NHL Teams Taking LTIR Contracts As Way To Circumvent Salary Cap

sawchuk1971

Registered User
Jun 16, 2011
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TSN reporter travis yost states that teams that take in LTIR contacts circumvent the salary cap..

https://www.tsn.ca/ltir-a-lingering-issue-in-cba-negotiations-1.1345265

he states that if the leafs wouldn't be able to pay marner $3.5 mil in salary instead of $9.5 mil..with the leafs taking in LTIR contracts from nathan horton or david clarkson, makes it easier to sign marner at $9.5 mil...

theres a graph on the site comparing the leafs and senators cap obligations and salary obligations....it shows for the leafs are able to have $80 mil in cap obligation but that amount increases when comparing the leafs' salary obligations...

do you think the NHLPA or the owners care about this issue of teams using LTIR contracts as a salary cap loophole?
 

onlyalad

New rule: no goalies.
Jan 13, 2008
7,153
984
I don’t think the teams care. They pay a percentage of total revenue. Ltir contracts allow teams to reach the floor or go over the cap but the league as a whole still pays the same percentage.
The players should care. These contracts come out of their pockets. By letting teams pay above the cap it lowers the amount each player receives league wide. ltirs raise the escrow.
 

mouser

Business of Hockey
Jul 13, 2006
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TSN reporter travis yost states that teams that take in LTIR contacts circumvent the salary cap..

https://www.tsn.ca/ltir-a-lingering-issue-in-cba-negotiations-1.1345265

he states that if the leafs wouldn't be able to pay marner $3.5 mil in salary instead of $9.5 mil..with the leafs taking in LTIR contracts from nathan horton or david clarkson, makes it easier to sign marner at $9.5 mil...

theres a graph on the site comparing the leafs and senators cap obligations and salary obligations....it shows for the leafs are able to have $80 mil in cap obligation but that amount increases when comparing the leafs' salary obligations...

do you think the NHLPA or the owners care about this issue of teams using LTIR contracts as a salary cap loophole?

The bottom line is no matter what teams do with LTIR they can’t spend more then the salary cap on their active roster—currently $81.5m. So I don’t really see it as cap circumvention.

LTIR players are still being paid, and it all counts in the 50/50 share of HRR the players receive.

Given a choice the Leafs would prefer not to be using LTIR this season, but it’s just the way the cookie crumbled.
 

Ted Hoffman

The other Rick Zombo
Dec 15, 2002
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The bottom line is no matter what teams do with LTIR they can’t spend more then the salary cap on their active roster—currently $81.5m. So I don’t really see it as cap circumvention.

LTIR players are still being paid, and it all counts in the 50/50 share of HRR the players receive.

Given a choice the Leafs would prefer not to be using LTIR this season, but it’s just the way the cookie crumbled.
Exactly this. People in LTIR creates cap space land would have you think that Clarkson's $5.2 million gave the Leafs an extra $5.2 million in cap space. It doesn't. It doesn't create cap space at all that wasn't there excluding the player in question.

If you excluded Horton and Clarkson, the Leafs would be in exactly the same position with respect to cap space available; the issue the Leafs have right now is that during the offseason, LTIR doesn't exist. So, both guys count at full value against the cap. What the Leafs are trying to do is wedge themselves as close to the cap as possible including Clarkson and Horton so that by invoking LTIR on them, they can "open up" as much cap space as possible with the LTIR designation. [IMO, this should probably be separate transactions - meaning that they would exhaust cap space, declare LTIR on one guy, then exhaust that cap space before invoking LTIR on the other - but that's a theoretical discussion for another day.]

If the Leafs are sitting at about $75.3 million in contracts excluding Horton and Clarkson [but including Nick Shore and Kevin Gravel, who have 1-way deals for this upcoming season, along with Zach Hyman and Travis Dermott even if both are hurt], then they have $6.2 million in cap space. Invoking LTIR on either or both doesn't give them $10+ million in additional cap space. If they want more, they have to jettison guys who are on 1-way contracts to create it [that's what they did by moving Sparks to Vegas] or wait until the season starts and count injured players as needed to get sufficiently close to be able to invoke LTIR.
 

mouser

Business of Hockey
Jul 13, 2006
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Exactly this. People in LTIR creates cap space land would have you think that Clarkson's $5.2 million gave the Leafs an extra $5.2 million in cap space. It doesn't. It doesn't create cap space at all that wasn't there excluding the player in question.

