NHL salary cap

The NHL Salary Cap is the limit to the total amount of money that National Hockey League teams are allowed to pay their players and uses a "hard" cap, meaning there are no luxury taxes or exemptions.

The actual amount of the cap varies on a year-to-year basis, and is calculated as a percentage of the League's revenue from the previous season; for instance, in 2007–08, the NHL's salary cap was approximately US$50.3 million per team; for the 2008–09 season it was $56.7 million; and for the 2009-10 season it was $56.8 million.^[1][2] Like many professional sports leagues, the NHL has a salary cap to keep teams in larger markets (with more revenue) from buying all of the top players and extending their advantage over smaller-market franchises. The 2011–12 Salary Cap has been set at $64.3 million.

A salary cap existed in the early days of the National Hockey League (NHL). During the Great Depression, for example, the league was under financial pressure to lower its salary cap to $62,500 per team, and $7,000 per player, forcing some teams to trade away well paid star players in order to fit the cap.^[3]

Pre-salary cap

Prior to the resolution of the 2004–05 lockout, the NHL was the only major North American professional sports league that had no luxury tax, revenue sharing, salary cap, or salary floor.

Player salaries did not become an issue until the 1970s, when Alan Eagleson founded the NHL Players' Association (NHLPA) and the upstart World Hockey Association began competing with the NHL for players. On the other hand, owners such as Harold Ballard of the Toronto Maple Leafs spent among the league minimum on rosters, making his team the most profitable. There was little financial incentive for Ballard to spend money on star players to improve the quality of the on-ice product and attract fans, as all Maple Leafs games were sold out regardless of how poorly the team played. The Leafs, which had only ten losing seasons in its history before Ballard took control of the team in 1972, had twelve losing seasons up until his death in 1990.

The 1994–95 NHL lockout was fought over the issue of the salary cap. The 1994–95 season was only partially cancelled, with 48 games and the playoffs eventually being played.

Although, at the time, six NHL franchises were based in Canada, by the turn of the century nearly all NHL salaries were being paid in U.S. dollars.^[4] This caused hardship among the small-market Canadian teams at the turn of the 21st century due to the weak Canadian dollar, as their revenues were in Canadian dollars. NHL Commissioner Gary Bettman successfully persuaded the US-based teams to donate towards a pool to mitigate the effect of the exchange rate.

Current salary cap

The negotiations for the most recent NHL Collective Bargaining Agreement revolved primarily around players' salaries. The league contended that its clubs spent about 75% of revenues on salaries; a percentage far higher than existed in other North American sports. NHL Commissioner Gary Bettman demanded "cost certainty" and presented the NHLPA with several concepts that the Players' Association considered nothing more than euphemisms for a salary cap, which it had vowed it would never accept; the previous CBA had expired on September 15, 2004.

A lockout ensued, leading to the cancellation of the entire 2004–05 NHL season, the first time a major sports league in North America had lost an entire season to a labor dispute. The lockout was resolved when the NHLPA agreed to a hard salary cap based on league revenues, although the NHL reciprocated by implementing revenue sharing which would allow for a higher cap figure.

The NHL salary cap is formally titled the "Upper Limit of the Payroll Range" in the new CBA. For the 2005–06 NHL season, the salary cap was set at US$39 million per team, with a maximum of $7.8 million (20% of the team's cap) for a player. The practice of paying all players in U.S. dollars (that had already been adopted prior to the lockout) was made mandatory, to preclude the possibility of payrolls being taken over the USD-denominated cap by exchange rate fluctuations.

Revenues for the seven Canadian teams have all increased significantly since the lockout. Their cost structure has changed favourably as well, largely (but not entirely) due to the fact the Canadian dollar has risen in value significantly, reaching essential parity with its U.S. counterpart for much of 2010 (the Canadian dollar has traded between 93 and 100 U.S. cents throughout that year). As a result, league-wide revenues measured in U.S. dollars have been inflated accordingly and all six Canadian teams pay into the current revenue sharing plan. Some U.S. teams are said to have been less able to cope with the unexpected increase in salaries and are believed to be losing money. League owners have said the that current revenue sharing plan is designed to provide some protection to small market teams on either side of the border from the effects of future changes in the Canadian dollar's value.

