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How does cap advantage recapture work?

In order to punish teams for signing “back-diving” contracts under the terms of the 2005 CBA, the NHL implemented a “cap advantage recapture” rule in the 2013 CBA.

Back-diving contracts under the 2005 CBA typically had extra years with low salaries tagged on at the end with the purpose of bringing down the contract’s annual average salary/cap hit. The theory was players would retire and never play those low-salary years, meaning the player would have received more salary than the team was actually charged against the salary cap.

The cap advantage recapture rule effectively forces teams to “pay back” any “cap advantage” they received from these contracts, should the player retire or defect from the NHL before his contract expires. If the player fulfills his contract in full, there are no cap advantage recapture penalties.

The 2013 CBA states that any long-term contract — defined as seven years or more — entered into on or before Sept. 15, 2012, is eligible for cap advantage recapture if a team received a “cap advantage” from it at the time the player retires or defects from the NHL.

The cold, hard details of the rule follow in this FAQ entry, but if that’s not your thing, check out CapGeek’s recapture grid for a quick look at the eligible players and their penalties, or use CapGeek’s recapture calculator to test out your own scenarios.

A “cap advantage” is accrued when the player’s actual salary exceeds his cap hit in a given year. A negative “cap advantage” is applied to that accrual in cases where the player’s cap hit exceeds actual salary in a given season, although it should be noted that teams do not receive a credit for net negative cap advantage.

At the time of retirement/defection, the net “cap advantage” will be “recaptured” — charged against the team’s cap in equal amounts each year until the contract expires. This applies to any team that received a net “cap advantage” from the contract — meaning trading the player won’t make the problem go away — except for teams that dealt the player on or prior to Sept. 15, 2012.

This means that Philadelphia is not responsible for the cap advantage they received with Mike Richards and Columbus is not responsible for the cap advantage they received with Jeff Carter.

Please note, the NHL has confirmed that contracts falling under the “over-35” rule do not qualify for cap advantage recapture. In these cases, should the player retire before his contract expires, the team is charged with his full cap hit under the terms of the “over-35” rule. Chris Pronger is the only case where this applies.

Following is a step-by-step look at how these penalties are calculated for each team that received a “cap advantage” from a player’s contract, upon the player’s retirement or defection from the NHL:

  • Calculate Total Payment: the total actual salary and bonuses paid to the player while with the team
  • Calculate Total Cap Charge: the total number of cap dollars charged against the team’s salary cap for that player
  • Calculate Cap Advantage Recapture: Subtract Total Cap Charge from Total Payment.
  • Calculate Annual Cap Advantage Recapture Penalty: Divide Cap Advantage Recapture by number of league years remaining on the contract.

The Annual Cap Advantage Recapture Penalty applies against the team’s salary cap for each league year remaining on the contract.

If a player retires during the season, cap advantage recapture will be calculated beginning the league year following the player’s retirement.

The first case of cap advantage recapture occurred when Ilya Kovalchuk retired from the NHL in July 2013. Kovalchuk was paid $23 million in actual salary over the first three years of his contract while New Jersey was charged $20 million against the salary cap. Thus, their net “cap advantage” was $3 million, which is recaptured in equal amounts of $250,000 per season for the remaining 12 seasons on Kovalchuk’s contract.

The league has confirmed that both ordinary-course and compliance buyouts supersede cap benefit recapture. However, a player must clear unconditional waivers prior to any buyout — unless he chooses to block the waiver process with a no-move clause, should he have one — and thus could be claimed by another team if the player intends to remain active. In these cases, the buyout is pre-empted and the waiving team is still subject to the recapture penalties they were trying to avoid. Meanwhile, ordinary-course buyouts executed in “back-diving” years typically come with equally stiff cap charges.

Many have speculated teams will delay the retirement of cap-advantage-recapture players and use long-term injured reserve to evade the stiff penalties. In all likelihood, that approach will only be successful if the player actually has a legitimate injury, and since the NHL went to great lengths to ensure cap advantage recapture was part of the 2013 CBA, expect it to be a watchful overseer of any such claim.

Take the example of Brian Rafalski’s retirement in 2011. He had just played a full complement of games in 2010-11 but had nagging knee and back injuries. He described himself as “banged up” but “still healthy” and made a voluntary decision to retire. If a player subject to cap advantage recapture was in a similar situation, it is unlikely a team would be successful in placing him on LTIR because that requires a player to be “unfit to play” by way of injury, illness or disability. In addition, the league has many tools at its disposal to ensure LTIR is not being abused.

Article 50.10, Page 290: “If the League wishes to challenge the determination of a Club physician that a Player is unfit to play for purposes of (LTIR), the League and the NHLPA shall promptly confer and jointly select a neutral physician, who shall review the Club physician's determination regarding the Player's fitness to play.”

Article 16.11, P. 103: “The Commissioner may take whatever steps he deems necessary to investigate the circumstances under which a Player is: (i) placed, or remains, on the Injured Reserve List, or (ii) designated Injured Non-Roster. If the Commissioner has reason to believe that the Injured Reserve List or Injured Non-Roster status has not been utilized properly by the involved Club or otherwise Circumvents any provision of this Agreement, or if he determines that the Club has used the Injured Reserve and/or Injured Non-Roster designations to evade the Active Roster limit, he may take such disciplinary action against the Club as he deems appropriate.”

Another tool at the disposal of the league, specific to the cap advantage recapture rule, is outlined in Article 50.5, P. 267: “The parties shall discuss in good faith the treatment of a Cap Advantage Recapture charge in the case of a retirement "orchestrated" for the sole purpose of delaying the Cap Advantage Recapture charge to the following League Year, and failing agreement, shall arbitrate the issue.”

It should be noted that contracts signed under the 2013 CBA are not eligible for cap advantage recapture because the league brought in new rules to minimize the “back-diving” issue. Limiting contract length to seven years — eight for a re-signing — and defining contract variability boundaries are among them, as well as the Ilya Kovalchuk rule, an amendment to the 2005 CBA.

CBA Reference: Article 50.5, P. 266-268

— By Matthew Wuest –