Guest blogger: ilb2001 … a look at the Cap Advantage Recapture rule

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THE INFAMOUS CAP ADVANTAGE RECAPTURE RULE

By ilb2001

If you take a careful look at the new CBA you’ll notice that, in general, there are plenty of positive moves made to make the league more stable and afford its growth going forward. And even though the owners won, as they usually do in those situations, there are plenty of agreements made that will benefit the players tremendously. One rule, however, does not benefit anyone except Mr. Bettman’s ego. The Cap Advantage Recapture Rule, IMHO, is solely designed to punish everyone (GMs, teams, owners, players) who found a mistake in old CBA. It only applies to when the contract is at least seven years long, and signed before 2013. Instead of admitting to their mistake, fixing it in the new CBA, and moving forward, they decided to create this idiotic rule.

Some ‘heads asked a month or so ago (after Ilya Kovalchuk’s departure) to explain how this rule applies.  Let’s look at the imaginary contract to see how it works before we look at Kovalchuk’s situation and, more importantly, at Brad Richards’ contract.

Briefly, the idea of using this loophole created by an oversight on the NHL’s part, was designed in order to sign an elite player to a huge contract without getting an unsustainable cap hit. Let’s assume the team A wants to sign an elite player X who is 29 year old, at his prime, and wants a $100M contract for 10 years. The team can afford to pay him $10M per year, but can’t accommodate $10M per year cap hit without dismantling its roster. They make an agreement under the table to sign a 15 year, $105M  contract where the player gets paid what he wants ($100M) over 10 years, and (wink, wink) retires at 39, leaving 5 year, $1M per year deal (pocket change, dammit!). That way the team only gets charged $7M ($105M : 15 years) cap hit per year, and after 10 years that number is off the cap books. Everyone is happy. Not so fast.  After registering those contracts during the old CBA, the NHL now decided to punish everyone involved by creating this rule. I find it odd, to say the least. Why would they register those contracts to begin with? Actually, I‘m very surprised the NHLPA didn’t take a stand against this punitive provision.

Below is the imaginary contract:

                              Salary                                                                      Cap Hit

 1st year                $10M                                                                      $7M
2nd Year                $10M                                                                     $7M
3rd Year                 $10M                                                                     $7M
4th Year                 $10M                                                                     $7M
5th Year                 $10M                                                                     $7M
6th Year                 $10M                                                                     $7M
7th Year                 $10M                                                                     $7M
8thYear                  $10M                                                                     $7M
9th Year                 $10M                                                                     $7M
10th Year               $10M                                                                     $7M
11th Year               $1M                                                                       $7M
12th Year               $1M                                                                       $7M
13th Year               $1M                                                                       $7M
14th Year               $1M                                                                       $7M
15th Year               $1M                                                                       $7M

This is how this rule works:

Scenario #1.

The team A and the player X proceed with their original plan, and he retires after 10 years.

Over the first 10 years the team’s cap hit was $3M per year less than the player’s actual salary ($10M-$7M). The team A “benefited” from having $30M (10x$3M) less cap hit than they paid in actual dollars over that period of time. Circumvention? Not if it was allowed, and registered by NHL! Well, the new rule states that the team will be charged back (recapture) with a $30M cap hit spread over the remaining five years of his contract. In this case, team A will be charged with $6M Cap Hit for five years ($30M:5)  without having an actual player, and without paying him a penny.

Scenario #2

The player decided to retire after year 9 of his contract. Had enough. Or wants to play in the KHL. Or his wife had enough of Edmonton.

Well, now the team benefited from “only” $27M (9 years x $3M) of salary over the cap hit . Since the player X now has six years left on his contract, the team gets charged $4.5M cap hit for six years after he retires ($27M: 6 yrs).

Scenario #3

He gets greedy and decides to collect another $1M and retire after year 11, leaving only four years and $4M on the table.

In this case the rule is interesting. During his 11th year the team actually has a cap hit of $6M more than his salary ($7M cap hit – $1M salary). In calculating cap advantage, the team receives a credit for that amount (source: capgeek.com). So now, instead of getting charged for $30M, the team gets charged for $24M ($30M -$6M). Except now the player has only four years remaining on his contract. The team gets charged for $6M per year for four years (contract years 12-15).

Scenario #4

The player gets traded to team B during his contract, let’s say after contract year 8, and still retires from NHL after 10 years. Now, team A would have benefited from only $24M  ($3M x 8 years), while team’s B benefit is $6M (2 years x $2M). Guess what? Both teams get charged. Team A for $24M spread over five years, team B for $6M spread over five years.

