The annual NHL buyout period is almost upon us, and here at Pro Hockey Rumors we are going to give you a quick crash course in NHL contract buyouts so that you can make sense of the incoming news.
What is a buyout? Buyouts allow teams to prematurely terminate a player’s contract. The team is still responsible for paying a portion of the player’s salary, but over a longer term and lesser cap hit. If a player is bought out before he turns 26, the team owes him 1/3rd of his salary over twice the remaining contract length. If the player is 26 and older, he is entitled to 2/3rds of his salary over twice the remaining contract length. The player immediately becomes an unrestricted free agent and can sign with any other team.
Why would a team buy out a player? Players are bought out mainly because their performance does not correlate to their salary. In other words, they are paid too much and provide too little. Sometimes it’s an aging vet with a inflated contract, and other times its a well-paid goalie usurped by an up-and-coming rookie. In every event, a team buys out a player to save salary cap space.
What are the salary cap implications? Even though a player’s contract is bought out, the team still carries a cap hit. The cap hit is calculated in two phases: original contract years phase and extra buyout years phase.
In phase one, the cap hit for the year is equal to the difference between the salary initially owed and the salary paid by the buyout, and subtracted from the original SPC’s AAV:
Cap Hit = SPC AAV – (Original Salary Owed – Salary Paid in Buyout)
This equation is used to determine the cap hit in each year of the contract had it not been terminated.
In phase two, the cap hit is equal to the buyout amount the player is paid that year:
Cap Hit = Buyout Salary
Finally, if a player has a no-movement clause (NMC), the team has to first give the player an option to be placed on unconditional waivers.
When can teams buy out players? The official buyout period begins on the later of (a) June 15th, or (b) 48 hours after the end of the Stanley Cup Finals, and ends on June 30th at 5:00pm EST. Teams can buy out as many players as it likes during this time. This year it begins on June 15th.
Teams may also buy out a player outside the buyout period if they meet the following requirements:
- the team has more than one salary arbitration hearing in a given year;
- the player was on the team’s reserve list at the trade deadline; and
- the player’s average salary is $2,750,000* or higher.
If a team meets these three requirements they can buy out up to three contracts outside the regular buyout period.
* in 2013 dollars. This number increases at the same percentage rate of annual increase as the average league salary