NHL salary cap

The negotiations for 2005–12 NHL Collective Bargaining Agreement revolved primarily around players' salaries. The league contended that its clubs spent about 75% of revenues on salaries; a percentage far higher than existed in other North American sports. NHL Commissioner Gary Bettman demanded "cost certainty" and presented the NHLPA with several concepts that the Players' Association considered nothing more than euphemisms for a salary cap, which it had vowed it would never accept; the previous collective bargaining agreement had expired on September 15, 2004.

A lockout ensued, leading to the cancellation of the entire 2004–05 NHL season, the first time a major sports league in North America had lost an entire season to a labor dispute. The lockout was resolved when the NHLPA agreed to a hard salary cap based on league revenues, although the NHL reciprocated by implementing revenue sharing which would allow for a higher cap figure.

The NHL salary cap was formally titled the "Upper Limit of the Payroll Range" in the new collective bargaining agreement. For the 2005–06 NHL season, the salary cap was set at US$39 million per team, with a maximum of US$7.8 million (20% of the team's cap) for a player. The practice of paying all players in U.S. dollars (that had already been adopted prior to the lockout) was made mandatory, to preclude the possibility of payrolls being taken over the USD-denominated cap by exchange rate fluctuations.

Revenues for the seven Canadian teams have all increased significantly since the lockout. Their cost structure has changed favourably as well, largely (but not entirely) due to the fact the Canadian dollar has risen in value significantly, reaching essential parity with its U.S. counterpart for much of 2010 (the Canadian dollar has traded between 93 and 100 U.S. cents throughout that year). As a result, league-wide revenues measured in U.S. dollars have been inflated accordingly and all seven Canadian teams pay into the current revenue sharing plan. Some U.S. teams are said to have been less able to cope with the unexpected increase in salaries and are believed to be losing money. League owners have said that the current revenue sharing plan is designed to provide some protection to small market teams on either side of the border from the effects of future changes in the Canadian dollar's value.

As a result of these factors, the cap has been raised each year to the figure of $59.4 million for the 2010–11 season, with a cap of $11.88 million for a player.[6]

The collective bargaining agreement also contains a "Lower Limit of the Payroll Range", which is the minimum that each team must pay in player salaries. The lower limit was originally set at 55% of the cap, but is now defined to be US$16 million below the cap; therefore the 2011–12 minimum is US$48.3 million. The difference between the salary cap and a team's actual payroll is referred to as the team's "payroll room" or "cap room". Each year of an NHL player contract, the salary earned contributes to the team's "cap hit". The basic cap hit of a contract for each year it is effective is the total money a player will earn in regular salary over the life of the contract divided by the number of years it is effective. This prevents a team from paying a player different amounts each year in order to load his cap hit in years in which the team has more cap room. Teams still use this practice, however, for other reasons.

Notwithstanding the cap and the nominal value of the players' contracts, the collective bargaining agreement stipulates that a fixed percentage of total league revenues (currently 57%) is to be paid to the players each season. To ensure compliance with this provision a percentage of each player's salary is withheld in escrow until the season is over, at which time the funds are divided between the players and owners so as to balance the aggregate league payrolls to the agreed percentage. In the first season of the current collective bargaining agreement, revenues exceeded expectations to such a margin that players received the entire escrow back plus additional funds from the owners, however in subsequent seasons this has not been the case. For example, in the first quarter of the 2010–11 season, the escrow rate was 17%.[7]

Performance bonuses count towards the cap, although there is a percentage that a team is allowed to go over the cap in order to pay bonuses. A team must still factor in possible bonus payments, however, which could go over that percentage. Salary for players sent to the minors, under most circumstances, do not count towards the cap while they are there. If a player has a legitimate long-term injury, his cap hit is still counted; however, the team is permitted to replace him with one or more players whose combined salary is equal to or less than that of the injured player, even if the additional players would put the team over the salary cap (if the team's cap room is larger than the injured player's cap hit, they may take on as much as their cap room); however, the injured player may not return to play until the team is again compliant with the original cap. All salaries still count towards the league-wide share of revenue that the players receive.

