The basics on NHL contract bonuses

It’s a lot more fun remembering how many goals Auston Matthews scored in his first game than how the CBA works. To that end, I have a short primer on contract bonuses to jog your memory.

There are two main types of bonuses:

Signing Bonuses

Signing bonuses are part of the salary, count as part of a player’s cap hit, and are capped at $92,500 for players on ELCs. They are paid out in a lump sum in the summer, and the amount is not included in buyout calculations.

Nearly every player on an ELC in the NHL has a signing bonus, and a lot of them are at the max amount. It would be very unusual for a top draft pick to not have a contract structured that way.

Aside from a lovely bit of cash to spend every July (even players in the NHL get no salary outside the regular season other than the signing bonus payment), the purpose of signing bonuses is multi-faceted.

As said, the amount is left off a buyout calculation, so big signing bonuses are a way to “buyout proof” a contract.  Both John Tavares and Ilya Kovalchuk have contracts dramatically weighted to signing bonuses. The sheer scale of the bonus to salary ratio in Tavares’s deal likely makes his the most buyout proof contract ever.

Since signing bonuses are paid in July, they also partially “lockout proof” a contract. It doesn’t matter what nonsense the NHL gets up to ever, the most salary Tavares can ever lose in one year is less than a million.

The other side of the coin is that a contract, particularly one with a diminishing cash salary amount that has large signing bonuses, makes for an easier trade in the final years of the deal. Matt Martin and Jonathan Bernier have both been dealt by the Leafs after they paid a signing bonus.

Now for the bonus content: contract slides and how they interact with the signing bonus.

Contract Slide

You likely know the 10-game rule. That is, that when a rookie plays more than nine games in the NHL that season counts against his contract. That’s the way it’s often phrased, anyway. What that means is that if a player appears in his 10th game, his contract can’t slide.

A slide is where the ELC pushes forward a year, and the cost control over the player is extended by the team while he’s in the minors or still in junior hockey.

For a contract to slide, the player must be 18 or 19 at the time he signs the ELC and cannot be about to turn 20 in that calendar year.

Some examples: Rasmus Sandin just signed his ELC. He won’t play in the NHL this year so while that contract would normally expire in the summer of 2021, we can safely assume it will run to at least 2022.

Meanwhile Sean Durzi, should he sign a contract right now, would not be eligible to slide, no matter where he played, because he turns 20 later this year. For this reason, you should expect Durzi to sign just as he’s about to join the Marlies and not before.

Only the base salary and performance bonus portions of a contract slide. The signing bonus is paid out as normal. Look at Timothy Liljegren:

Timothy Liljegren via Cap Friendly

That small amount of difference in the eventual cap hit should the player hit the NHL while on his ELC is not significant. The important thing is the extra year or two before he gets a new contract.

The cap hits for players not on the 23-man roster in the NHL at any given time do not count towards the salary cap. The fact that your player in the minors has a contract that has slid isn’t relevant for cap management; it’s about cost control on that player, making it more advantageous to the team to sign young draft picks immediately even if they aren’t ready to play NHL hockey.

That’s it for signing bonuses, now it’s on to the more complicated beast: performance bonuses.

Performance Bonuses

There are two types of performances bonuses available*, each capped at different amounts and restricted to different benchmarks the player has to meet to earn them. While signing bonuses can appear on any contract, performance bonuses are restricted to ELCs and 35+ contracts. How performance bonuses work in terms of cap management is the same, no matter what sort they are or which contract they appear on.

*There is also a games played bonus, which is technically separate, but for our purposes here, that doesn’t matter.

In the normal course of things, you ignore the performance bonuses on a contract. They aren’t added into the cap hit that is calculated from the 23-man roster, and generally we forget they exist. But there are many ways in which they factor into a team’s plans.

Bonus Cushion

Theoretically, on day one of the season, every performance bonus on every contract for a player on the 23-man roster could be earned through the season. Assuming they are, the total of these potential bonuses must fit inside the available cap space the team has.

That’s not very practical, however, and most bonuses don’t get earned, so the CBA allows a bonus cushion, or 7.5 per cent of the upper limit of the salary cap. That is $5,962,500 this season. A teams’ potential bonuses need to fit inside the cap and/or the cushion at all times. For most teams, this cushion is big enough to allow them to operate right at the cap. Exceeding the bonus cushion is the same thing as exceeding the salary cap and carries the same penalties.

LTIR Pool

When teams exceed the upper limit by using the pool of salary space created by players on LTIR, they must consider the potential bonuses on a player’s contract when adding them to the roster by using the LTIR pool.

Last season, the Leafs had several players in the AHL with max ELCs and $850,000 in potential performance bonuses. Those players used $1,775,000 of the LTIR pool when called up, not the $925,000 cap hit we are used to thinking about.

Bonus Rollover

Performance bonuses count against the salary cap as soon as they are earned. If there’s cap space to absorb them, great, we never need speak of it again unless you’re a luxury car salesperson, and you have the player’s phone number.

If the end of year cap space isn’t enough to absorb the bonuses actually earned, then the excess is rolled into the next year and counts against the salary cap, eating into the space just like retained salary or an overpaid player in the press box does.

This season the Leafs have $2,550,000 from last season counting against the cap like a phantom character guy doing some eight minute games on the fourth line.

Summary

Signing bonuses are part of the cap hit for any NHL player, but performance bonuses only count when they’re earned.

Signing bonuses are always paid, but performance bonuses are only paid if they’re earned.

Signing bonuses are always paid, so the team cuts a cheque even if a contract slides, but performance bonuses slide along with the rest of the deal.

Bonus bonus content, in case you can’t remember how many goals Auston scored on day one: