Signing Bonuses & The Salary Cap

[Alklha]

So we had a lockout over ridiculous back diving contracts and the League retroactively punished teams that signed players to them

The insane signing bonuses are more of a grey area, certainly less of a circumvention in absolute terms however is it reasonable to argue that these 15 million dollar signing bonuses go against the spirit of the cap since not a lot of teams can afford to play that game.

They didn't retroactively punish them, they simply brought in a term limit and a limit on how much salary could vary in contracts. Teams with those contracts can still simply dump a player on LTIR when the time comes. Also, the last lockout was about reducing the players share of revenue from 57% to 50%.

Will something be done about signing bonuses in the next CBA? Almost certainly. It won't be retroactive punishment, in theory that already exists because the contracts are effectively buyout proof. What we'll probably see is that all new contracts will have a percentage limit on what can be paid in bonus money or that a "signing bonus" can only be paid in the first year. The existing deals will be grandfathered in.

 

[Noldo]

Is there any difference in taxation / social security charges (do the teams pay something like that on players salaries?) between salary and bonuses?

 

[LadyStanley]

Winners and losers from Day 1 of NHL free agency

According to the New York Post, NHL commissioner Gary Bettman handed an edict to the NHL board of governors: To stop handing out signing bonuses for seasons around the next potential lockout in 2020-21.

Tampa Bay Lightning owner Jeff Vinik was a good soldier, foregoing any signing bonus for Ryan McDonagh during those seasons. The Toronto Maple Leafs? Not so much: Tavares will make $70.89 million of his $77 million in signing bonuses and is scheduled to make $11.09 million in bonuses during the 2020-21 season.

Sounds like Bettman and owners won't have as much leverage over a lockout with so many players getting signing bonuses.

 

[New User Name]

I don't see a problem. Dubas said the other teams JT was talking to were offering similar contracts.

Some may feel it's unfair that rich teams have this advantage, oh well, so sad, too bad.

Teams like BlackHawks, Rangers, Leafs, Flyers etc can do this but the money is the same at the end of the day.

But okay, let's stop those teams that have the financial means to structure contracts this way because it's unfair.......but then let's also look at the huge advantage teams in states with no income tax have. I'll suggest that is far more unfair.

 

[AcerComputer]

Teams were punished for cap circumvention with the back diving contract. You'd have to prove that signing bonuses are a form of cap circumvention.

 

[Nervousbreakdown]

They didn't retroactively punish them, they simply brought in a term limit and a limit on how much salary could vary in contracts. Teams with those contracts can still simply dump a player on LTIR when the time comes. Also, the last lockout was about reducing the players share of revenue from 57% to 50%.

Will something be done about signing bonuses in the next CBA? Almost certainly. It won't be retroactive punishment, in theory that already exists because the contracts are effectively buyout proof. What we'll probably see is that all new contracts will have a percentage limit on what can be paid in bonus money or that a "signing bonus" can only be paid in the first year. The existing deals will be grandfathered in.

To be fair they did introduce cap recapture penalties. The PA will never give up these bonuses.

 

[Alklha]

To be fair they did introduce cap recapture penalties. The PA will never give up these bonuses.

Cap recapture penalties, while still allowing players to sit out the end of the deals on LTIR.

You can say that the PA will never give up the bonuses, but the players gave up heavily front loaded contracts, long term contracts and reduced their cut from 57% to 50% in the last lockout. All of those were bigger than the bonus issue.

 

[mouser]

Not a lot of teams can afford to pay out 10s of million of dollars in one go.

Signing bonuses are essentially completely unregulated and it seems to be getting to the point where teams that can afford to pay someone 15 million dollars in one day may have an advantage that the league might find troublesome.

Very few teams can compete with that and the whole point of the cap is to level the playing field so is this an issue? I am not saying it is, I am wondering how people view this trend because it's increasing in intensity. This also means very rich teams get a big advantage as we get closer to the end of a CBA (since signing bonuses are paid even in a lockout I believe), is that something that could be a concern?

Just looking to discuss really.

They are regulated to the extent that salary + signing bonuses can't exceed 20% of the cap in any single season of the contract.

 

[Nervousbreakdown]

Cap recapture penalties, while still allowing players to sit out the end of the deals on LTIR.

You can say that the PA will never give up the bonuses, but the players gave up heavily front loaded contracts, long term contracts and reduced their cut from 57% to 50% in the last lockout. All of those were bigger than the bonus issue.

Bonuses like these give players sooooooo much security though. They also give teams some flexibility in moving a contract, making it more enticing to another team if you can eat the bonus before hand. I think its win win for both sides really, we constantly hear how some smaller markets have tax advantages, maybe larger markets that actually spread money around the league and keep these other places afloat actually deserve this advantage.

 

[mouser]

I think it's highly likely the owners will argue for some limits on signing bonuses in the next CBA. Or perhaps make them subject to buyouts.

