The NHL Salary Cap Explained

In plain language - as plain as possible - here's how the NHL salary cap works.

Current NHL Salary Cap:

• For the 2008-09 season the NHL salary cap is $56.7 million. The minimum team payroll is $40.7 million.
• Previous NHL Salary caps:
  2007-08: $50.3 million
  2006-07: $44 million
  2005-06: $39 million

The Salary Range:

• Each season, the NHL establishes a salary cap and a salary floor.
• A club's total player salaries for the season cannot exceed the maximum or drop below the minimum.

The Players' Share:

• The salary cap is set by assigning a percentage of all "hockey-related" revenues to player salaries.
• In 2005, the first year of the salary cap, the players were guaranteed 54 percent of projected NHL revenues of just under $1.8 billion.
• As revenues increase, so does the players' share. Estimates for the 2008-09 season had players getting just over 56 percent of total revenues.

Cheating on the Salary Cap:

• "Hockey-related" revenue is defined in the CBA, and team revenue reports are audited.
• A team hiding revenue is fined $1 million plus the amount misreported for the first offense, and $5 million plus the double the amount misreported for further offenses.
• Teams cannot circumvent the salary cap by paying players through other means - such as gifts, reimbursements on expenses, personal deals, money redirected through related corporate entities, seperate contracts for marketing and promotion, etc.

Counting the Cap:

• Team salary expenditures are calculated on a daily basis from the first day to the final day of the NHL regular season.
• A team is in compliance if it has not already exceeded the cap for the season, and if it could carry its current roster without exceeding the cap at the end of the season.
• Counted against the cap: All players on the active roster, injured reserve or the long-term injured list. Players who have left the team on a contract buyout, according to a formula that charges a percentage of the buyout against the cap.
• Not counted against the cap?: Players assigned to the minors or returned to junior hockey after signing an NHL contract.

Long-Term Injuries:

• A player expected to miss at least 10 games and 24 days due to injury can be listed as a long-term injury (LTI).
• An LTI can be covered by replacement players, as long as the replacement salaries do not exceed the salary of the injured player.
• If the replacement salaries would push a team over the salary cap, the team is allowed cap relief, but only for the portion of the salary that exceeds the cap.
• When the injured player returns, the team must immediately comply with the normal terms of the salary cap.

Trades:

• When a team trades for a player, it assumes all salary and salary cap obligations. The player's old team cannot "pick up" a portion of the contract as part of the deal.

Contract Buyouts:

• For players under the age of 26, a buyout costs the team one-third of remaining contract value.
• For players 26 or older, a buyout costs two-thirds of remaining contract value.
• On a buyout, the team takes a cap hit for a percentage of the buyout value (according to a very complex formula) spread over twice the length of the remaining contract years.

Maximum Salaries:

• A player's annual salary cannot exceed 20 percent of the salary cap, based on the cap as it stands in the year the contract is signed.
• Terms and salaries remain in place for the life of the contract. The salary does not decrease if the cap drops, nor can a contract trigger a salary increase if the cap goes up.

Averaging Out Contracts:

• On a multi-year contract, the cap hit will be based on the average annual salary.
• i.e., if a player signs a three-year deal paying $7 million in year one, $5 million in year two, and $3 million in year three, the salary cap charge is $5 million per year for three years.

Entry-Level Salaries:

• Players between the ages of 18 and 21 must sign "entry-level" contracts for their first three NHL seasons. Those aged 22-23 are entry-level players for two years, those aged 24 for a single year.
• Starting in 2005, the maximum entry-level salary was $850,000 per year. The limit rises throughout the CBA, to $925,000 in 2011.
• Signing bonuses are capped at 10 percent of the player's salary.

The 35-and-Older Clause:

• When a player aged 35 or older signs a multi-year contract, his average salary is counted against the team's salary cap during every year of the contract, even if the player retires before the contract is up.
• If the player is sent to the minor leagues, his cap hit is reduced by $100,000.

Bonuses:

• Performance bonuses can be earned by the following players only:
  - players on entry-level contracts.
  - veteran players (400 or more games) signing one-year contracts after returning from long-term injuries (100 or more days on injured reserve in their recent year).
  - players who sign a one-year contract after the age of 35.
• A team can exceed the cap by 7.5% to pay bonuses, but its salary cap for the following season will be reduced by the excessive amount.

No Renegotiations:

• A contract cannot be renegotiated at any point during the life of the contract.

Escrow:

• To ensure the correct revenue split, a percentage of player salaries could be placed in escrow. When total NHL revenues are determined at the end of the season, the escrow account is divided among players and owners to ensure that the target has been met.