If you excluded Horton and Clarkson, the Leafs would be in exactly the same position with respect to cap space available; the issue the Leafs have right now is that during the offseason, LTIR doesn't exist. So, both guys count at full value against the cap. What the Leafs are trying to do is wedge themselves as close to the cap as possible including Clarkson and Horton so that by invoking LTIR on them, they can "open up" as much cap space as possible with the LTIR designation. [IMO, this should probably be separate transactions - meaning that they would exhaust cap space, declare LTIR on one guy, then exhaust that cap space before invoking LTIR on the other - but that's a theoretical discussion for another day.]

If the Leafs are sitting at about $75.3 million in contracts excluding Horton and Clarkson [but including Nick Shore and Kevin Gravel, who have 1-way deals for this upcoming season, along with Zach Hyman and Travis Dermott even if both are hurt], then they have $6.2 million in cap space. Invoking LTIR on either or both doesn't give them $10+ million in additional cap space. If they want more, they have to jettison guys who are on 1-way contracts to create it [that's what they did by moving Sparks to Vegas] or wait until the season starts and count injured players as needed to get sufficiently close to be able to invoke LTIR.

I’m not sure if you’ve followed the updates in the past couple years, we have a lot more info now on LTIR, two of the key recently learned elements:

- Summer LTIR is available, it works the same as regular season LTIR in calculating relief against the 110% summer cap. The transition to regular season cap rules including end of training camp LTIR option are still the same.

- If a team has a player on LTIR then exercising a second LTIR gives 100% cap relief—they don’t recalculate the relief based on the cap situation at the time of the second LTIR.

Before the Clarkson trade the Leafs were in an awkward situation:

They had approximately $11m in summer cap space available, and $5.3-$8.4m in potential LTIR space depending on whether a summer LTIR of Dermott and Hyman would be allowed. So there was no advantage to using LTIR. $11m should have been good to sign Marner or defend against an Offer Sheet. But the Leafs had several players they were delaying signing who would have cut into the summer cap space, potentially leaving the Leafs with only the $8.4m or less in LTIR space to match an Offer Sheet or sign Marner. Notably the Leafs signed all these players immediately after the Clarkson trade.

By trading for Clarkson and dropping Sparks, the Leafs dropped their summer cap space from $11m to about $6.6m (before signing those players) and increased the potential LTIR to $10.5m-$13.6m, again depending on Dermott/Hyman. Even at the minimum $10.5m summer LTIR they’re protected better against a possible Marner Offer Sheet then they would have been with signing those additional players and then having something in the $8-9m in summer space, whether via normal cap space or LTIR.

Having the $10.5m-$13.6m in LTIR available also increases the Leafs ability to sign Marner or defend against an Offer Sheet in the regular season then where they would have been with only Horton. Hyman and Dermott are expected to return of course, so any LTIR usage on them shouldn’t be in the long term plan.

There is now the additional wrinkle with Marner that payroll space pro-rates whereas LTIR relief space doesn’t. So if Marner isn’t signed by day 1, and the Leafs are planning to fit his cap hit in via LTIR then the amount of cap space the Leafs have for Marner effectively decreases every day of the regular season he goes unsigned. With Nylander last season the late signing inflated cap hit didn’t matter because the Leafs had pro-rated payroll space to fit him in. Would be different with Marner.

If Marner is unsigned after day 1 we could see some interesting cap stuff. Not to mention the inflated year 1 cap hit appears to only apply to the Leafs, not a potential team signing him to an Offer Sheet.
 
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NorthCoast

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May 1, 2017
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Honest question for those who understand the CBA mechanics much better than I do.

Are we still at a 50/50 Split?

Please correct the following statements if I am wrong.

- If the players salaries make up 50% of revenue, but insurance companies are paying for a % of player salaries, are the owners not pocketing revenue beyond the 50% that should go to the players?

- With front-loaded contracts, by paying players years in advance the owners are essentially also including any interest that would have been earned on the amount between now and when the year when the player earns that salary. So are the players not pocketing revenue beyond the 50% that should go to the owners?

My feeling is that the second issue, front-loading, is a much bigger issue than the first. Just a quick skim on CapGeek comparing AAV to Salary for the top players and almost every player is getting 1-2 mil more in Salary that AAV, ie they are all getting paid out money prior to the year they earned it. For ex: over the course of the contract Tavares will likely earn 2-3 million extra in interest on the front-loaded salary than he would have if he was paid equal to the AAV. You only need to get to 50 mil or so each year for it to swing the split 49/51% in favor of the players. I haven't done the math but I figure it's probably getting close to that already. Thoughts?
 

mouser

Business of Hockey
Jul 13, 2006
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Honest question for those who understand the CBA mechanics much better than I do.

