THE INFAMOUS CAP ADVANTAGE RECAPTURE RULE
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:
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.
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).
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).
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.