Business Terms

Collective Bargaining Agreement

A collective bargaining agreement, commonly referenced as a CBA, is an agreement between an employer and union to set forth working conditions and terms of employment.

In the NHL, the agreement provides the rules for how the league should operate. The agreement in it’s entirety can be found on the NHL Player’s Association (NHLPA) website. Everything from how revenues are divided, the logistics of trades, contract terms, and salary cap calculations, are just some of the things laid out in the agreement.

Salary Cap

The NHL has what is know as a “hard salary cap.” This means teams are not permitted to exceed the number it is set at, with some exceptions (see LTIR below). For the 2023-2024 season, teams are not permitted to have their players’ aggregate cap hit (Average Annual Value below), exceed the ceiling of $83,500,000. Additionally, to ensure players are receiving their fair share, there is also a salary floor, a minimum each team must spend. For the 2023-2024 season, that is set at $61,700,000. When the regular season starts, teams must be at or above the salary floor and at or below the salary cap. This deadline is usually the day prior to the first game (European games excluded). Prior to the season, teams are allowed to operate as far below the salary floor as they desire. However, they are only allowed to exceed the ceiling by 10% (with LTIR as an exception). No salary cap exists after the last scheduled day of the regular season.

The salary cap is calculated based on the projected hockey related revenue for the upcoming season. To ensure a proper split of hockey related revenues, players’ earnings are subject to escrow withholdings. Escrow is a set percentage for the season (currently 6%) and serves as a sort of reconciliation. This means during the 2023-2024 season 6% of each player’s paycheck will be deducted and set into an escrow account. Once the league and player’s union agrees to the proper split of revenues, any excess in the player’s split is refunded to them from the escrow account.

Top Salary Cap/Team Payroll Resources:

Player Contracts

The CBA dictates a players’ ability to sign contracts. There are three general contract categories that players are able to sign. Once a NHL player signs a contract, they cannot renegotiate that contract. A new contract can be signed at the start of one league year before their contract is set to expire. Players who sign a new contract with the team they were with at the NHL trade deadline are permitted to sign a contract that is up to eight years. If they were not with the team they will be signing with at that point, they are only allowed to sign up to seven years.

  • Entry level – A player joining the league for the first time (whether or not they were chosen in the entry draft) is only able to sign an Entry Level Contract (ELC). Players that sign a contract will forego any future ability to play hockey at a US College/University. The CBA provides specifics on salary structure and length.
    • The length of the ELC is as follows:
      • A player signing age 18-21 – three years
      • A player signing age 22-23 – two years
      • A player signing age 24-27 – one year
    • An ELC is one of two contracts (see 35+) that allows the inclusion of performance bonuses. In addition to the inclusion of performance bonuses, players can receive signing bonuses and will receive a two-way salary (see below).
      • The maximum yearly NHL & AHL salary depends on the year the player was drafted. For players drafted in 2023, those amounts are $950,000 and $82,500 respectively.
  • Standard Player Contract (SPC) – Any player who completes their ELC and has not yet reached the age of 35 will sign a SPC. Players signing SPCs may be either restricted free agents or unrestricted free agents.
    • 10.2(c) Players: A player who has not yet accrued (see below) three professional seasons but has seen their contract expire will become a 10.2(c) player. Players can only receive an offer and sign a new contract with their current NHL organization. Generally, players that receive 10.2(c) status are players who have signed their ELC after the completion of a college season.
    • Restricted Free Agents (RFAs):
      • A player will remain a RFA if:
        • They are under 27 years old OR
        • Accrued less than seven NHL seasons AND
        • Receive a qualifying offer (see below) from their current team
        • A player may also lose RFA status IF they are 25 or older, played at least 3 professional seasons (ECHL/AHL/NHL) AND have played less than 80 NHL games (28 if they are a goalie).
      • Players who meet the below requirements (picture from the NHLPA CBA) become RFAs with arbitration eligibility (see below).
    • Unrestricted Free Agents (UFAs):
      • A player who does not meet the parameters to sign an ELC OR is no longer considered a RFA is considered an UFA.
    • All SPCs can be one to eight years in length and can include signing bonuses.
    • Players may only include performance bonuses in SPCs IF
      • They have previously player at least 400 NHL games AND
      • Spent at least 100 days on Injured Reserve during the previous season AND
      • Sign a one year contract
  • 35+ Contracts – Any player who is at least 35 years old by the start of the league year (July 1st) and eligible to sign a new contract, will sign a 35+ contract.
    • 35+ Contracts can include signing & performance (if one year in length) bonuses.
    • Teams will receive unfavorable salary cap treatment for players on 35+ contracts IF:
      • The contract is for more than one year AND
      • Contains signing bonuses beyond the first year OR
      • Has the salary decrease year over year
    • The unfavorable salary cap treatment would apply in the following situations
      • Retirement: Teams that have players on 35+ contracts that meet the above criteria will continue to count the player’s total cap hit for the length of the original contract if the player retires before the completion of the contract.
      • Assignment to minors: Teams will only receive cap savings $100,000 instead of the usual buried contract (see below) savings (current league minimum salary + $375,000).

