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Genius: The NHL Salary Cap Loophole That Is Just Now Being Exposed
June 21, 2011
Over the last three years or so, a famous loophole in the NHL salary cap has been exposed. General managers across the league discovered that they could front-load the contracts of star players and then add on a few years at minimum or near-minimum salary to drive the average cap hit of a player's contract down.
Good examples of this can be seen in Detroit's Henrik Zetterberg, who has a 12-year contract worth $6 million a year; Philadelphia's Chris Pronger, who has a seven-year contract worth $4.9 million a year; and Chicago's Marian Hossa, who has a 12-year contract worth $5.3 million a year.
The most outrageous and most recent form of this loophole, however, lies in Ilya Kovalchuk's contract. Kovalchuk has a 15-year contract with the Devils with a cap hit of just $6.6 million a year. His annual cap hits are a bit different, though, because Kovalchuk receives over $10 million for six of the years.
The obvious loophole is that teams can offer lengthy contracts with pocket change on the final years, which players have no intention of fulfilling, and when the players retire, the team is free of the contract.
Ilya Kovalchuk could very well finish his contract in 2025 at the age of 42, but the likelihood of him retiring at the age of 40 is more likely, and if the New Jersey Devils hadn't added those two years to his contract, he would be a $7.1 million cap hit.
In spite of all this, many people still wonder why you would want to pay a 40-year-old player $6.6 million—unless his name is Nicklas Lidstrom.
It's a legitimate question: Why would you want to pay that much at that age? The answer is clear: By the end of the contract it won't be that much.
This is where the new loophole comes in, and general managers have signed on the dotted line. With the NHL's revenue constantly increasing year after year, the NHL's salary cap increases year after year, and contracts accumulate less money by the time they're finished.
Over the last two years, the NHL's salary cap has increased by over $7 million. Henrik Zetterberg and Marian Hossa were both signed in 2009, when the cap was set at $56.8 million. At that time, Zetterberg and Hossa's contracts took 10.5 percent and 9.3 percent out of their team's salary space respectfully.
Now, with a reported salary cap increase to $64 million, Zetterberg and Hossa's contracts only take 9.4 percent and 8.3 percent respectively.
What's the point? Let's just say, for the sake of argument, that the NHL salary cap keeps increasing at its pace of $7 million every two years. Unlikely as that may be, just assume that is the case. By 2021, at the end of Zetterberg and Hossa's contracts, when they're 40 and 42 years old respectfully, the salary cap would be roughly $99 million.
What does that mean? It means that by the end of their contracts Zetterberg will only count against 6.1 percent of the Red Wings' salary cap, while Hossa will count against 5.4 percent of the Blackhawks' cap. Compare that to the present-day salary cap, where Zetterberg's current contract at 6.1 percent of $64 million would be $3.9 million, while Marian Hossa's current contract at 5.4 percent of $64 million would be worth $3.45 million.
To get even more extreme, by the end of Ilya Kovalchuk's contract, his cap hit would only take out 5.8 percent of the salary cap in 2025. That means in comparison to the current NHL salaries, Kovalchuk would be earning then what is now roughly a contract of about $3.7 million.
While it's obviously a little extreme to assume that the salary cap will be $113 million by 2025, general managers were one step ahead of the game when they signed these front-loaded contracts. While players have a guaranteed payday for multiple years, their salary now might not be nearly as high as the salary of a star NHL player could be in 10 years.