CBA 101: The Bonus Cushion and Bonus Overages

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Image courtesy of Bauer.com

One aspect of the upcoming  (It is coming right? Eventually?) new Collective Bargaining Agreement (CBA) that I am particularly interested about is the concept of Bonus Cushions and Bonus Overages. I’ve seen a number of people assume that the Bonus Cushion will exist, because it has before and, well, why wouldn’t it? I’ve also seen a seemingly equal number of people that don’t believe it will be included.

Cue, the mumbo jumbo Section 50.5(h):

(h) Accounting for Performance Bonuses. No SPC may contain Performance Bonuses except in accordance with Section 50.2(b)(i)(C) above. For purposes of a Club’s Upper Limit and Lower Limit, as well as the Players’ Share, the following rules shall apply with respect to those Performance Bonuses that are permitted:

(i) For the purposes of calculating a Club’s Averaged Club Salary, the Averaged Amount of Performance Bonuses (to the extent permitted in accordance with Section 50.2(b)(i)(c) above) shall be included as fully earned in the League Year in which they may be earned. However, the unaveraged cash value of such Performance Bonuses shall be calculated in a Player’s SPC for purposes of the 100 Percent Rule, as set forth in Section 50.7 below. The cash amount of any Performance Bonuses contained in an SPC that becomes impossible to earn in a given League Year shall, at that time, be deducted from the Club’s Averaged Club Salary. Any Payroll Room that may result will only be for the remainder of that League Year and will not affect the Averaged Amount of a Player’s multi-year SPC or the inclusion of any Performance Bonuses in the Averaged Amount of the future League Years of such SPC.

(ii) A Club shall be permitted to have an Averaged Club Salary in excess of the Upper Limit resulting from Performance Bonuses solely to the extent that such excess results from the inclusion in Averaged Club Salary of: (i) Exhibit 5 Individual “A” Performance Bonuses and “B” Performance Bonuses paid by the Club that may be earned by Players in the Entry Level System and(ii) Performance Bonuses that may be earned by Players pursuant to Section 50.2(b)(i)(C) above, provided that under no circumstances may a Club’s Averaged Club Salary so exceed the Upper Limit by an amount greater than the result of seven-and one- half (7.5) percent multiplied by the Upper Limit (the “Performance Bonus Cushion”).

(iii) At the conclusion of each League Year, the amount of
Performance Bonuses actually earned, including, without
limitation, and for purposes of clarity, (i) Exhibit 5 Individual “A” Performance Bonuses and “B” Performance Bonuses paid by the Club that may be earned by Players in the Entry Level System and (ii) Performance Bonuses that may be earned by Players pursuant to Section 50.2(b)(i)(C) above, shall be determined and shall be charged against the Club’s Upper Limit and Averaged Club Salary for such League Year. To the extent a Club’s Averaged Club Salary exceeds its Upper Limit as a result of: (i) Exhibit 5 Individual “A” Performance Bonuses and “B” Performance
Bonuses paid by the Club that may be earned by Players in the Entry Level System and (ii) Performance Bonuses that may be earned by Players pursuant to Section 50.2(b)(i)(C) above, then the Club’s Upper Limit for the next League Year shall be reduced by an amount equal to such excess.

(iv) Notwithstanding anything to the contrary contained in paragraphs (i) through (iii) above, the only Performance Bonuses that shall be included in a Club’s Actual Club Salary for purposes of Leaguewide Player Compensation and the Players’ Share for a League Year are the Performance Bonuses paid in that League Year. Unearned Performance Bonuses shall not be included in a Club’s Actual Club Salary for purposes of League-wide Player Compensation and the Players’ Share in any League Year.

But what does it mean?!

For every season, except this past one because the CBA was expiring the following year, there has been a Bonus Cushion, which means that teams could then experience Bonus Overages.

With a Bonus Cushion in place, the Flyers are allowed to exceed the cap, by 7.5% in performance bonuses. As players fail to achieve those bonuses, that total cap hit is reduced (by the bonus amount), effectively bringing them back closer to the true Upper Limit.

If at the end of the year, the Flyers bonuses have reduced to the point that they are, once again, under the Upper Limit, all is well. If, however, they are still over the Upper Limit, they will incur what is called a Bonus Overage, which will be charged to the following year’s cap.

The Flyers had $1.4 million in Bonus Overages coming into this season. The Chicago Blackhawks had significant Bonus Overages after their Cup win because Patrick Kane and Jonathan Toews achieved every bonus they could, including Toews winning the Conn Smythe, which was worth an extra $1.3 million to him.

Brayden Schenn actually began the year in the AHL last season mostly due to his performance bonuses. Even if he had spent just a single game in the AHL, he would have then been unable to achieve a bonus related to playing 25 minutes in each and every game of the season; effectively reducing his cap hit.

Some people may prefer to look at the entire situation from a bottom up approach, rather than a top down. If Player A has a $3 million cap hit, but $2 million of it is bonuses, you could calculate him at a $1 million cap hit for the season. At season’s end, the Flyers finish with $1 million in cap space.

If Player A achieved $1 million or less of his $2 million in bonuses, all is well in Flyer land. The bonuses would consume some or all of the remaining $1 million, and that is that. However, if Player A achieved more than $1 million of his bonuses, the Flyers would incur a Bonus Overage the following season, because they cannot fit the full amount under that season’s Upper Limit.