As a result of these factors, the cap has been raised each year to its current figure of $59.4 million for the 2010–11 season, with a cap of $11.88 million for a player.^[5]

The CBA also contains a "Lower Limit of the Payroll Range", which is the minimum that each team must pay in player salaries. The lower limit was originally set at 55% of the cap, but is now defined to be $16 million below the cap; therefore the 2011–12 minimum is $48.3 million. The difference between the salary cap and a team's actual payroll is referred to as the team's "payroll room" or "cap room". Each year of an NHL player contract, the salary earned contributes to the team's "cap hit". The basic cap hit of a contract for each year it is effective is the total money a player will earn in regular salary over the life of the contract divided by the number of years it is effective. This prevents a team from paying a player different amounts each year in order to load his cap hit in years in which the team has more cap room. Teams still use this practice, however, for other reasons.

Notwithstanding the cap and the nominal value of the players' contracts, the CBA stipulates that a fixed percentage of total league revenues (currently 57%) is to be paid to the players each season. To ensure compliance with this provision a percentage of each player's salary is withheld in escrow until the season is over, at which time the funds are divided between the players and owners so as to balance the aggregate league payrolls to the agreed percentage. In the first season of the current CBA, revenues exceeded expectations to such a margin that players received the entire escrow back plus additional funds from the owners, however in subsequent seasons this has not been the case. For instance, in the first quarter of the 2010-2011 season, the escrow rate was 17%.^[6]

Performance bonuses count towards the cap, although there is a percentage that a team is allowed to go over the cap in order to pay bonuses. A team must still factor in possible bonus payments, however, which could go over that percentage. Salary for players sent to the minors, under most circumstances, do not count towards the cap while they are there. If a player has a legitimate long-term injury, his cap hit is still counted; however, the team is permitted to replace him with one or more players whose combined salary is equal to or less than that of the injured player, even if the additional players would put the team over the salary cap (if the team's cap room is larger than the injured player's cap hit, they may take on as much as their cap room); however, the injured player may not return to play until the team is again compliant with the original cap. All salaries still count towards the league-wide share of revenue that the players receive.

The NHL has become the first of the major North American leagues to implement a hard cap while retaining guaranteed player contracts. Guaranteed player contracts in the NHL differ from other sports, notably the NFL, where teams may opt out of a contract by waiving or cutting a player. NHL teams may buy-out player's contracts, but must still pay a portion of the money still owed which is spread out over twice the remaining duration of the contract. Any player can be bought out for one-third of the remaining salary if younger than 26 at the time of termination, or two-thirds if 26 or older, over twice the length of the remainder of their contract. Trading cash for players or agreeing to pay a portion of a player's remaining salary after trading him are forbidden in the new CBA in order to prevent wealthier teams from evading the restrictions of the cap. It is also prohibited to renegotiate a player's contract in any way. The only way to end a player's contract early is to buy it out, or have the player retire.

The CBA also contains a 35-and-over rule, sometimes referred to as the Mogilny rule.^[7] This rule states that if a player signs a multi-year deal when the player is 35 or older, starting in the second year of the contract, that amount will count towards the team's salary cap regardless of whether the player is on the active roster or not. This is designed to keep teams from signing older players to lucrative front-loaded contracts, thus saving cap room, in which there is no expectation the player will actually play in the latter years.

Players, agents or employees found to have violated the cap face fines of $250,000 - $1 million and/or suspension. Teams found to have violated the cap face fines of up to $5 million, cancellation of contracts, loss of draft picks, loss of points and/or forfeiture of game(s) determined to have been affected by the violation of the cap.

Waivers

Main article: Waivers (NHL)

Waivers are discussed in article 13 of the CBA.^[8] Unlike other professional leagues, waivers in the NHL do not always mean an unconditional release if a player clears waivers and elects free agency, unless the waivers requested were unconditional waivers. Most NHL players will need to clear waivers before they are assigned to a minor league team; exceptions are listed below. Clearing waivers means every other team in the NHL has the option to 'claim' that player off of the 'waiver wire', thus assuming his contract (and cap hit; this varies for re-entry waivers), and providing no compensation to the originating team (unless the waivers requested were re-entry waivers). If a player clears waivers, the team has the right to either send the player to a minor league affiliate which is generally a team in the AHL (within 30 days), or the team can elect to keep that player with their club. If a player refuses to report to the minors, the team can use that as grounds to suspend the player (i.e. not pay them).

