CBA 101 Part 9: Restricted Free Agent Compensation

Image courtesy of openingfaceoff.net

Image courtesy of openingfaceoff.net

As the name suggests, restricted free agency is a type of free agency in which the player has the ability to entertain offers from other clubs; but there are certain restrictions in place. The “Prior Team” who owned the player’s rights throughout the previous season, maintains those rights and can retain that player if they so choose.

The first step in maintaining those rights is to present a qualifying offer to the restricted free agent, which would grant the team what is known as the “Right of First Refusal”. If the restricted free agent were to sign an “offer sheet” (which, honestly, is just a fancier term for a new contract with a different team while a restricted free agent), the Prior Team has a decision to make. They can opt to match the offer sheet that the player signed, effectively signing their restricted free agent to an identical contract. They can also choose to decline to match the offer sheet and therefore receive compensation in the form of draft picks.

The draft pick compensation scale changes year to year with the changing salary cap. This season, the draft pick compensation is as follows and is based upon the contract’s cap hit:

There are a number of other stipulations with regards to the draft picks that the New Team must have to provide as compensation.

Clubs must use their own draft picks (being those awarded directly to the Club by the League for use by it in the Entry Draft, including such draft picks described in the first clause of this parenthetical that a Club has traded or encumbered, and subsequently reacquired or unencumbered.)

Clubs cannot acquire picks to use as compensation (with the exception being a Club’s own draft selections that are traded and then re-acquired).

Clubs owing one (1) draft selection must have it available in the next draft.

Clubs owing two (2) draft selections in different rounds must have them available in the next draft.

Clubs owing three (3) draft selections in different rounds must have them available in the next draft.

Clubs owing two (2) draft selections in the same round, must have them available in the next three (3) drafts.

Clubs owing three (3) draft selections in the same round must have them available in the next four (4) drafts, and so on.

When a Club owes two (2) or more draft selections in the same round, the signing Club does not elect the years in which such selections shall be awarded to the Prior Club; rather, the selections next available will be transferred to the Prior Club (i.e., a Club that owes two (2) selections has them available in the next two (2) drafts –that is when they are transferred).

 

One of the more interesting ones is that all draft picks must be the team’s original draft picks. So if the Flyers had traded their first round draft pick, but had acquired, say, the Predator’s first rounder in a separate deal, they could not submit an offer sheet to any player that would require a first round draft pick as compensation. Even though they have a first rounder, they have to have their own first rounder. I personally find that distinction a bit silly and would like to see it removed.

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.