The NHL became the first of the major North American leagues to implement a hard cap while retaining "guaranteed player contracts". Guaranteed player contracts in the NHL differ from other sports, notably the National Football League, where teams may opt out of a contract by waiving or cutting a player. NHL teams may buy-out player's contracts, but must still pay a portion of the money still owed which is spread out over twice the remaining duration of the contract. Any player can be bought out for one-third of the remaining salary if younger than age 26 at the time of termination, or two-thirds if age 26 or older, over twice the length of the remainder of their contract. Trading cash for players or agreeing to pay a portion of a player's remaining salary after trading him was forbidden in the 2005 collective bargaining agreement in order to prevent wealthier teams from evading the restrictions of the cap (this provision was eased in the 2013 collective bargaining agreement; see Trades below). It is also prohibited to renegotiate a player's contract in any way. The only way to end a player's contract early is to buy it out, or have the player retire, and then only if the contract took effect prior to a player turning 35 (see the next paragraph).

The collective bargaining agreement also contains a 35-and-over rule. The rule states that if a player signs a multi-year deal when the player is 35 or older, starting in the second year of the contract, that amount will count towards the team's salary cap regardless of whether the player is on the active roster or not (unless the player is on long-term injured reserve); this provision remains in effect for the 2013 collective bargaining agreement.[8] This is designed to keep teams from signing older players to lucrative front-loaded contracts, thus saving cap room, in which there is no expectation the player will actually play in the latter years.

A player who signs a contract aged 35 or older can be bought out as a compliance buyout, or, as a regular buyout. As a regular buyout, the team does not receive cap relief, instead they free a roster position and decrease the salary owed to the player.[9]

Players, agents or employees found to have violated the cap face fines of US$250,000 – US$1 million and/or suspension. Teams found to have violated the cap face fines of up to US$5 million, cancellation of contracts, loss of draft picks, loss of points and/or forfeiture of game(s) determined to have been affected by the violation of the cap.

A new, lower salary cap limit was negotiated for the collective bargaining agreement starting with the 2012–13 season.[3] To transition to the new cap, each team had two amnesty buyout opportunities: after the 2012–13 season and after the 2013–14 season, to release a player (or specify a player already released) that is bought out in full, counting against the players' overall share in revenues, but not counting towards the team's salary cap. The contract also limits salary variance on contracts from year to year to no more than 35% and no year can be less than 50% of the highest year.[10] This was done due to the increasing frequency of teams signing star NHL players signing front-loaded contracts with the intention of lowering the salary's annual average, and thus, lowering the cap hit. One notable incident of this involved Ilya Kovalchuk, who signed a 17-year deal with the New Jersey Devils in July 2010, prompting the NHL to nullify the contract. Other similar incidents have involved Chris Pronger, Roberto Luongo and Marian Hossa.

Note: Compensation is paid internally between clubs and is not applied to the salary cap.

*All prices applicable to Players being Waived shall be in US dollars.

The following players can be assigned to the AHL (or for players on an entry-level contract, the ECHL) as many times as a team wishes without needing to clear waivers, until they have reached the number of NHL games played as indicated in the table below.

Also exempt from waivers to demote a player are players who are recalled from the AHL or a Canadian Hockey League (CHL) team on an emergency basis. These players must be returned to their AHL or CHL team once the injured player returns, or converted to a regular recall, which can then subject the player to waivers if the service time in the table above is met. Starting with the 2013 collective bargaining agreement, for a player on emergency recall from the AHL, playing 10 or more NHL games while on emergency recall automatically converted the recall to a regular recall.

On July 1 of a given year, the following players become unrestricted free agents, free to sign with any team without compensation to the former team.

1. Group 3 free agents: Players who have reached age 27, or have 7 accrued seasons of NHL experience, whose contracts have expired
2. Group 6 free agents (must be elected by the player): Players who have reached age 25, who have 3 accrued years of professional experience (that is, beyond junior or collegiate hockey), and whose contracts have expired, but have played less than:
   1. 80 NHL games played for forwards and defensemen.
   2. 28 NHL games played for goaltenders.
3. Players whose contracts have been bought out by their former team.
4. Players who do not meet either Group 3 or Group 6 requirements, but who have not been tendered a contract offer by the Monday after the NHL Entry Draft or June 25 (whichever is later). All other players are Group 2 restricted free agents. (See the next section.)

