Ever wonder why using LTIR isn’t ideal? Here’s why…

Image c/o bridgetds

By now, thanks to Chris Pronger, most Flyers fans are familiar with Long Term Injured Reserve (LTIR); at least at a high level. If you aren’t, I wrote this LTIR explanation many moons ago.

The one thing I want to reiterate this morning, the day the NHL opens its doors, is that LTIR is not a good thing. It is not the same as cap space, and it is far from ideal. From that earlier article:

In short, using LTIR is not a good thing. If you’re using it, you are not in ideal cap shape. The only way to fully take advantage of LTIR is to 1) already be spending to the upper limit – because LTIR is not in addition to any cap space the team already may have and 2) use every penny of the granted LTIR from Day 1.

I was taking a look at Capgeek this morning and noticed they added “Today’s AAV” (averaged annual value) and “Deadline AAV” to their salary cap shart. They always have a great chart as we approach the deadline that basically shows how having cap space enables you to “seemingly” have more cap space closer to the deadline. They’ve now added that (or I’m just noticing it) to their regular salary cap chart.

If you have $5 to spend today, but you don’t; you can spend $10 tomorrow. More money over less days means you can get more for your money.

Well it’s never more evident than today.

Let’s look at the Colorado Avalanache (I picked a random team that I knew was under the cap).

 

Notice that they have $10.9 million in cap space today. At the trade deadline, that $10.9 million in cap space actually equates to $54.5 million in cap space. That means the Avalanche could add FIFTY FOUR MILLION in contracts at the trade deadline and still be under the cap.

That is the power of being under the salary cap. Truly, under the cap. You bank your space, and get more for your money later.

Now, let’s look at the Flyers.

 

Oh wait. They’re the same. That’s because the Flyers are already over the cap. All they have to spend is their LTIR allotment, and each day that they don’t spend it, they can’t use it later.

So one more time…

In short, using LTIR is not a good thing. If you’re using it, you are not in ideal cap shape. The only way to fully take advantage of LTIR is to 1) already be spending to the upper limit – because LTIR is not in addition to any cap space the team already may have and 2) use every penny of the granted LTIR from Day 1.

  • wolfsjetta12

    Great article! So we are screwed until Pronger can official retire? That sucks! Not like we will ever be under the cap tho. The Flyers will spend up to the cap every year. That’s the price for them and wanting to win a cup.

    • http://www.flyersfaithful.com/ Kevin Christmann

      Yea chances are we will be a LTIR team until Pronger’s contract is done.

      We will definitely always spend right to the cap; but even $500k of REAL cap space goes a long, long way at the deadline. For example, the Canadiens have just about $300k of space, but at the deadline could add a $1.5 million player. That’s not too bad!

      • wolfsjetta12

        Wow that would be nice! Thanks for the reply.

  • Mike

    This is flawed. The Avalanche aren’t banking cap space. The cap space available at the deadline is merely reflecting pro-rated average salary. For example, if you have 1mil in cap space, you can sign a 2mil player at the season’s halfway point, and a 4mil player at the 3/4 mark.

    • http://www.flyersfaithful.com/ Kevin Christmann

      Hi Mike,
      Thanks for reading, I’m sorry but I believe you’re incorrect. The reason contracts appear prorated is because of the banked capspace and beacuse the cap is actually calculated daily.

      If you aren’t banking capspace everyday, you can’t afford the daily cap hit of a player’s prorated contract. It can get pretty confusing, but you need to think of it from a daily cap hit perspective, not a yearly cap hit perspective.

      For example Kimmo costs 6 mill or $30,769 a day (195 day season). If a team has 3 million in cap space, that equates to $15,384 a day of cap space. They can’t afford to pay Kimmo until halfway through the season when they have saved up enough days of ~$15k to cover Kimmo’s ~$30k cost for the rest of the year.

      If someone were to acquire someone like Kimmo at the midpoint of the season, his cap hit isn’t 3 million (or the prorated part of his contract). His cap hit is still the $6 million daily value. Collectively the team will only pay for half the number of days, but again, because it’s calculated daily, you still need to account for the equivalent of a $6 million daily hit.

      Additionally, if what you said was true, then why wouldn’t the Flyers have more Deadline space too? They would only be responsible for the prorated portion of the contract just as the Avs are. The Flyers don’t have that additional space, and don’t see the benefit of what most people refer to as “prorated contracts” around the deadline because they are over the cap (LTIR), and therefore don’t bank space each day; and with LTIR if you don’t use your allotted overage each day, you lose it.

      From capgeek:
      http://www.capgeek.com/faq/how-does-CapGeek-s-in-season-tracker-work

      To understand how each team’s cap count is calculated, think of a bank account. For the 2011-12 season, teams got a “deposit” of about $347,567 each day which can be spent on player salaries [$64,300,000 salary cap upper limit / 185 days in the season]. The difference left over is “payroll room,” or the amount that has been “banked” for the future, if needed. “Payroll room” can never fall below zero, meaning teams can’t borrow from the future to pay for today. Everyone on a team’s roster counts toward the cap, including players on the:

      https://twitter.com/capgeek/status/24652227314454529
      Teams bank cap space every day they’re under the cap. See our FAQ. RT @j_nealejennings I don’t understand how cap space changes with time?

      https://twitter.com/capgeek/status/20229808004792320
      They bank cap space each day until then. RT @EvanSmallwood how is the trade deadline cap hit (different) than if a trade happened now?

      • Mike

        Thanks for the explanation. I think I wrapped my head around it now. Just say the season was 7 day long, and the cap was 7 mil. The Flyers could have a 5m cap hit on monday, and 9 on tuesday, and it would be alright (assuming the rest of the week also averaged out to 7)?

        • http://www.flyersfaithful.com/ Kevin Christmann

          Yes, that’s correct. Yea it can be really confusing. Even though I think I have a pretty good grasp of it, at least once I a year I have to pause and think “wait a minute…” and straighten it out in my head again.

        • http://www.flyersfaithful.com/ Kevin Christmann

          This is way late but I just noticed this. I’m just realizing that that is not correct. You can’t have 9 on Tuesday and have the rest of the week come out to 7. You always need to have enough money to maintain your current payroll throughout the year. So in order to get to 9 on Tuesday, you must also have enough to have 9 on Wed-Sun. You can’t “borrow” money from future days to use now.

          I hope that makes sense.