Are we still at a 50/50 Split?

Please correct the following statements if I am wrong.

- If the players salaries make up 50% of revenue, but insurance companies are paying for a % of player salaries, are the owners not pocketing revenue beyond the 50% that should go to the players?

- With front-loaded contracts, by paying players years in advance the owners are essentially also including any interest that would have been earned on the amount between now and when the year when the player earns that salary. So are the players not pocketing revenue beyond the 50% that should go to the owners?

My feeling is that the second issue, front-loading, is a much bigger issue than the first. Just a quick skim on CapGeek comparing AAV to Salary for the top players and almost every player is getting 1-2 mil more in Salary that AAV, ie they are all getting paid out money prior to the year they earned it. For ex: over the course of the contract Tavares will likely earn 2-3 million extra in interest on the front-loaded salary than he would have if he was paid equal to the AAV. You only need to get to 50 mil or so each year for it to swing the split 49/51% in favor of the players. I haven't done the math but I figure it's probably getting close to that already. Thoughts?

a) The owners are paying all of the insurance premiums. While any given year might see a net gain for the owners on benefits gained vs premiums paid, over the long haul the insurance is going to be a net negative return for the collective owners. If the insurance company was continually taking a loss on the NHL group policy then either they're going to hike the premiums or discontinue offering the insurance.

b) One would hope over the long haul that the front/back loaded averages out. Also, front-loading may be triggering an increase in escrow, which could mean the player actually ends up with less money if escrow is higher at the beginning of the contract but lower in the later years.
 

NorthCoast

Registered User
May 1, 2017
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a) The owners are paying all of the insurance premiums. While any given year might see a net gain for the owners on benefits gained vs premiums paid, over the long haul the insurance is going to be a net negative return for the collective owners. If the insurance company was continually taking a loss on the NHL group policy then either they're going to hike the premiums or discontinue offering the insurance.

b) One would hope over the long haul that the front/back loaded averages out. Also, front-loading may be triggering an increase in escrow, which could mean the player actually ends up with less money if escrow is higher at the beginning of the contract but lower in the later years.

a) Duh...of course. Tks.

b) Back-loaded contracts? Don't think I have seen any of those.

Agree on the escrow point IF escrow applies to the total salary amount and not just the AAV. But surely that would be minuscule compared to the 7-8% rate or return they make on the front-loaded money, compounded over the 2-4 years until the mid-point of the contract.

I still think the balance is still tipped heavily in favor of the players here and would be surprised if Front-Loading is not dealt with in the new CBA, unless the players want to stretch escrow over years to account for it...which obviously is a no.
 

David Dennison

I'm a tariff, man.
Jul 5, 2007
5,940
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Honest question for those who understand the CBA mechanics much better than I do.

Are we still at a 50/50 Split?

Please correct the following statements if I am wrong.

- If the players salaries make up 50% of revenue, but insurance companies are paying for a % of player salaries, are the owners not pocketing revenue beyond the 50% that should go to the players?

- With front-loaded contracts, by paying players years in advance the owners are essentially also including any interest that would have been earned on the amount between now and when the year when the player earns that salary. So are the players not pocketing revenue beyond the 50% that should go to the owners?

My feeling is that the second issue, front-loading, is a much bigger issue than the first. Just a quick skim on CapGeek comparing AAV to Salary for the top players and almost every player is getting 1-2 mil more in Salary that AAV, ie they are all getting paid out money prior to the year they earned it. For ex: over the course of the contract Tavares will likely earn 2-3 million extra in interest on the front-loaded salary than he would have if he was paid equal to the AAV. You only need to get to 50 mil or so each year for it to swing the split 49/51% in favor of the players. I haven't done the math but I figure it's probably getting close to that already. Thoughts?
Idk if insurance payouts related to a player injury would count as HRR or not, but you shouldn't forget about deductibles/premiums for insurance. The net positive for owners would be far less than the sticker salary of a player.

Even further, just because a player is on LTIR doesn't necessarily mean insurance would kick in. A team would have to have insurance (not every contract is insured), and insurance would almost certainly challenge paying out a multimillion dollar claim for something like glove rash.
 
