CBA 101: Contract Buy-outs

Image courtesy of openingfaceoff.netThere are a limited number of ways that a team is able to get out of a contract given to one of their players. One such way is to buy  out the contract, which relieves of the team of their contractual obligation to the player, but does still result in “dead cap space” which is essentially cap space being used on a player that isn’t with the club.

Typically, a team would exercise a buy out in order to get out of a bad contract in order to see some cap relief, much like the New York Islanders with Alexei Yashin. However, a team may also be more concerned with getting rid of a contract which is counting toward the 50-contract reserve limit. One thing to note, however, is that buying out a 35+ Contract would not result in any cap savings.

The Flyers recently bought out Oskars Bartulis, and their reasoning was probably strictly related to contract space and probably even doing Bartulis a service and trying to let him get a chance somewhere else. Bartulis would have inevitably been waived and sent to the American Hockey League where he would not have counted towards the Flyers’ cap at all; instead, he will now count $100k against the cap.

For the sake of saving you all from information overload, I’ve removed a number of bullet points that I deemed unnecessary. From Section 13 of the NHL Standard Player Contract (SPC):

13. The Club, in addition to other rights hereunder, at its option, by written notice delivered to the Player in person, or by overnight mail to the Player’s address set forth herein, may terminate this SPC on the following conditions:
(a) The Club shall offer the Player on Unconditional Waivers, either before or promptly after the notice of intention to exercise the Ordinary Course Buy-Out
option (herein called “notice of termination”) is given.

(i) beginning the later of June 15 or forty-eight (48) hours after the conclusion of the Stanley Cup Finals and ending at 5:00 p.m. New York time on June 30; and

(i) if the Player is under 26 years of age at the time the termination is effective, an amount equal to 1/3 of, or
(ii) if the Player is 26 years of age or older at the time the termination is effective, an amount equal to 2/3 of the total fixed amount of the Player’s Paragraph 1 NHL Salary, for the unexpired fixed-term of this SPC, reduced by any advance payment of Paragraph 1 Salary received by the Player prior to the date the termination is effective.
(e) Upon termination, the Player shall immediately be an Unrestricted Free Agent and shall no longer be obligated to perform under this SPC.

I’ve bolded the sections that are truly necessary. As you can see, there is a standard period of time during which buyouts can be made, typically June 15-30. Prior to buying out a player, they must first be placed on waivers. If they are claimed, no buy out is necessary, and they would become property of the claiming team. If the player is under 26, they would be entitled to one-third of their remaining money; if 26-or-older, two-thirds. Upon completion of the buy out, the player becomes an unrestricted free agent.

So how are the buyouts calculated? From section: 50.5(d)(iii):

The method for calculating the includable amounts for a Club’s Averaged Club Salary is set forth in the following Illustrations. For each Illustration, assume that the Player is over age 26 and therefore is entitled to two-thirds (2/3) of his remaining Player Salary, to be paid over twice the remaining length of the SPC, in the event he is bought out pursuant to an Ordinary Course Buyout. Also, assume for all illustrations that the Player signed a three-year SPC, which is bought out after the first League Year (Year 1), and therefore, the Player is entitled to earn two-thirds (2/3) of the remaining Player Salary owed under the SPC over Years 2 through 5.

 

The Collective Bargaining Agreement provides a few useful illustrations as well:

So using Bartulis as an example, he had one year remaining on his contract with an equal cap hit and salary of $600k. He is also under 26 years of age, which means he qualifies for 1/3 of the remaining money, over twice the remaining length.

One-third of $600k is $200k. Two-hundred thousand over two years comes to $100k per year. Because Bartulis’ cap hit and salary are the same, it stays at a true $100k cap hit for each of the next two years.

As always, CapGeek has some great information on the topic as well.