Sunday, June 28, 2015

Cap Consequences of the Reinhart Trade

Ordinarily, it is an enormous positive for a cap team to have a number of players on Entry Level Contracts (ELC), as their relatively small salaries give the team an opportunity to spend more money elsewhere on the roster.  However, an issue arises when a team has a number of players on an ELC with significant performance bonuses.  Teams are only allowed to exceed the cap via performance bonuses by a maximum of 7.5% of the Upper Limit, which for the 2015/16 salary cap of 71.4M works out to a 5.355M maximum. The combined bonuses for Nurse (0.85M), Reinhart (2.35M), Draisaitl (2.475M), Klefbom (0.35M), and McDavid, not signed yet, but assuming a max deal (2.85M) total 8.875M.  So what does that mean?  In a nutshell, should the Oilers start the year with all five of those players on the roster, the team will have an effective salary cap of 67.88M in order to preserve the required room for bonuses.1

 A few thoughts:

  • The impact this has on Edmonton's summer plans is hard to know, but it may have repercussions for free agent spending.
  • This is a not really an issue if both Reinhart and Draisaitl are in the minors, as the remaining bonuses wouldn't exceed the overage.  If one of them is in the minors at any given time, the Oilers would exceed the overage maximum, but only by about 1M instead of ~3.5M if both are in the NHL.
  • We don't know exactly what Marincin will cost, but for the sake of argument let's say he signs a one year deal for the same money as Reinhart.  In comparing the cap hits head to head, we might ordinarily say they cost the same, while noting that Reinhart has bonuses available that could result in a higher cap hit for the current year if Edmonton were not at the cap, or a cap penalty the following year, if achieved, were the Oilers at the cap - the overage talked about earlier.  However, assuming Edmonton would have already used all their overage room on the other four players, Reinhart carries an effective cap hit of the combined 3.21M vs. the 0.86M of Marincin. That is not the case if Draisaitl and Nurse, for example, are in the AHL - only if the bonus overage has already been exceeded.
  • There is a consideration for Draisaitl that does not exist for Reinhart.  If Edmonton leaves either Reinhart or Draisaitl in the AHL all year, an ELC year would be burned.  However, with Draisaitl, a year in the AHL vs. a year in the NHL results in him being a UFA in 2023 instead of 2022; Reinhart's UFA status is not impacted by whether or not he plays in the NHL.  When you combine that with Draisaitl having an effective cap hit of 3.4M (again, assuming the bonus overage is already maxed out), is it that hard to argue that Edmonton would be better off to sign a UFA W for 2.5M, save some cap space, save a year towards UFA status for Draisaitl, and let him play a full year as the #1C in the AHL?
  • For 2016/17, the Oilers would need to remain 3.17M under the cap2 once Klefbom's bonuses are off the books, with the potential for a bigger number if other players with bonuses were to crack the roster (for example, Slepyshev).

I don't want to get too far into the weeds here, regarding things like LTIR consequences and "impossible to earn" bonuses - perhaps that will be something to look at as the summer progresses and we get a better sense of any UFA's EDM has added, any trades/buy-outs, the contracts/cap numbers of any RFA's. But the quick takeaway is that the Oilers may not have as much money to spend in free agency as some might have hoped, or been expecting, depending on the number of players with significant ELC bonuses on the roster.

1 The calculations, to the dollar, are pretty complicated and beyond the scope of this article, but what it means, more or less, is that EDM has to stay at least 3.52M below the cap this year if all these players are on the roster.

2 This assumes that the 2016/17 cap is identical to the 2015/16 cap.  If the cap increases, so does the size of the bonus cushion.



Anonymous said...

How is Marincin relevant? He was traded to the Leafs!

Anonymous said...

If I'm reading this correctly, your concern with the bonuses on all these deals is that it lowers the actual salary cap for this upcoming season, because the total amount may exceed the maximum allowable. I think that would be an easy problem to handle. This past season, we have seen many teams up against the cap work around it by using ltir, trades, sending guys to ahl, and trading for guys from teams that retain salary.

I think if all the elc players were in the line up, the way larger issue would be the cap overage penalty for next season. One of the biggest concerns I have with Chia is he created that situation in Boston. He signed iginla to a bonus heavy contract that would almost always hit in the 2013-14 season. That caused an overage this past season and a large reason why Boychuk couldn't stay.

Of course that only matters if all/most of the bonuses hit. I have no idea how easy/hard those are to obtain...any ideas? I only remember Hall and Schultz hit one on the same play. So I assume it would be rather difficult for most of those bonus to hit and maybe the cap overage doesn't really matter in reality?

speeds said...

Marincin doesn't affect the cap situation, it was just a thought that came to mind.

speeds said...

It is unlikely that the bonus overage penalties would be huge, if they occur, although certainly not impossible. Schedule "B" bonuses aren't easy to hit at all, and even Schedule "A" bonuses wouldn't be particularly easy for Nurse, Reinhart, or Draisaitl, if they aren't playing a lot of minutes or don't play all year in the NHL.

Mark Loewen said...

Assuming Reinhart/Draisaitl/Nurse all make the team... And it was based on performance. Then it is without question beneficial to have all these players in at the cost of $3.5 of cap space. What player would this translate to as an example? Joel Ward is suppose is about right? So Joel Ward or all of those 4 players. Keeo in mind 2 other things. 1) They aren't gunning for the cup this season. and 2) They need to get used to at least that space being gone on these players if/when they reach potential. I'm fine with it.

The Alberta Writer said...

I'm so sick of reading GM, BS articles. Let's put the business crap aside. I want to read about why a guy is deserving of a roster spot based on piss, vinegar, and shear will power. I want to know about a player's family, his integrity, his heart, and his perseverance... WHY HE'S EARNED his spot. All this business semantics is horrible. Let's get the politics and lawyers out of this sport and get the players back into it. If a $800,000 dollar a year player outplays a $5,000,000 a year player, play the $800,000 dollar guy. If Nurse, Draisaitl, and Reinhart deserve to play, then they play. The best man for the job, not the best agent/contract for the job.

John Adam said...

Do MLB players get a bonus?
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