Background

Among the 4 major sports, the National Hockey League is arguably at the top of the list when it comes to entertaining trade deadlines. Star players are seemingly on the move every year, though they come at a price. The highest-paid player this season is the NHL’s best, Connor McDavid who, back in 2017 signed an 8-year $100 million dollar contract with an average annual value (AAV) of $12.5 million. With a tight cap, maintaining success while also paying a premium for players is a tough balance NHL team executives have to strike. The NHL’s Collective Bargaining Agreement (CBA) allows teams to obtain salary cap relief in a handful of ways. Whether it be through trade, buyout, or Long-Term Injured Reserve, the NHL’s Collective Bargaining Agreement gives teams a few choices. Teams with more cap room are thus willing to take on salary in exchange for some future value or consideration. This results in a handful of trades where teams act as third-party “brokers”, and take on a portion of a player’s salary, facilitating a trade between two other clubs. Additionally, injured players can be placed on the Long Term Injured Reserve list, giving their teams more cap room. We will look at the inner workings and application of the two primary ways teams can dance around the NHL’s hard cap ceiling. One is Salary Retention, and the other is Long-term Injured Reserve (LTIR). First, we will examine the concept of Salary Retention as it pertains to trades.

Salary Retention

Teams may retain up to 50 percent of a player’s salary in a trade. They may only do it three times during the regular season. In an article published by The Athletic, Michael Russo says the NHL is well aware of which teams have the most cap room. This makes them more willing to serve as third parties in trades. In years past, teams such as the San Jose Sharks, Columbus Blue Jackets, and Minnesota Wild have been involved in three-team trades in years past. They are subject to limitation, however, as a single club can only absorb up to 50% of a player’s salary, and teams can only retain the salaries of three players. While the NHL does have limitations in place, teams will stretch those limitations as much as they can in the name of saving a few dollars in the salary cap. This year, the Arizona Coyotes notably were involved in the New York Ranger’s acquisition of Forward Patrick Kane, whose acquisition was only made possible with the help of the Coyotes. In addition to Kane, the Coyotes used up their two remaining retention slots to pick up some future assets.

Now we turn to Long-Term Injured Reserve, or LTIR for short. Even the most mathematically advanced individuals have trouble decoding the foreign language of the LTIR.

Long-Term Injured Reserve (LTIR)

LTIR has, since its introduction, been a vehicle for teams to exceed the NHL’s salary cap and acquire players with their newly accrued cap space. If a player’s injury keeps him out for longer than 10 games or 24 days in the NHL season, a team may place that player on their Long-Term Injury Reserve list, opening up cap room equal to the average annual salary of the injured player. CapFriendly emphasizes that the “vast majority of details are not specified in the CBA”. So how does it all work?

With the help of CapFriendly, we know that the LTIR merely provides relief if the club's average payroll exceeds the upper salary cap limit (the Cap Ceiling). Three equations determine LTIR relief. The “Basic Equation” is used during the season and off-season. The second is used on the final day of the offseason. The third is used when a team already has a player on LTIR. For our purposes, we will look at the Basic Equation.

But before we dive into the equations, it is important to know what numbers we should use in these calculations.

Using the Basic Equation, we are able to determine the team’s Accruable Cap Space Limit, (ACSL). The ACSL essentially serves as the team's new “cap ceiling”, or “upper limit”. To determine the ACSL, CapFriendly provides an example using the 2017-18 Cap Ceiling.

The ACSL is calculated by taking the current Salary Cap Upper limit (Example: $75 Million in 2017-18) subtracted from the team’s cap space.

If a team has $100,000 dollars in cap space, the ACSL would thus be $74.9M ($75M - $0.1M).

Once a team exceeds its ACSL, the relief pools come into effect.

As mentioned, teams get relief equal to that of the injured player’s average annual salary (AAV) plus salary bonuses (games played, A and B bonuses).

To determine how much a team can exceed the league's upper limit, the equation below gives us an idea:

Exceed Value = ACSL + Salary Relief pool (*not including performance relief pool) - League upper limit

*performance relief comes into effect if the player has performance bonuses in his contract

However, the problem is not in the calculation of the $ amount of relief. It is a rule that when a player is fit to play, a team must activate them. In 2020-2021, Nikita Kucherov was placed on LTIR following surgery at the start of the season. The Tampa Bay Lightning scheduled Kucherov’s surgery with enough time for him to recover and be ready for the playoffs. This allowed the Lightning to acquire more players, eventually ending the season $17.3M over the 2021 upper limit of $81.5M. The key here is that there is no salary cap in the NHL Playoffs, allowing Kucherov to return, and allowing the Lightning to avoid a cap nightmare of sending players down to meet requirements. Did those in the Tampa Bay Lightning organization do anything wrong, or did they merely push a “loophole” to its absolute limit? Will other teams do the same with their injured stars?

Thoughts

With the NHL’s current CBA running through the 2025/26 season, it’s difficult to determine whether this is going to be a point of contention between the League and the Players Association. According to an article from Josh Erickson of ProHockeyRumors, any change would require going to the bargaining table as it would be a “material change” under the current CBA, so real discussion of any change will have to wait until the conclusion of the 2025/26 season. The two sides will undoubtedly have many discussions regarding the use of LTIR and salary retention in trades. Salary retention in trades has long been a staple of NHL transactions, so team owners may shy away from the idea of limiting the tools they have to circumvent the tight cap ceiling. On the surface, using the rules as they were intended shouldn’t draw any attention. It’s how teams take the rule beyond its apparent purpose. Team doctors now get pulled into the fray as their collective opinion could be the difference for a team trying to compete for the Stanley Cup.

While we do not know specifics, is it possible that medical personnel, in conjunction with the Tampa Bay Lightning, kept Kucherov out long enough that they could find a way around the NHL’s tight cap? Similarly, will the Arizona Coyotes, who at this time are not considered a contender, continue to use the abundance of cap space they have to help facilitate high-salary trades? These are situations the NHL would like to avoid, begging the question of their importance come the expiration of the Collective Bargaining Agreement.

The Tampa Bay Lightning’s use of the LTIR in previous seasons has caught the eye of beat writers and fans everywhere. The Arizona Coyotes continue to serve as a broker for other teams and have no plan to stop. I believe this will absolutely come up in some form during negotiations for future agreements.

Sources:

https://www.capfriendly.com/ltir-faq

https://sites.psu.edu/meghoran/2022/03/29/ltir-loophole/

https://www.prohockeyrumors.com/2022/03/nhl-general-managers-could-discuss-closing-ltir-playoff-loophole.html

https://theathletic.com/4260632/2023/02/28/nhl-trade-deadline-ltir-memo/