For purposes of the above, an accrued season is defined as a player having been on the team's active roster for 40 NHL games (30 in the case of a goaltender), including games missed where the player was injured.[14]

The current NHL collective bargaining agreement also had a Group 5 unrestricted free agency category, but when the age for unrestricted free agents dropped to age 28 after the 2006–07 season, it became moot, as such players would become Group 3 free agents.

Under the 2013 Collective Bargaining Agreement Memorandum of Understanding, teams are allowed to interview players from other teams, but cannot discuss contract terms, following the NHL Entry Draft until July 1.

All players whose contracts have expired, but who do not qualify as Group 3 or Group 6 free agents become restricted free agents (Group 2) on July 1 of a calendar year, provided that a team has tendered a qualifying offer by June 25 or the first Monday after the NHL Entry Draft, whichever is later. A qualifying offer is a single year contract offer that is either the same amount as the previous year, or a slight raise, according to the previous year's amount, and must be for the following amount as listed in the table below. For purposes of the table, a one-way qualifying offer is an offer that pays the player the same salary if assigned to the NHL or to the AHL, as opposed to a two-way contract, which has a higher NHL salary than an AHL (or for entry-level contracts, an ECHL) salary.

Group 2 free agents that have received a qualifying offer can also be traded, even if contract terms have not been agreed upon. All qualifying offers expire on July 15.

The "restricted" part of Group 2 free agency comes into play with the concept of an offer sheet. An offer sheet is a contract that a new team can offer a restricted free agent. If an offer sheet is signed by the player, the originating team has the option of matching that offer, or receiving compensation from the team in the form of draft picks. For the current collective bargaining agreement, the draft picks owed for signing a restricted free agent is as follows. A team must actually have those draft picks to be able to sign the player to an offer sheet, and cannot use draft picks acquired in trades to sign a restricted free agent (unless a team has reacquired its own draft pick in a trade):

If a player signs an offer sheet, the player cannot be traded for one calendar year from the date the new contract is finalized.[16] Additionally, starting with the 2013 collective bargaining agreement, the average annual value for purposes of draft pick compensation is determined by the lesser of the number of years of the deal or five. This provision was inserted into the collective bargaining agreement after defenceman Shea Weber signed a 14-year offer sheet after the 2011–12 season.

Some restricted free agents are eligible for salary arbitration, if the following conditions are met

1. For players signing their entry-level contract at age 18 or 19 (but who will not turn 20 in the same calendar year that the entry-level contract was signed), a season of professional experience is at least 10 NHL games played, and at least four such seasons must be accrued for arbitration eligibility.
2. For players signing their entry-level contract at age 20 (or who will turn 20 in the same year that the entry-level contract is signed), a season of professional experience is at least 10 professional (non-collegiate) games played, and at least four such seasons must be accrued for arbitration eligibility.
3. For players signing their entry-level contract at age 21 or older, arbitration eligibility comes at the expiration of a player's first contract.

A player can only be subjected to a team-elected arbitration one time in his career, while a player may elect arbitration as many times as possible, provided that a qualifying offer has been made. After a qualifying offer is made, an eligible player can elect to go through the arbitration process, where the team and the player each make an argument for a certain contract size. An independent arbiter hears the arguments and decides on a fair contract amount. If the player has elected arbitration, and the award is more than a specified threshold (determined by the League and based on the previous years league-wide salaries) a team has 48 hours to "walk away" from the arbitration award, making the player an unrestricted free agent. As of 2017, the threshold is set at $4,084,219[17] (from 2005–2012, the threshold was $1,042,173). If the team has elected arbitration, the arbitrator's award is binding regardless of the amount.

Starting with the 2013 collective bargaining agreement, if a player is subjected to team-elected arbitration, that player may still receive an offer sheet from another team until the close of business on July 5 (prior to 2013, a player subjected to team-elected arbitration could not receive an offer sheet). Additionally, any team-elected salary arbitration must be filed for within 48 hours of the conclusion of the Stanley Cup Finals.