Once a player has been waived to the AHL, to get a player back into the NHL, he would have to clear "re-entry waivers", for which there are also some exceptions as noted below. If another team claims the player on re-entry waivers, both the team that acquired the player and the team that placed that player on re-entry waivers, would split 50-50 of the remainder of the player's current contract and salary cap hit unless that player is waived to the AHL again, in which case the 50-50 split comes off both teams' books. Such waivers also are required for players who sign with an NHL team after the start of the season after beginning the season in a professional league other than the AHL or ECHL. However, if a player on re-entry waivers is claimed after the trading deadline (which is 3 PM EST 40 days before the end of the season), the claiming team cannot play him until the following season.

Exemptions from regular waivers only

The following players can be assigned to the AHL (or for players on an entry-level contract, the ECHL) as many times as a team wishes without needing to clear waivers, until they have reached the amount of NHL games played as indicated in the table below. The player's salary, however, may come into play with respect to re-entry waivers, even if a player is not exempt from regular waivers (see the next section).

Age at which first NHL contract signed	Waiver exemption for goaltenders (whichever comes first)		Waiver exemption for forwards and defensemen (whichever comes first)
	Years from signing first NHL contract	NHL games played (regular season and postseason)	Years from signing first NHL contract	NHL games played (regular season and postseason)
18	6*	80	5*	160
19	5*		4*
20	4		3
21		60		80
22				70
23	3			60
24	2		2
25 or older	1 (No games limit)		1 (No games limit)
*For these players, the first NHL season is a season in which a player dresses for at least 11 NHL games. The exemption period is then reduced to three years for forwards and defensemen and four years for goalies.

Also exempt from waivers to demote a player are players who are recalled from the AHL or a CHL team on an emergency basis. These players must be returned to their AHL or CHL team once the injured player returns, or converted to a regular recall, which can then subject the player to waivers if the service time in the table above is met.

Exemptions from re-entry waivers only

The following players are exempt from re-entry waivers only. Such players, however, may not be exempt from regular waivers, depending on the number of games played.

1. Any player on an NHL contract whose AHL salary is no more than $105,000.
   1. Note: Entry-level contracts have a maximum AHL/ECHL salary of $72,500.
2. Any player on an AHL contract salary is no more than $105,000, who is then signed to an NHL contract with that club's affiliated team during that season.
3. So-called "Veteran Minor League Players", defined as:
   1. For goaltenders, at least 180 games played in the NHL, AHL, and ECHL combined, AND
      1. Who have not been on an NHL roster for at least 80 games over the past two seasons, AND
      2. Who have not been on an NHL roster for at least 40 games in the previous season.
   2. For forwards and defensemen, at least 320 games played in the NHL, AHL, and ECHL combined, AND
      1. Who have not been on an NHL roster for at least 80 games over the past two seasons, AND
      2. Who have not been on an NHL roster for at least 40 games in the previous season.

For purposes of "Veteran Minor League Players", NHL games missed because of injury count towards the 40 and 80 game thresholds.

Free agency

There are several kinds of NHL free agency, but generally the free agent pool in the NHL is split into restricted and unrestricted free agents. All contract signings can be of any length as long as the averaged annual salary (plus bonuses) will fit under the team's salary cap.

Unrestricted free agency

On July 1 of a given year, the following players become unrestricted free agents, free to sign with any team without compensation to the former team.

1. Group 3 free agents: Players who have reached age 27, or have 7 accrued years of NHL experience, whose contracts have expired
2. Group 6 free agents (must be elected by the player): Players who have reached age 25, who have 3 accrued years of professional experience (that is, beyond junior or collegiate hockey), and whose contracts have expired, but have played less than:
   1. 80 NHL games played for forwards and defensemen.
   2. 28 NHL games played for goaltenders.
3. Players whose contracts have been bought out by their former team.
4. Players who do not meet either Group 3 or Group 6 requirements, but who have not been tendered a contract offer by the Monday after the NHL Entry Draft or June 25 (whichever is later). All other players are Group 2 restricted free agents. (See the next section.)