Average Annual Value: The average annual value, which impacts how much the player will count against the cap (see below), is calculated by taking the total value of the contract and dividing it by the total years. The value includes salary plus signing bonuses but excludes performance bonuses.

All NHL contract must follow certain rules when it comes salary (including all bonuses) structure.

  • Max Salary: No contract signed can pay a player more than 20% of the current salary cap in any year of the contract. Currently, with the salary cap set at $83,500,000, no player can receive more than $16,700,000 in salary, including bonus. If the player were to sign a multi-year contract, the $16,700,000 maximum would apply to every season the contract covers, regardless of what the future salary cap is set at.
  • Fixed Salary: No contract can have any clause that provides variability in what the salary and signing bonuses will be. For example, a player cannot structure their contract so they are paid 10% of the salary cap in each season of the contract.
  • Salary Variability: In order to determine how the player’s contract may be structured in terms of salary payout (including bonuses), it must be determined whether the contract is considered front-loaded or back-loaded.
    • Front-loaded Contracts:
      • To qualify as a front loaded contract, the salary paid over the first half of the contract must exceed the average annual value of the contract (see below).
        • If the contract is an odd number of years, half of the salary in the middle year (i.e. year four of a seven year contract) would be included in the calculation.
      • If the contract qualifies as a front-loaded contract, the salary in any year cannot exceed 25% of the salary in the first year. Additionally, no year can pay salary that is 60% less than the highest salary of the contract.
        • Example: A six-year contract has been established as a front-loaded contract with a salary of $10,000,000 in the first year. The maximum salary (including bonuses), a player may receive in any of years 2-6 is $12,500,000. If the player receives $12,500,000 in the second year of the contract, the minimum salary they would be able to receive in year 3-6 is $7,500,000 ($12,500,000 * .60).
    • Non-front-loaded Contracts:
      • If the contract fails to meet the specifications to be a front-loaded contract, a different set of rules for salary structure will apply.
      • The increase and decrease of year to year salary will be dependent on whichever is the lower salary, including bonuses, in the first two years of the contract. Let’s abbreviate it LSF2Y.
      • During the first two years of the contract, the difference between the lower and higher salary, including signing bonuses, cannot exceed the LSF2Y. For example, if the salary in the first year were $5,000,000, the maximum the salary can be in the second year is $10,000,000.
      • In subsequent years, the salary (including signing bonuses) may not increase by more than the LSF2Y and may not decrease by more than 50% of the LSF2Y. Continuing the example from above with a $5,000,000 salary in year one and $10,000,000 salary in year two, let’s look at how an eight year contract could be structured.
        • Year 1 – $5,000,000
        • Year 2 – $10,000,000, which is the maximum the salary can rise from Year 1 to Year 2. This sets the LSF2Y at $5,000,000.
        • Year 3 – $7,500,000, which is the maximum decrease allowable from Year 2 ($10,000,000 – ($5,000,000 * 50%)).
        • Year 4 – $5,000,000, which is the maximum decrease allowable from Year 3 ($7,500,000 – ($5,000,000 * 50%)).
        • Year 5 – $10,000,000, which is the maximum increase allowable from Year 4 since the LSF2Y was set at $5,000,000
        • Year 6 – $15,000,000, which is the maximum increase allowable from Year 5 since the LSF2Y was set at $5,000,000
        • Year 7 – $16,700,000, which is the current salary maximum under the current salary cap (83,500,000 * 20%).
        • Year 8 – $14,200,000, which is the maximum decrease allowable from Year 7 ($16,700,000 – ($5,000,000 * 50%)).
        • This contract totals $83,400,000 in salary to be paid over eight years. This contract would carry an AAV of $10,425,000 ($83,400,000/8).

