricted Free Agent Compensation Numbers. Here is how RFA Compensation works:

If a team has given their RFA player a qualifying offer before July 1, that player would be allowed to sign an offer sheet with any NHL club who has the ability to pay the compensation if the team doesn’t match. After seven days and the team decides not to match the offer sheet, they will be compensated with draft picks based on the salary range. The picks given to the team for compensation must be of the gaining team’s own.

Here is the salary range:

$1,110,249 or below – No Compensation

Over $1,110,249 to $1,682,194 – 3rd round pick

Over $1,682,194 to $3,364,391 – 2nd round pick

Over $3,364,391 to $5,046,585 – 1st round pick, 3rd

Over $5,046,585 to $6,728,781 – 1st round pick, 2nd, 3rd

Over $6,728,781 To $8,410,976 – Two 1st Round Picks, 2nd, 3rd

Over $8,410,976 – Four 1st Round Picks