For purposes of the above, an accrued years is generally defined as having been on an NHL roster for 40 games in a season (30 for goaltenders).

The current NHL CBA also had a Group 5 unrestricted free agency category, but when the age for unrestricted free agent dropped to age 28 after the 2006-07 season, it became moot, as such players would become Group 3 free agents.

Restricted free agency

All players whose contracts have expired, but who do not qualify as Group 3 or Group 6 free agents become restricted free agents (Group 2) on July 1 of a calendar year, provided that a team has tendered a qualifying offer by June 25 or the first Monday after the NHL Entry Draft, whichever is later. A qualifying offer is a single year contract offer that is either the same amount as the previous year, or a slight raise, according to the previous year's amount, and must be for the following amount as listed in the table below. For purposes of the table, a one-way qualifying offer is an offer that pays the player the same salary if assigned to the NHL or to the AHL, as opposed to a two-way contract, which has a higher NHL salary than an AHL (or for entry-level contracts, an ECHL) salary.

Previous year's salary was:	Qualifying offer must be at least:	And must be a one-way qualifying offer if:
$659,999.99 or less	10 percent increase in salary	A player has played (for goaltenders, dressed for) at least: 180 NHL games (games missed for injury or illness count), AND 60 NHL games in the previous season (games missed for injury or illness do not count), AND Not cleared waivers during the previous season.
$660,000.00 to $999,999.99	5 percent increase in salary, but not more than $1 million
$1 million or more	Zero percent increase in salary

Group 2 free agents that have received a qualifying offer can also be traded, even if contract terms have not been agreed upon. All qualifying offers expire on July 15.

Offer sheets

See also: Offer sheet

The 'restricted' part of Group 2 free agency comes into play with the concept of an offer sheet. An offer sheet is a contract that a new team can offer a restricted free agent. If an offer sheet is signed by the player, the originating team has the option of matching that offer, or receiving compensation from the team in the form of draft picks. For the current collective bargaining agreement, the draft picks owed for signing a restricted free agent is as follows. A team must actually have those draft picks to be able to sign the player to an offer sheet, and cannot use draft picks acquired in trades to sign a restricted free agent (unless a team has reacquired its own draft pick in a trade):

2005 Averaged Salary	Current Averaged Salary[9]	Draft Pick Compensation
$660,000 and below	$1,020,348 and below	No compensation
$660,001 to $1,000,000	$1,020,348 to $1,545,981	Third-round pick
$1,000,001 to $2,000,000	$1,545,981 to $3,091,963	Second-round pick
$2,000,001 to $3,000,000	$3,091,963 to $4,637,944	First- and third-round pick
$3,000,001 to $4,000,000	$4,637,944 to $6,183,925	First-, second-, and third-round pick
$4,000,001 to $5,000,000	$6,183,925 to $7,729,907	Two first-round picks and a second- and third-round pick
$5,000,001 and above	$7,729,907 and above	Four first-round picks

If a player signs an offer sheet, the player cannot be traded until the following offseason.

Salary arbitration

Some restricted free agents are eligible for salary arbitration, if the following conditions are met

1. For players signing their entry-level contract at age 18 or 19 (but who will not turn 20 in the same calendar year that the entry-level contract was signed), a season of professional experience is at least 10 NHL games played, and at least four such seasons must be accrued for arbitration eligibility.
2. For players signing their entry-level contract at age 20 (or who will turn 20 in the same year that the entry-level contract is signed), a season of professional experience is at least 10 professional (non-collegiate) games played, and at least four such seasons must be accrued for arbitration eligibility.
3. For players signing their entry-level contract at age 21 or older, arbitration eligibility comes at the expiration of a player's first contract.