Now, let’s look at Richards’ current  contract, and why he HAS TO BE bought out after 2013-2014 season and cannot be traded. It’s a nine-year, $60M deal signed by Mr. Sather.

Year                                                     Salary                                        Cap Hit

2011-12                                                $12M                                     $6.67M
2012-13                                                $12M                                     $6.67M
2013-14                                                $9M                                       $6.67M
2014-15                                                $8.5M                                   $6.67M
2015-16                                                $8.5M                                   $6.67M
2016-17                                                $7M                                       $6.67M
2017-18                                                $1M                                       $6.67M
2018-19                                                $1M                                       $6.67M
2019-20                                                $1M                                       $6.67M

The main issue with this contract (in terms of cap advantage recapture rule, it has many more other issues, lol ) is that during the first two years of his contract his cap hit was $5.33M ($12M-$6.67M) less than his actual salary. Which means that as of this moment the Rangers have already “benefited” from $10.66M cap advantage. If he stays with the team and retires after the 2016-17 season (as it was planned, most likely), that number goes up to $17M. Divided over remaining three years of his contract, the Rangers will get charged with $5.67M of cap hit for three years. If he retires after the 2015-16 season, the charge is $4.17M for four years, etc. If he gets traded, the other team will get charged with some amount (depending when he gets traded), but the bottom line is that, either way, the Rangers would have “benefited” from the largest advantage (salary over cap). They will have to pay some way.

Lastly, this is what happened with Kovalchuk.  He signed a 15-year, $100M contract, with an average cap hit of $6.67M per year.  He “retired’ from NHL after his first three years of contract, leaving 12 years and $77M on the table. Had he stayed for the whole length, and retired just before his salary dips, the Devils would get hit with over $26M penalty divided over 4 years. That’s why he did them a huge favor. This is how his current benefit recapture was calculated:

He played out his first three years at:

Year                                                       Salary                                                    Cap Hit

2011-12                                                $6M                                                       $6.667M
2012-13                                                $6M                                                       $6.667M
2013-14                                                $11M                                                     $6.667M

After that there were 12 years left on his contract. As you can see, the Devils “benefit” was only for one year, and the number was $4.33M ($11M-$6.667M) . However, during the first two years of his contract the Devils’ cap hit was more than his salary by $667K. So they receive a credit of $1.33M ($667K x 2). Their total recapture penalty, therefore, amounts to $3M ( $4.33M-$1.33M). Divided over the remaining 12 years it equals $250K per year. Dammit!

So there you go, ‘heads. I hope it wasn’t too confusing.

Now, tell me, am I wrong in thinking that this rule benefits nobody?

Photo by Getty Images.

                                                               

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127 Comments

  1. crikey ilb – you know far too much about this stuff!! Maybe Slats should get you in as his cap advisor ’cause judging by his lack of movement on Richards he hasnt got a clue about how dangerous this move is!!

  2. thanks for the write-up.

    confusing? yep.

    I heard there is a way to trade someone but pay half their salary. I like to watch hockey, but I don’t have enough free time to get that serious, its like having another job.

  3. The player decided to retire after year 9 of his contract. Had enough. Or wants to play in the KHL. Or his wife had enough of Edmonton.

    ****

    We talking about Gretzky or Pronger here?

  4. Tomb, yes, there is a rule that allows to to do it. It’s called “RETAINED SALARY TRANSACTIONS” rule. Would you like me to explain it too? :-))))

    Kidding, I’m done with guest blogging for now. My tennis vacation is over, and my young daughter is walking already. So I intend to spend most of my time chasing her all over the house.

  5. Ilb thanks for the effort ! Please mark me as absent when Fridays test rolls around though:-)

  6. ILB @ 7:54…….. that’s called the “try and capture the ‘just-started walking daughter rule” . Good luck with that. Probably get a better workout chasing the little one around than you did at tennis camp.

  7. This all just seems like another case of the owners trying to protect themselves from…ummm…themselves. If owners would just learn to say no to these crazy zillion year contracts and sane about contract length, this all would be a non issue. Just because the rule says you can sign someone for 7 years doesn’t mean you HAVE to.

  8. This is why I don’t write a lot about the current Rangers \ NHL. The game’s being run by lawyers and accountants and not hockey men and it’s just not that much fun anymore. And I admire guys like Carp and some of the other writers who can keep up with the way the business of hockey is changing.

  9. Now, I got no fight with any man who does what he’s told, but when he don’t, the machine breaks down. And when the machine breaks down, we break down. And I ain’t gonna allow that in any of you. Not one.

  10. Thanks, guys.

    steveknj- contracts like that are not allowed under new CBA, but were allowed before. My point is that since it was legal to sign these types of contracts, why punish everyone now?