The area I think is more "breaking the spirit of the cap" is the trading of players after a signing bonus is paid. Like we saw discussed with ROR yesterday. He was due a $7.5m signing bonus by the end of the day while only carrying a $1m salary for this season. We could have seen a trade situation where team A carried 88% of his salary for the season and 0% of his cap hit. While team B carried 12% of his salary and 100% of his cap hit.

I'd like to see one of two changes:

a) Team A carries 88% of his salary and 88% of his cap hit, while Team B has 12% and 12%. Could still be abused, but I think it's more fair then the current system. Or

b) If a player is traded mid-season after receiving a signing bonus then Team B has to pay Team A a pro-rated % of that signing bonus based on % of the regular season. So in this case Team A would have paid ROR's $7.5m signing bonus, then if they wanted to trade him the next day Team B would have to pay Team A $7.5m as part of the trade. If they wanted to trade him 50% of the way through the regular season then Team B would pay $3.75m as part of the trade.

 

[Alklha]

Bonuses like these give players sooooooo much security though. They also give teams some flexibility in moving a contract, making it more enticing to another team if you can eat the bonus before hand. I think its win win for both sides really, we constantly hear how some smaller markets have tax advantages, maybe larger markets that actually spread money around the league and keep these other places afloat actually deserve this advantage.

You are talking like every player gets them, they don't. Just like every player didn't get the insanely front loaded contracts. Those contracts gave the players so much security as well. They still went away. This isn't an issue the NHLPA is going to live or die by.

Yes, smaller markets typically have tax advantages. Bigger markets are also often viewed as more desirable places to live, which is part of the reason why there is that disparity in tax. The balance is already there.

The current system was meant to be a balance of guaranteed contracts and roster flexibility with buyouts. That balance is being messed with now. I don't really have an issue with it, my team proved yesterday we're fine with paying substantial bonuses on July 1, but I'm realistic that this isn't a road that the League will want to continue going down.

 

[Price is Wright]

I like that these started around Toronto signing Clarkson and now with Tavares, it'll probably be a major issue. Blame the Leafs. It's easy.

 

[New User Name]

I like that these started around Toronto signing Clarkson and now with Tavares, it'll probably be a major issue. Blame the Leafs. It's easy.

I agree. They can't make it more obvious and then we have this gem from the post above yours....

Yes, smaller markets typically have tax advantages. Bigger markets are also often viewed as more desirable places to live, which is part of the reason why there is that disparity in tax. The balance is already there.

Sadly the poster actually believes it.

 

[StreetHawk]

Is that the signing bonuses for all the players in the league that were due today, or the cap hit for all the players signed today?

Because there was like $224MM in cap hit signed so far this UFA period, so it would be weird if those two numbers were that close.

That sounds like all of the bonus money scheduled to be paid on July 1, 2020.
$235 Million over 31 teams is $7.5 million in bonus money per team.

From the Canucks POV, they have: $3 mill for Eriksson, $1 million for Sutter for a total of $4 million on that day. Other teams have more.

McDavid alone has $12 million due that day, Lucic $3 mill, Draisitl $7 mill, Russell, $1 million. Edmonton is paying out $23 million that day, so around 10% of that current number.

The structure of most contracts has the 20-21 season as a low salary paid year. Players are planning to lose a portion of the season. Guess, everyone is expecting one side to opt out of the CBA in Sept 2019, thus making the 19-20 season the final year under the current CBA, thus the 20-21 season is in jeopardy of losing games.

Which also impacts the Seattle Expansion draft. Looking more likely it will be held in 2021 as the NHL would not want Seattle's inaugural season to be delayed by a work stoppage. Key Arena renovations are expected to be done by the start of the 20-21 season, although I haven't heard that any construction has begun on it yet.

 

[BigFatCat999]

Is that the signing bonuses for all the players in the league that were due today, or the cap hit for all the players signed today?

Because there was like $224MM in cap hit signed so far this UFA period, so it would be weird if those two numbers were that close.

That is all the signing bonuses listed on cap friendly for 2020-2021

Average is 7.6 million, 10.8 million puts you in the top 10 of teams

 

[Johno]

I've heard that signing bonuses are figured into the Salary Cap. For instance, if a player signs a 5 year $25 mil contract with a $5 mil signing bonus, the Cap hit should be $6 mil per year for 5 years.

But I'm not seeing that. For instance, look at Brassard's contract here:

Derick Brassard
$5 mil cap hit over 5 years for his $25 mil contract. Yet, there is an $8 mil signing bonus that is apparently not calculated into the cap.

Check out Lundqvist here: Henrik Lundqvist
$59.5 mil over 7 years. $8.5 mil Cap hit. Yet there is a $14 mil signing bonus that is apparently not figured into the cap.

What am I overlooking here? If it were that easy to overstep the cap, reported salaries would be small and everyone would get huge signing bonuses...but that is not the case.

Someone help me out on this please. I'm obviously missing something.

Just like mentioned all before, signing bonuses are a part of the cap hit.
Signing bonus + base salary make up the total salary of any given year.
And the average amount of total salary for the duration of the contract is the cap hit.