A team can only take a player to arbitration one time in his career, while a player may elect arbitration as many times as possible, provided that a qualifying offer has been made. After a qualifying offer is made, an eligible player can elect to go through the arbitration process, where the team and the player each make an argument for a certain contract size. An independent arbiter hears the arguments and decides on a fair contract amount. If the player has elected arbitration, and the award is more than $1,042,173, a team has 48 hours to "walk away" from the arbitration award, making the player an unrestricted free agent. If the team took a player to arbitration, the arbitrator's award is binding.

If a restricted free agent does not sign with an NHL club by December 1 of that year, that player is declared ineligible to play in the NHL until the following season.

Contracts and contract limits

There are several parameters that each NHL team must consider when comprising a roster. A maximum of 20 players (18 skaters and 2 goaltenders) can dress for a game. Additional restrictions are as follows.^[10]

• During the NHL regular season, a team may have a maximum of 23 players on the active roster, except for the period from December 19 to December 27, during which no player may be assigned to the AHL or ECHL, and after the NHL trade deadline.
  • After the NHL trade deadline, an NHL team is limited to four non-emergency callups from their minor league affiliates until their AHL or ECHL affiliate's season has ended (that is, callups from the AHL or ECHL who are not replacing injured players). Additions to the NHL roster, however, can come from players on the reserve list (see below) who leave collegiate, major junior, or European hockey clubs to sign entry-level contracts. Examples of the latter include Jack Johnson, who left Michigan late in the spring 2007 semester and jumped directly to the Los Angeles Kings for the end of the 2006–07 season, and Marcus Kruger, who was signed by the Chicago Blackhawks off of its reserve list; Kruger left Djurgårdens in Sweden to sign his entry-level contract and was immediately dressed by Chicago.
  • Following the end of a team's AHL or ECHL affiliate's season, unlimited callups are allowed, provided that a player is signed to one of its 50 contract slots.
• A team must have at least 24 players, 3 of whom must be goaltenders, under contract at any given moment during the regular season.
• A team may not have more than 50 players under contract at any point during the season. This limit includes players on injured reserve or long-term injured reserve.
  • Exception: A 18- or 19-year old player with remaining major junior eligibility does not count toward the contract limit until he has played at least 11 NHL games, provided that the player is returned to his major junior club.
• A team may not have more than 90 players on its reserve lists at any one time during a season. The reserve list includes players under contract, unsigned draft picks who have collegiate or major junior eligibility remaining, and all unsigned draft picks who have been drafted by a team within the last two league years. NHL teams retain exclusive rights to draft picks for two years after a player is drafted, or until NCAA or major junior eligibility has been exhausted.

NHL Salary Cap history

Since the NHL salary cap was reintroduced following the ratification of the current CBA, it has risen every year since being instituted. The salary floor is fixed at US$16 million below the cap^[11]

Salary Cap

See also

• NHL Collective Bargaining Agreement
• Player salaries in the NHL
• Team payrolls in the National Hockey League

References

1. ^ http://www.nhlscap.com/salarynumbers/newyorkislanders.htm
2. ^ NHL Salary Cap FAQ
3. ^ Diamond, Dan (1991). The Official National Hockey League 75th Anniversary Commemorative Book. McClelland & Stewart. pp. 69. ISBN 0-7710-6727-5. 
4. ^ Article 11, Section 11.17, "Currency". Collective Bargaining Agreement Between the National Hockey League and the National Hockey League Players' Association. July 22, 2005.
   Downloadable from the NHL Players' Association official site here.
5. ^ "[1]", nj.com.
6. ^ "[2]", tsn.ca.
7. ^ Question regarding Buyouts, 35, and Cap hits..
8. ^ "http://www.capgeek.com/NHL_NHLPA_2005_CBA.pdf", capgeek.com.
9. ^ "2010 Official Free Agent List". National Hockey League. http://www.nhl.com/ice/page.htm?id=63234. Retrieved 2010-07-03. 
10. ^ Information on the 50-contract roster limit and 90-player maximum reserve list - Jay Levin, NashvillePredators.com, March 23, 2009, accessed October 10, 2011
11. ^ "NHLPA exercises option to raise salary cap". CBC News. June 20, 2011. http://www.cbc.ca/sports/hockey/story/2011/06/20/sp-nhl-salary-cap.html.