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mouser

Business of Hockey
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a) Duh...of course. Tks.

b) Back-loaded contracts? Don't think I have seen any of those.

Agree on the escrow point IF escrow applies to the total salary amount and not just the AAV. But surely that would be minuscule compared to the 7-8% rate or return they make on the front-loaded money, compounded over the 2-4 years until the mid-point of the contract.

I still think the balance is still tipped heavily in favor of the players here and would be surprised if Front-Loading is not dealt with in the new CBA, unless the players want to stretch escrow over years to account for it...which obviously is a no.

There are many back-loaded contacts, though possibly not as many notable ones as front-loaded. I was speaking more that as time goes on and things average out that there should be roughly as many front-loaded contracts in the higher paid years as front-loaded contracts now into the lower paid years, where compensation is less then the AAV. So the players should still be seeing relatively similar year to year total compensation.
 

Ted Hoffman

The other Rick Zombo
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Idk if insurance payouts related to a player injury would count as HRR or not, but you shouldn't forget about deductibles/premiums for insurance. The net positive for owners would be far less than the sticker salary of a player.
Payments are made to the team, not the player. They do not count as HRR, per 50.1(b)(xi). The cost of acquiring insurance is counted in "benefits" as defined in 50.3(a).
 

LadyStanley

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Sep 22, 2004
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hopefully the next CBA prevents players on the LTIR or players who can not pass physicals from being traded

Why? It's a hockey "asset". A team has to trade contracts to get under the cap, and you won't let them trade "dead" space due to an injury? You'd force them to trade 1 or more healthy players to get under the cap? Look at what VGK had to do this year to get under the cap -- let a number of key (and fan favorite) UFAs walk AND trade multiple players (plus the LTIR deal they did) which they got well less than market value as they were squeezed against the cap?
 

edog37

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Why? It's a hockey "asset". A team has to trade contracts to get under the cap, and you won't let them trade "dead" space due to an injury? You'd force them to trade 1 or more healthy players to get under the cap? Look at what VGK had to do this year to get under the cap -- let a number of key (and fan favorite) UFAs walk AND trade multiple players (plus the LTIR deal they did) which they got well less than market value as they were squeezed against the cap?

agreed. This thread sounds a lot like a solution in search of a problem. LTIR has provided no competitive advantage to the team utilizing it for an injured player.
 

mouser

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Payments are made to the team, not the player. They do not count as HRR, per 50.1(b)(xi). The cost of acquiring insurance is counted in "benefits" as defined in 50.3(a).

I don't believe the LTIR contract insurance is included in 50.3(a) as benefits? Can you point out the section that covers it?

If players are charged the premiums but owners receive the benefits that would appear to be an upending of the 50/50 split?
 

justafan22

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Jun 22, 2014
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agreed. This thread sounds a lot like a solution in search of a problem. LTIR has provided no competitive advantage to the team utilizing it for an injured player.

If you're not close to the cap, LTIR is a detriment if you're trying to contend.
 

madhi19

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No owner will raise a stink over this, and neither will the PA. They all either taking advantage of the loophole or want to if given the chance. The only side who could raise hell over this crap are probably insurers. It would not shock me to learn that premium on NHL contracts have raised sharply in the last few years.
 

Ted Hoffman

The other Rick Zombo
Dec 15, 2002
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I don't believe the LTIR contract insurance is included in 50.3(a) as benefits? Can you point out the section that covers it?

If players are charged the premiums but owners receive the benefits that would appear to be an upending of the 50/50 split?
Allow me to restate this. If insurance pays the player, then the cost of the insurance is considered a benefit; if insurance pays the team, then the cost of the insurance is not considered a benefit. [Exhibit 34, Schedule 3.B.iv]

To the extent of who pays: remember that the 50/50 split only deals with HRR - not total revenue and total cost. All that matters is that the players get 50% of HRR, not total revenue. As such, the allocation of costs and benefits on some specific item need not be 50/50 in any way such that 50% of expected costs = payments to players in any way at all. [In fact, attempting to do so would likely be incredibly onerous and probably dramatic increase administration costs in total, which would mean less HRR and ... well, you can take it from there.]
 
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Hivemind

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The NHL itself doesn't care about this, and gave it implicit approval when it violated the CBA by appointing Chris Pronger as head of DoPS while he was still under contract with the Flyers but not playing due to LTIRment.
 
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