General Contract Terms

  • League Minimum: The lowest amount a team may pay a player in salary for the current season. The current league minimum is $775,000.
  • One-Way Contract: A player will be paid the same salary regardless if they are playing in the minors or the NHL.
  • Two-Way Contract: A player will be paid a different salary if they are in the minors or the NHL. Players receiving two-way contracts may have guaranteed earnings built into their contract, which would provide “insurance” if they were never called up and received any NHL earnings.
    • Players on an Entry-Level Contract will be on a two-way contract.
  • Accrued Seasons: A player will accrue a season if they spend 40 games on a team’s active roster (30 for goalies). Players who are “healthy scratches” would still accrue a season even if they played in 0 games. Being on a conditioning loan counts as being on the active roster.
  • Slide: A player who is 18 or 19 (but does not turn 20 between September 16th and the end of the calendar year) will have their ELC (see above) be pushed a year in their future if they play in no more than 9 NHL games. This means a player who does not play in the NHL until age 20, will not be able to play under a new contract until they are 23. Teams and players may agree to include a clause in their contract to not allow compensation included in the ELC to slide.
  • Signing Bonus: A signing bonus is any compensation paid for signing a contract. Signing bonuses may be included in every year of the contract and are fully guaranteed in the case of a lockout, injury, or buyout.
  • Performance Bonus: See above for the types of contracts that allow performance bonuses. ELCs have standard performance bonuses that Puckpedia.com clearly discusses here. For other contracts, bonuses can be earned for individual benchmark or team achievements. Performance bonuses will not count against the salary cap until after the season has been completed. At that time a team who had enough salary cap space to retroactively add the performance bonuses will face no further cap charge. However, any team who does not have the required cap space (not including Long-Term Injured Reserve (discussed below)) to retroactively apply the bonus will have an overage applied to next year’s salary cap. This means the subsequent year’s available salary cap space for a team is reduced by the amount of performance bonuses that could not be retroactively applied.
    • Example: Team A finished the season with $500,000 in available cap space. After calculating performance bonuses, it was discovered they owe $1,000,000 in bonuses to their players. Since they only had $500,000 available at the end of the season, $500,000 will be retroactively applied and the remaining $500,000 will be subtracted from next year’s available space.
  • Qualifying Offer: A team who has a player that would be considered a RFA (as detailed above) must issue that player a qualifying offer to maintain the player’s RFA status. The qualifying offer will be the lower of the salary in the final year of the player’s contract or 120% of the average annual value of the contract.
  • Offer Sheet: A player who is a RFA and has received a qualifying offer, may receive a contract offer from another team, known as an offer sheet. The player’s previous team will have one week to decide if they will retain the player under the contract signed with the other team or let the other team sign the player. If they decide to let the player go, they can either work out trade compensation or receive draft picks dependent on the contract signed.
    • Draft pick compensation levels are set each year and are dependent on the Average Annual Value of the contract.
      • A contract for more than five years will take the total value divided by five to determine the draft pick compensation level.
    • Draft picks that would be transferred as compensation must be the team’s original draft picks and cannot be substituted for another team’s, even if in the same round. Draft picks will transfer from the next immediate draft, followed by each draft after until the compensation has been satisfied.
    • Example #1: Anaheim has Arizona’s 2nd round pick in the next draft but not their own. In order to submit an offer sheet to Boston’s player, they would either have to offer a contract that would not include a 2nd round pick as compensation or would have to reacquire their pick from Arizona.
    • Example #2: Anaheim has all of their own draft picks and has signed one of Arizona’s players to an offer sheet, that Arizona has declined to match. The compensation for the contract would require two 1st round picks, a 2nd round pick, and a 3rd round pick. Anaheim would transfer Arizona their 1st, 2nd, and 3rd round picks in the next immediate draft. The second 1st round pick would be from the subsequent draft.
  • Arbitration: A player who meets the criteria presented in the Player Contract section to be a RFA with arbitration rights can file for salary arbitration. Additionally, a team may elect to take a player to arbitration if the player is eligible. Players have the ability to file for arbitration every year they are eligible. Teams may only elect to take a player to arbitration once. Once the deadline to file for arbitration passes, any player who has filed or had their team elect for arbitration is no longer able to sign an offer sheet with another team.
  • Waivers: When a NHL team wishes to remove a player, who is no longer waiver exempt, from their roster, they must subject the player to waivers, which allows every other NHL team to put a “claim” on that player.
    • Capfriendly.com does a tremendous job breaking down waiver exemptions. That breakdown can be found here.
      • Waiver exemption only applies to sending a player from the NHL to the minors. It does not apply to buyouts or terminations (discussed below).
    • The team with the earliest priority (based on previous season finish order (think where teams would have drafted prior to the draft lottery) until November 1st and then current standings after) who puts a claim in for the player will have the player transfer to their NHL roster under their current contract.
    • If no team puts a claim on the player, the team may send the player to the minor league or perform a buyout/termination (see below).
    • A team who has previously lost a player on waivers (during the same season, including preseason) may reclaim the player. The player would have to be placed on their NHL roster unless no other team puts a claim in for that player. In that case, the player may go directly to the minor league.
  • Buyout: A team may choose to buyout a player’s contract during the season or during the designated off-season windows. If a team executes a buyout, they will pay the player (and retain as a cap hit) 2/3 (1/3 if the player is under 26) of their remaining salary (plus ALL signing bonuses) that will be spread out equally over two times the number of years remaining.
    • Example: John Smith signed a $12,000,000, four-year contract ($3,000,000 AAV) is bought out after two seasons with $6,000,000 remaining in salary. Smith will be owed $4,000,000 ((2/3)*$6,000,000), that will be paid equally over four years (two years remaining times two). Each year Smith will receive $1,000,000 and his former team will be charged $1,000,000 against their salary cap. During the first two years of the contract, the team will save $2,000,000 in salary cap space ($3,000,000 (original cap hit) – $1,000,000). In the final two years, they will lose $1,000,000 in cap space.
    • Capfriendly.com has a tremendous buyout calculator.
  • Termination: A contract termination ends the player’s current contract with the team. A contract that has been terminated will leave no residual cap hit. A termination will either be mutual or done because the team believes a player has committed an egregious act that goes against the terms of their contract. In the case of a mutual termination, the player and team agree to end the contract after the player clears waivers. This is usually done because the player is looking to sign a contract with a European team.
  • Buried Contract: A player on a one-way contract whose cap hit exceeds the league minimum + $375,000 and is assigned to the minor leagues will be considered a buried contract. The team will continue to have to count their cap less the league minimum + $375,000.
  • No-Trade Clause (NTC): A no-trade clause can be included (and vary) in a contract for every year a player would be eligible to be an unrestricted free agent. Players with no trade clauses can veto a trade destination based on the terms of their clause. If a player waives a no trade clause (accepts a trade they could veto), the player retains the clause after the trade has been completed.
    • Full – A player can veto a trade to any other team
    • Modified/Limited – A player will have to submit a list of teams he CANNOT be traded to. The number of teams that can be included will be negotiated in the contract and can be from 1 to 30.
  • No Move Clause (NMC): All of the above for one of the No-Trade clauses apply plus a player has the ability to veto placement on waivers and assignment to minors.