  11. Manny- Capgeek has a glitch in some of the calculators. For example, in Richards’ case, if you try to trade him before his contract dips down, it assigns all $17M to the Rangers as their recapture penalty, *plus* some extra to a team he’s being traded.

  12. [To the tune of “Just the two of us”]

    From the moment I heard Frau say I had a clone, I knew that I’d be safe cuz I’d never be alone. An evil doctor shouldn’t speak aloud about his feelings, my hurt and my pain don’t make me too appealing. I’d hoped Scott would look up to me, run the business of the family, head an evil empire just like his dear old dad, give him my love and the things I never had. Scott would think I was a cool guy, return the love I have, make me want to cry, be evil, but have my feelings too, change my life with Oprah and Maya Angelou. But Scott rejected me, c’est la vie, life is cruel, treats you unfairly, even so, a God there must be, Mini Me, you complete me.

  13. Well done, ilb. Can you imagine an agent trying to explain all of this to the player? Player says, “Save your breath… I trust you implicitly, Moe – exactly how much goes in my pocket and where do I sign?”

  14. Manny gets a ‘feeling’ and his face goes weird. I think he has a case of elevated libido.

  15. Well, I was in a pretty lousy mood, not a blue mood exactly, not an angry mood exactly, couldn’t quite put my finger on the problem but heard about someone who could. And that’s another problem cause you can’t just get a cab to take you to the old man on the mountain, can’t be done. Well I’m counting the time to one o’clock and jump into my wellingtons cause it’s gonna be a real slog, had figured out my mood was kind of a cross between blue and red, you know, kind of a mood indigo. So there I was slogging along in the muck and mire and I knew I needed someone to take my arm, a strong guide because I ain’t walking on Basin Street and these quasi blues were getting to me. Miles and miles passed and I was lost as hell when up shows this lovely filly from Kilamanjaro, shows me a shortcut up the mountain. Finally made it and who pops out of the proverbial cave but that insane monk who says you gonna have an epistrophy. There I was, flying down that mountain like a bird, repeating the mantra he gave me, ‘koko, koko, koko’ when the gd mountain just jumps up and trips me and now I was head over heels cannonballing the rest of the way down that mountain and man didn’t that put paid to my inner journey. Well I finally hit bottom, and my mind was so fuzzy and dizzy because that mountain done be-bopped my head somthing awful, that I was stumbling around thinking to catch the ‘trane not grasping I was still in Africa and you can’t just catch a train to boogie uptown in Illinois when you’re on the downside of a mountain with a broken head in Africa, now can you!

  16. You ain’t been blue
    No no no
    You ain’t been blue…
    ‘Til you had that
    Mood Indigo.

  17. No. 0 on the WBM, C3.

    George, old Carp purposely doesn’t keep up with that nonsense either (third person intended). I let ilb and CTB et al keep me up to date, sort of.

  18. Good to know Henrik is happy with all of us (so long as we pay him 9 million plus.) That’s a start. :)

  19. I don’t think Hank would be stupid enough to go for a contract that’s going to cripple the team in the short-term and possibly harm his chances of getting his hands on the Stanley Cup before he retires.

    I would bet he gets 8yrs at around $8m per, which, if the cap rises as expected next year is a very manageable figure.

  20. Has training camp started yet? Enough posturing and talk, let’s see what kind of team chemistry we have after all the changes last season. No point crying in our beer…until New Year’s eve.

  21. Did you see the heart-warming story about what J.R. Smith did with some of the money from his new contract? He bought himself a $450,000 armored truck, like the banks use, for riding around and clubbing. Well, at least there aren’t any charities that could have used a chunk of change like that.

    Good morning, Sally … if you can hear me!

  22. Good morning, boneheads!

    Disgusting, Carp. That money could feed half a million children and prevent them from dying. Click on my name, ‘heads, if you want to help.

  23. JR Smith does lots of things for charity. Like the time he played REALLY hard in that high school charity game.

  24. Lots of soccer players over here spend hundreds of thousands on cars, but less conspicuous ones like Bentleys, Ferarris, Lamborghinis, Range Rovers & Hummers !!

  25. Yea. Those “futbol” guys make buttloads of money.

    Also, here is hockey being amazing yet again.

    @RobinsonMegan 3h

    Great hockey story this morning. @HockeyCanada is donating $250,000 & @BauerHockey $150,000 of gear to #ABFlood victims, to play this winter

  26. Lets hope Richards has been practising how not to make silly little drop passes and how to skate faster!

  27. The Pittsburgh Tribune-Review reveals Penguins goaltender Marc-Andre Fleury is seeing a sports psychologist this summer, and coach Dan Bylsma acknowledged that Fleury’s mental approach must improve. But he still is the Penguins’ No. 1 goaltender.

