A recent contract signing and the trades of several all-but-retired players indicates player agents and general managers remain capable of finding loopholes in the NHL’s collective bargaining agreement.
On July 3, the Buffalo Sabres signed recently-acquired center Ryan O’Reilly to a seven-year, $52.5 million contract. Apart from the deal being the largest in Sabres history, as well as a gross overpayment for a player of O’Reilly’s skill set, the salary structure also raised eyebrows.
While O’Reilly’s annual salary-cap hit is $7.5 million, The Buffalo News’ Mike Harrington reported the 24-year-old center will be paid $1 million per season in actual salary. The remainder (87 percent) is being paid out in signing bonuses. He gets $10 million the first season (2016-17), $8 million the second, $7 million the third, followed by $5 million annually over the rest of the term.
O’Reilly’s agent, Pat Morris, described the bonuses as something where his client “gets the money earlier to do what he wants with it.” According to Harrington, what it actually means is O’Reilly’s contract is not only virtually buyout proof, but also apparently allows him to skirt around high escrow payments.
If the Sabres decide at some point to buy out O’Reilly, he will still collect his full bonuses, as the Sabres would only be able to buy out his salary at two thirds its remaining value spread over twice the remaining terms if the buyout comes at age 26 or older. In the unlikely event they try to buy him out at 26 or younger, it’s at one third the remaining value.
NHL players also have a certain percentage of their salaries withheld each year as escrow payments. If the league earns more revenue than projected, the players get most or all of that money back plus interest. If those projections fall short, the league keeps that money.
According to Harrington, NHL players had 14 percent of their base salaries withheld last season in escrow. The Hockey News’ Ryan Kennedy points out bonuses cannot be subtracted for escrow, thus O’Reilly’s deal largely shields him from the clawback.
**UPDATE** “Peter F.” brought to my attention article 50.11 (sub-paras e and f) of the NHL CBA indicates players actually do pay escrow on bonuses as well as their base salaries. I’ve confirmed this with TSN sports legal analyst Eric Macramalla.
Andy Boron of the Sabres blog “Die By The Blade” points out this deal is structured similar to the contract winger David Clarkson signed with the Toronto Maple Leafs two years ago. The unusual structure of Clarkson’s contract was an indication of how players, thanks to creative agents and willing general managers, could legally circumvent buyouts
and escrow payments. Give the value of O’Reilly’s contract, there could be a notable increase in similarly-structured deals over the remainder of this CBA.
The only way the Leafs were able to move Clarkson’s contract was to ship it to the Columbus Blue Jackets earlier this year in exchange for winger Nathan Horton, who could soon face career-ending back surgery. That Blue Jackets GM Jarmo Kekalainen was able to rid his club of an expensive contract for a player who might never take to the ice again wasn’t lost on his peers.
During the recent NHL draft weekend, the Philadephia Flyers traded the rights of Chris Pronger, along with defenseman Nicklas Grossmann, to the Arizona Coyotes for center Sam Gagner. Pronger’s last NHL game was in November 2011. Injuries effectively ended his playing days, but he didn’t officially retire, as that would’ve prevented the Flyers from garnering salary-cap relief by placing him on long-term injured reserve.
Days later, the Boston Bruins included the rights of center Marc Savard, whose last NHL game was in January 2011, to the Florida Panthers in a multi-player deal. Like Pronger, Savard’s career was cut short by injuries, but he also didn’t officially retire so as to allow his team to get cap relief by putting him on LTIR.
Essentially, what the Blue Jackets, Flyers and Bruins did was trade three all-but-retired players, whose salaries still counted against their cap hit, to teams with sufficient cap space willing to absorb them. Pronger’s deal expires in two years, and while the annual cap hit is $4.9 million, his actual salary is now $575K per season. Ditto Savard’s, whose cap hit is just over $4 million annually.
While the Flyers and Bruins were annually placing the duo on LTIR, it was still a salary-cap headache, as they couldn’t do so until the start of the season, and then only if they needed cap relief. Shedding these contracts now spares them that annual problem, giving them more room to work with during the offseason.
Horton’s contract is more expensive ($5.3 million in annual cap hit) and for a longer term (five more seasons), but the deep-pocketed Leafs were willing to absorb that to rid themselves of the underachieving Clarkson. They evidently weren’t troubled by the notion of placing him (if necessary) on LTIR for cap relief.
Bonus-heavy contracts which are buyout proof
and avoids escrow payments will stick in the craw of the good folks at NHL headquarters, as could trading contracts of injured players who might never play in the NHL again.
As with heavily front-loaded contracts under the last collective bargaining agreement, however, there’s very little the NHL can do about it over the course of this CBA. It’s legal cap circumvention, and they’ll have to put up with it. Closing those loopholes will likely be near the top of the league’s list during the next round of collective bargaining in the summer and fall of 2022.