Long-Term Injured Reserve (LTIR)

A player who is injured and will be out for at least 10 games AND 24 calendar days, may be placed on LTIR. The same can occur during the offseason as well, with assurances from medical personnel that the player will meet those qualifications once the regular season starts.

A team that utilizes LTIR will be able to exceed the salary cap. To determine how much they may exceed the cap by they will:

  1. Determine the cap hit of the injured players. For demonstration, let’s assume the player carries a $5,000,000 cap hit.
  2. Determine how far under the salary cap the team is BEFORE placing the player on LTIR. Let’s assume the team is $1,000,000 under.
  3. Once the player is placed on LTIR, the team will first reach the salary cap limit (an additional $1,000,000).
  4. The team will then be allowed to exceed the salary cap by the remainder of the player’s cap hit. In this example, the team will be allowed to add a player (or players) whose cap hits are $4,000,000 or below ($5,000,000 cap hit less the $1,000,000 the team needed to reach the salary cap ceiling).

The example provided above would be an inefficient use of LTIR because the team would lose the $1,000,000 to reach the ceiling. To maximize salary cap space, a team will first want to get their salary cap as close to the ceiling and then place the player on LTIR. Ideally, the team in this example would be able to recall or sign a player with a $1,000,000 cap hit, which would now allow them to exceed the salary cap by $5,000,000.

More to come to this glossary, including a statistics section! If you have specific requests, feel free to tweet us @afpanalytics or contact us.