QUANTUM BLOG

Implications of the Salary Cap on the NHL Trade Deadlines

April 24, 2016

The trade deadline is an exciting event in the calendar year of the NHL, when fans of both the best and worst teams are excited to see what their franchise is able to acquire to meet their specific needs. While deadline deals are a symbiotic relationship, the good teams take players to aid their playoff run and poor teams acquire draft picks or prospects to hopefully reverse their fortunes, it may begin to play a less significant role in the NHL season. With minimal growth projected for the salary cap for again this year, due to the struggling Canadian Dollar, teams are facing tougher choices when it comes to signing or trading players and picks. These decisions are further complicated as the top-tier of player’s salaries continue to grow at a rate that outpaces overall salary cap growth. This lack of growth contributed, in a significant way, to the squeezing out of many former NHL players this past offseason as teams sought to spend their money more effectively on younger players. As competitive teams continue to be forced to spend greater and greater percentages of their salary cap on individual players (Toews – 14.7%, Malkin – 13.3%, Subban – 12.6%), they will also have to adapt and find ways to still supplement their elite players with quality supporting players, while doing it more cheaply than before. This is where I believe the trade deadline will come into play. As teams realize that the best way to minimize player salary costs is to draft and internally develop players, teams will become less willing to part with their valuable 1st and 2nd round picks at the trade deadline in exchange for the short-term benefits of acquiring a ‘rental’ player.

 

One of the reasons I believe that prices for ‘rental’ players will decline is that if the salary cap continues to experience marginal growth, the role of draft picks in infusing talent into an NHL roster at a fractional cost will become more important. The way that a draft pick allows teams to maximize the value of their dollar is in the control that it allows teams over the players that they select. When an player is drafted the first contract they sign with the club that owns their rights is called an entry-level contract. The entry-level contract, regardless of the player, has a maximum base salary of $925,000USD, meaning that regardless of the player’s pedigree or potential they are capped on what they can earn in their first few seasons in the NHL. For example, Connor McDavid is slated to earn the league maximum, $925,000, for an entry-level contract, though, his contract’s does have a total value is $2,850,000, provided he achieve both his Class A and B bonuses. Despite his potential bonuses, having a player of McDavid’s calibre (1.3 points per game this season) for a cap hit somewhere between one and three million is a massive coup for any NHL team. The entry-level contract’s maximum salary allows teams to keep players such as; Dylan Larkin (23 goals & 22 assists), Artemi Panarin (30 goals & 47 assists), Johnny Gaudreau (30 goals & 48 assists), and Max Domi (18 goals & 34 assists) on their roster this season for a cap hit of below one million dollars. Each of these players are quality, some arguably elite, top-six scoring forwards, and yet they’re paid some of the lowest salaries in the NHL due to their youth, and the nature of their contracts. For any player, below the age of 25, their first contract with an NHL team is an entry-level contract, and this is a big part of the impetus of teams turning to younger players instead of veterans. In addition, in most cases, entry-level contracts are waivers exempt, meaning players can be transferred between the American Hockey League and National Hockey League without the risk of other teams claiming these young players off waivers. With the level of flexibility, and lack of financial commitment that entry-level contracts provide to teams, draft picks will become increasingly valuable for their ability to infuse both top-end at fractional costs.

 

At the conclusion of a player’s entry-level contract players typically enter what is called restricted free-agency (RFA), which again provides the team with serious leverage when negotiating new contracts with their players. As a restricted free-agent, players only have the ability to negotiate a new contract with one specific team, which negates their ability to instigate bidding and competition between teams to raise their negotiating power. The impact of this leverage can be seen by comparing two contracts which were negotiated over the past two seasons, Patrick Kane’s and Vladmir Tarasenko’s. In 2013-2014 Patrick Kane scored 29 goals and 40 assists in 69 games and was awarded an eight year $10,500,000 contract, which kicked in, in 2015-2016. In comparison, Vladimir Tarasenko scored 37 goals and 36 assists in 2014-2015, and in the offseason singed an eight year $7,500,000 contract. While one can argue that experience, playoff performances, or overall team success played a factor in why Kane signed for significantly more money than Tarasenko, the real reason was that Tarasenko was a restricted free-agent when negotiating his deal. Where Kane would have been able to table offers from any of the NHL’s 30 teams, Taransenko was limited to negotiating with just the St. Louis Blues, or hoping an Offer Sheet from an other club forced the Blues to match the other team’s offer. Due to their lack of leverage while negotiating, restricted free-agents are typically paid significantly less money than comparable players entering unrestricted free-agency.

 

As shown above, drafting and developing a player to the point where they can contribute to a team’s NHL roster is an effective way in minimizing the cost of players up until the point when they are eligible for free-agency. Under the salary cap, the more quality NHL players a team has under their control, signed to either an entry-level contract or as restricted free-agents, the greater the savings they can reap by limiting the salaries of those players. This allows teams to bid competitively for players available via free-agency, while saving the valuable dollars that allow them to remain under the cap. Currently budget teams like the Anaheim Ducks (Rakell, Ritchie, Manson, Despres, Lindholm, Gibson), and the Ottawa Senators (Pageau, Lazar, Puempel, Ceci), have been utilizing entry-level and RFA players as a way to minimize their salary expenses for quite some time. To maximize their ability to compete against teams that spend more money, both of these teams have prioritized retaining their draft picks, especially picks in the 1st and 2nd round, in order to bring in these young, cost controlled assets. This philosophy has allowed the Ducks to spend significant dollars to retain Ryan Kessler, Corey Perry, and Ryan Getzlaf, all while knowing that they will be able to offset those expenses with the savings they earn by employing so many players on entry-level deals or as RFAs. Despite their financial handcuff, the Ducks have remained a strong contender in the Western Conference, and in the process spend nearly $7,000,000 less annually than the Chicago Blackhawks, and other cap spending teams. As the salary cap’s limited growth forces teams to be more creative about how they manage their cap space, looking to teams that have already struggled to be competitive under an even lower financial ceiling can provide valuable insight into future methods that will enable teams to remain competitive, while still staying under the stagnant cap.

 

So how does this affect the NHL trade deadline? When teams make trades at the deadline, it is usually to add complementary, depth pieces to their team in preparation for a hopefully long playoff-run. In return, teams parting with their players tend to receive future draft picks and prospects in an effort to rejuvenate their team, and eventually compete for a spot in the playoffs. As draft picks continue to become a more valuable tool in both limiting a team’s payroll and acquiring young, elite talent, teams will be less willing to part with them in exchange for less than 50 games from a depth ‘rental’ player. While 1st and 2nd round picks have traditionally been the currency of the deadline, they are also the draft picks most likely to turn into the cap friendly players that teams are seeking. Budget teams have already found that the infusion of these young, talented players is far more valuable to a franchise than the acquisition of a ‘rental’ player, and as more teams see this they are likely to follow their example. As teams hang on to their top draft picks, prices for ‘rental’ players will have to fall significantly to meet the reduced demand for their services.

Please reload

© 2020 Quantum Sports Management. All Rights Reserved.

  • Facebook Reflection
  • Twitter Reflection
  • LinkedIn Reflection