  28. Cops hate tinted windows. They’re especially distressed by armored Brink’s trucks filled with a 3AM posse.

  29. @jtbourne 23s

    Oof. MT @mirtle Ducks announce Souray tore a ligament in his wrist during off-season workouts and needed surgery. He’s out 3-to-5 months.

  30. Jeff in South Dakota on

    Schrodinger’s J.R.Smith? Until you open the doors to the armored car, he can be thought of as both alive and dead?

  31. At ESPN Insider, Craig Custance ranks the top 10 groups of forwards in the NHL.

    He places the Rangers group of forwards eighth on the list and notes that they are returning pretty much the group that they finished last season with.

    The Rangers have added Benoit Pouliot and Dominic Moore and lost Ryane Clowe.

    The Rangers will also have Derick Brassard, Derek Dorsett, Mats Zuccarello and likely Chris Kreider for an entire season.

    The Hockey News Yearbook has the Rangers depth chart showing:

    Carl Hagelin, Derek Stepan, Rick Nash
    Benoit Pouliot, Brad Richards, Ryan Callahan
    Chris Kreider, Derick Brassard, Mats Zuccarello
    Taylor Pyatt, Brian Boyle, Derek Dorsett

    Sports Forecaster has the Rangers depth chart listed as:

    Hagelin, Stepan, Callahan
    Kreider, Brassard, Nash
    Pouliot, Richards, Zuccarello
    Pyatt, Boyle, Dorsett

    Both publications have JT Miller ahead of Dominic Moore.

  32. The real question, Carp, is how many bullet proof, bank trucks modified for clubbing purposes do you own?

  33. One should never end one’s sentence with a preposition. This is the type of grammatical error up with which I will not put.

  34. That’s exactly what we have – one. Dorsett. And he’s a comparable midget. Name one other team who has just one skater who will drop gloves. Dorsett’s got a lot of protecting to do.

  35. I know it was you, you broke my heart.

    We definitely need another dropper of the mitts. Asham could be that guy, more playoff goals than Nash. Even though Nash had a “good” playoffs.

  36. Please Seedubb, don’t get me started. As you may already know, I’m not a big fan of -Mister Softie- Nash fan.

  37. [third try… two posts got trapped in moderation]

    Maybe Jagr can sign with the Isles after this season so can be the second player in NHL to play for all 5 Atlantic division teams… a-hole

  38. Not only did Tortorella not use his fourth line properly late last year to bang, he actually had Richards there (!) and benched Asham late. In addition to skill, you need some competitive nastiness and a bit of intelligent meanness to capture a Cup.

    As example, ’94 – Messier, Anderson, Jay Wells, Tikkanen, Beuk, Graves, Kovalev, Kypreos. Kocur et al.

  39. Less Lucy, more Lucic! I wonder if many of our fans fully comprehend the ramifications of losing and not replacing a healthy Clowe.

  40. We can no longer sit back and allow Communist infiltration, Communist subversion, and the International Communist Conspiracy to sap and impurify our boys’ precious bodily fluids.

  41. Seedubb, LOL……one of my favorite Cheers episodes is Woody doing the Veggie Boy commercial!

    “I like it!”

  42. Alice: Sixty-two dollars a week! SIXTY-TWO DOLLARS A WEEK!
    Ralph Kramden: Will you stop that? I don’t want my salary to leak out!
    Alice: *Your salary couldn’t drip out!
    Ralph: Ooh, you’re flirting with death!

  43. Coos – none of Detroit, Edmonton, Phoenix, Chicago carry any real heavyweight. Plus, slight dilution of the old Atlantic division rivalries will (in my opinion) make fighting less prevalent this year, less staged bouts, maybe a few more of those reactive ones.

  44. Hey guys! usually don’t read in the summer but came by and saw this article. Great work!!!

    After reading this though, I think everyone is forgetting something and I think the Rangers are being intelligently sneaky here. Let’s say the scenario proposed happens with richards. After 2016-2017 he retires, and we get hit with an approximate 5.6 million cap hit for 3 years. In theory though, that is 3 years out, and we all know that the salary cap will be significantly increasing over those three years. salary cap has been re adjusted to 64.3 for this year. by the time richards retires, I can’t imagine the salary cap not increasing enough to cover that penalty. Therefore, this brings me to my conclusion – you only buy out richards in case there is someone who is totally worth that money. if not, just keep richards. if someone completely awesome is available next summer, do the buy-out.

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