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Could it be the last season of this CBA?

Bob McKenzie
6/30/2008 2:12:22 PM
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Don't look now, but the rules on signing some unrestricted free agents and the accounting principles associated with the salary cap have changed significantly for the coming season and it could make life a lot more difficult for some teams, as in not having as much salary cap room as they perhaps first thought.

For the purposes of the Collective Bargaining Agreement, the 2008-09 season is considered the fourth and "final" year of the contract with the NHL Players' Association. That's because the NHLPA has a "re-opener" which would allow it to terminate the existing CBA as long as the PA provides notice to that effect 120 days before Sept. 15, 2009. If the NHLPA doesn't exercise its "re-opener" the contract would be extended for another two years after this season.

But the important distinction is that until that matter is officially resolved - probably not until well into this coming season or even after it - the 2008-09 is technically regarded as the final year of the CBA. And it could be, we will see.

Why does that matter?

Because there is a clause in the CBA that says in the final year of the contract - this one coming up - there is no provision permitted for the Performance Bonus Cushion.

And what exactly does that mean and why should we care?

Basically, the performance bonus "cushion" allows teams to exceed the salary cap number if it's on earned performance bonuses and defer it against the next year's salary cap. Now, this season, that cannot happen.

See if this makes any sense:

There are only three categories of players in the NHL who are entitled to receive individual performance bonuses – entry level players, 35 and older players who are on one-year contracts and veteran NHL players who spent more than 100 days on injured reserve last season and are signed to a one-year contract.

Those players may, in addition to their base salary, earn performance bonuses. All performance bonuses count towards the salary cap number, in this case $56.7 million, but in the past three seasons of the new CBA, there was a "cushion" provision that allowed teams to spend to the cap on just salaries and put the bonuses into an "overage" category.

For some teams, the performance bonuses were never earned and they never had to worry about being over the cap. No harm, no foul, so to speak.

For other teams, the performance bonuses were earned but the CBA allowed for an overage of 7.5 per cent of the cap. As long as the excess performance bonuses paid out above and beyond the cap number didn't exceed 7.5 per cent, that overage amount could be deferred and charged against the following year's salary cap.

Long story short, there is no provision allowing for an overage this season because, technically, there is no CBA next year and the NHL didn't want teams having the ability to over-spend and not have a tangible penalty the following season.

What does this mean in practical terms?

Well, suppose a team like the New York Rangers wants to sign a 35 and older free agent such as Jaromir Jagr and/or Mats Sundin. Based on the prior years of this CBA, the Rangers would look at the $56.7 million cap and there would be a potential overage for bonuses of $4.22 million. They could then sign Jagr and/or Sundin to base salaries of $5 million plus performance bonuses of $2 million each. The $7 million total income for each player would count against the cap, but the Rangers would know they could overspend the cap by $4 million (in performance bonuses) and defer those charges to the next year.

Not any more.

The salary cap just became a lot harder, a lot more firm.

The potential impact on entry-level players is also notable.

Teams signed players to entry-level contracts where all performance bonuses must count against the cap. But the teams knew the chances of some entry-level player hitting all those bonuses – as much as $3 million in bonuses – were slim and none. So teams would spend to the full cap amount on salaries, knowing that the unearned bonuses would effectively be backed out on the final accounting and they could temporarily park the unearned performance bonuses in that overage pool.

But the pool is now closed and the net effect is that an entry-level player's salary and performance bonuses now must be contained entirely within the $56.7 million cap, even if they're unearned.

The bottom line? For many teams, the cap figure of $56.7 million just shrunk by about $3 million to $4 million because now there has to be a very strict accounting of the entry level performance bonuses, even the unearned ones. This change in accounting principles has greatly diminished teams' flexibilities for staying under the cap.

For some reason, this seems to be taking a few NHL teams by surprise. Both the general managers and owners have been made well aware of this new distinction. Many player agents contacted by TSN had no idea of this new wrinkle which could significantly impact the types of contracts offered in free agency and the teams' flexibility to stay under the cap.

But it's a key piece of information everybody has to get their heads around on the eve of the free-agency season.

As far as the NHLPA is concerned, it's a unique situation. In one sense, the uncertainty over whether the CBA will be re-opened is the catalyst for this amendment to how business has been conducted for the past three years. But that should not be confused with the NHLPA necessarily believing this is a good thing or the way it should be.

While no one is prepared to publicly comment on it, it's believed that NHLPA officials have made it clear to the league that it is not in the NHL's, its member clubs or the Player's Associations best interest to take the flexibility out of the system this year and that this change may promote veteran players to either retire to play somewhere other than the NHL next season.

It remains to be seen whether the NHLPA intends to make an issue of this situation and if so what mechanism it may use, but the NHLPA believes it has options within the CBA to address the matter if it chooses to do so.

 

Bob McKenzie

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