CBA 101 Part 8: the 100 Percent Rule and Shea Weber

Image courtesy of openingfaceoff.netWhen free agency rolls around, there is always discussion about how the newly signed contracts are laid out. Is it front loaded, back loaded, or relatively even year to year?

You’ll often even hear discussion with respect to Restricted Free Agents, such as in the case of Shea Weber currently, and attempting to sign him to such a hugely front-loaded offer sheet that Nashville could not match. I’d argue, that that is harder to do than many realize.

When structuring contracts there are certain rules which restrict how much a player’s salary can increase or decrease from year to year. As defined in the Collective Bargaining Agreement (CBA), section 50.7:

“100 Percent Rule” for Multi-Year SPCs. The difference between the stated Player Salary and Bonuses in the first two League Years of an SPC cannot exceed the amount of the lower of the two League Years. Thereafter, in all subsequent League Years of the SPC, (i) any increase in Player Salary and Bonuses from one League Year to another may not exceed the amount of the lower of the first two League Years of the SPC (or, if such amounts are the same, that same amount); and (ii) any decrease in Player Salary and Bonuses from one League Year to another may not exceed 50 percent of the Player Salary and Bonuses of the lower of the first two League Years of the SPC (or, if such amounts are the same, 50 percent of that same amount).

So in the case of a potential Shea Weber offer sheet, the ultimate goal of many is to pay him so much money in year one, with it then tapering off to result in a more manageable cap hit, that Nashville couldn’t or wouldn’t match. However, as noted in the above excerpt, the amount by which the yearly salary is allowed to decrease from one year to another is defined by the lower of the first two years in the contract (50 percent of that lower amount, to be exact). So by default, if you commit to a massive first year, that means that the second year (and to a lesser extent, the third) would have to be exceptionally high as well.

Let’s invent a contract for Weber while using the recent Suter contract (who “only” makes $12 million in each of his first two years) as an example. If the Flyers wanted to pay Weber an absurd $30 million in year one to make Nashville balk, they could follow that up with years of something like 20, 10, five for the next seven years, and ending with three years of one million; resulting in a cap hit equal to Suter’s. The $20 million in year two, means that the most the salary could decrease is $10 million (50% of that $20 million).  I think even Snider would be hesitant at a contract that pays $50 million of $98, in the first two seasons (and not being able to pay any less than another $10 million in the third year).

Moving on from Weber, the Flyers actually had a bit of a run in with the 100 Percent Rule last offseason with Max Talbot. Talbot was originally signed to a contract that was illegal and had to be adjusted to comply with the 100 Percent rule. This did nothing to increase my confidence in the Flyers’ front office’s understanding of the CBA, but I digress.

CapGeek, per usual, has some great explanations and examples on this topic as well.

Author’s Update (7/19/2012): The Shea Weber offer sheet brought to light two aspects of restricted free agent compensation that I overlooked. I love when new and exciting news happens in the NHL and brings to light some of the more obscure nuances in the CBA; even if it ends up indicating I was wrong before!

Section 10.4 of the CBA states:

The number and quality of draft choices due to the Prior Club shall be based on the average annual value of the compensation contained in the Principal Terms (as defined in Section 10.3(e) hereof) of the New Club’s Offer Sheet (determined by dividing such compensation by the lesser of the number of years of the Offer Sheet or five), based on the following scale:

The bolded portion indicates that it isn’t strictly the cap hit, which I discuss in Part 9 (or average annual vaue) that determines the compensation level. If the contract is five years or more, you actually divde the compensation amount by five. So in this case, it’s $100 million divided by five, not fourteen.

Additionally, in section 50.6(a)

(a) No SPC may provide for a total aggregate Player Salary and Bonuses that is in excess of twenty (20) percent of the Upper Limit for any League Year (the ”Maximum Player Salary and Bonuses”).

I was mistaken in Part 8 in thinking that only the cap hit was restricted to 20% of the upper limit. As it turns out the total salary and bonuses are as well; which means my example is invalid. With a $70.2 million cap, the maximum amount a player can make in salary and bonuses is $14.04 million.