I recommend using CapFriendly for contract structure lurking
Jamie Benn - CapFriendly - NHL Salary Caps

 

[Morrison]

This is a tactic by the NHLPA and the player agents to maximize the signing bonuses for the potential lockout seasons so the owners are forced to think twice about to have another lockout. If they want another one, they are forced to pay out large amounts of real dollars when they earn no revenues whatsoever. Some owners (the big ones) can handle that but not everyone like Ottawa, Arizona and Carolina. A lockout can only be executed if all owners agree on that.

 

[StreetHawk]

This is a tactic by the NHLPA and the player agents to maximize the signing bonuses for the potential lockout seasons so the owners are forced to think twice about to have another lockout. If they want another one, they are forced to pay out large amounts of real dollars when they earn no revenues whatsoever. Some owners (the big ones) can handle that but not everyone like Ottawa, Arizona and Carolina. A lockout can only be executed if all owners agree on that.

Either side can opt out by sept 2019. See if either side will do so. Player have protected themselves by both signing bonuses and lower salaries for the 20-21 season.

Well know in 15 months.

 

[McCoy]

Give Lars Eller 4 M contract.
Give Shattenkirk 7,1 M.
Giving Hager 3,5 M.
Giving Corvi 4,6 M.
Giving Petrovic 2,5 M.
Give Nilsson 4,5 M.

Did expect the least those to Seattle in 2020-2021.

 

[cbcwpg]

This is a tactic by the NHLPA and the player agents to maximize the signing bonuses for the potential lockout seasons so the owners are forced to think twice about to have another lockout. If they want another one, they are forced to pay out large amounts of real dollars when they earn no revenues whatsoever. Some owners (the big ones) can handle that but not everyone like Ottawa, Arizona and Carolina. A lockout can only be executed if all owners agree on that.

The "future" lockout is what this writer suggests is the whole reason for the SBs. In general, they will be paid out whether or not the player ever plays a single game for the team. This includes if a season is delayed, shortened, or canceled for any reason, including a work stoppage.

https://thehockeywriters.com/nhl-players-planning-lockout-signing-bonuses/

Look at the Tavares contract.

Year 1, $650k salary, $15.25M sb;
Year 2, $910k salary, $14.99 M sb;
Year 3, $910k salary, $11.09M sb;
Year 4, $910k salary, $8.44M sb;
Years 5-7, $910k salary, $7.04M sb each yr

This is insane. So now for being able to sign a UFA, it's not just about the weather and location, it's about more than can the team pay the salary, it's about how much they are willing to put into a SB because not every team can afford to pay this kind of money when the league isn't playing.

What I don't get is the owners... You have a lockout to get what you want in the CBA, you want a level playing field, and then you specifically let your GM negotiate contracts that break the spirit of the CBA you wanted.

 

[Baccus]

What I don't get is the owners... You have a lockout to get what you want in the CBA, you want a level playing field, and then you specifically let your GM negotiate contracts that break the spirit of the CBA you wanted.

Not all owners want the same things, and most that are willing to spend heavily to buy wins specifically wouldn't care about pushing the boundaries (at least while their team is the one able to buy wins).

It's easy to think of the NHL as one mega-corporation where all the team work in lockstep, but it's really a group of corporations working "together" while trying to "beat" each other, and some will look for any advantage while doing that. Plus they deal in the long term generally, so as far as they are concerned, if they can live through the term of the current CBA, they can "fix" whatever the issue is in the next one.

 

[StreetHawk]

Not all owners want the same things, and most that are willing to spend heavily to buy wins specifically wouldn't care about pushing the boundaries (at least while their team is the one able to buy wins).

It's easy to think of the NHL as one mega-corporation where all the team work in lockstep, but it's really a group of corporations working "together" while trying to "beat" each other, and some will look for any advantage while doing that. Plus they deal in the long term generally, so as far as they are concerned, if they can live through the term of the current CBA, they can "fix" whatever the issue is in the next one.

Big signing bonuses can screw a team over if the player stinks. Eriksson, Ladd, and lucic come to mind here.

No real cap savings from a buyout.

 

[McCoy]

Or those is part of team Seattle:

Sanguinetti 3 million
Shattenkirk 7,5 million
Corvi 2 million
De La Rose 2 million
Fabbri 2 million
Price 12,5 million
E.Kane 3 million

 

[sharkhawk]

How do signing bonuses effect escrow? I think Stamkos is getting only 1 million of his payment in salary this season the rest as a July 1st Bonus. Do they escrow his bonus or only the amount taken as salary. That could be a huge issue with the lower paid players on a team. Also for this players taking the big bucks the first few years is the escrow based on cap or on money paid. If it’s on money paid. I can see why escrow is so high.

 

[StreetHawk]

How do signing bonuses effect escrow? I think Stamkos is getting only 1 million of his payment in salary this season the rest as a July 1st Bonus. Do they escrow his bonus or only the amount taken as salary. That could be a huge issue with the lower paid players on a team. Also for this players taking the big bucks the first few years is the escrow based on cap or on money paid. If it’s on money paid. I can see why escrow is so high.

All compensation is part of escrow. Includes the signing bonus.