Sunday, July 19, 2009

Creating Cap Space for 2010-2011

When I looked at the Oilers salary situation earlier this month I came to the conclusion that the Oilers should probably move a player out that's making some significant salary among the team's middle 6 forwards. If the Oilers could move a player like O'Sullivan, Moreau or Nilsson they would be in much better (cap) shape going forward. Now, the easiest way to get rid of cap space is to bury a player in the minors. This is an attractive suggestion for fans since we're not the ones spending the money. Now, it may be that Darryl Katz is prepared to bury some players in the minor leagues. If so, then there really isn't any problem, but we have no real reason to believe that this is a strategy that Katz is comfortable with. Another solution is trading players. Sometimes a team can get away with trading away salary without taking much in return (like New York with Gomez, Colorado with Smyth and Calgary with Vandermeer) but most times, I'm lead to believe that this is difficult to do. This leads me to today's topic: buy-outs.

As we all know, the Collective Bargaining Agreement can sometimes be a bit of a strange beast. The way buy-outs are calculated is no exception which brings me to one Robert Nilsson. Because Nilsson is under 26 years of age he would be due to receive one third of the salary remaining on his contract. Nilsson's current cap hit is 2M per season, but because his deal was backloaded he still has 4.5M in salary left to be paid, one third of which is 1.5M. This amount (1.5M) is then paid out to Nilsson over twice the remaining years on his contract. With two years left on his contract, Nilsson would receive 1.5M divided equally into four years which comes to $375,000 per year (page 224 of the CBA). For cap purposes, the actual dollar savings are subtracted from the old cap hit to come up with a new cap number (page 205). In the years after the original contract expires, the amount paid to the player becomes the new cap hit. So if Nilsson were bought out today...

2009-10: 2M old cap hit - (2M salary - 0.375M paid to Nilsson = 1.625M in savings) = 0.375M new cap hit

2010-11: 2m old cap hit - (2.5M salary - 0.375M paid to Nilsson = 2.125 in savings) = 0.125M cap credit

2011-12: 0.375M paid to Nilsson = 0.375M cap hit

2012-13: 0.375M paid to Nilsson = 0.375M cap hit

For this coming season, Nilsson's contribution could probably be adequately replaced with the remaining 1.625M. The Oilers could even use that money to bring in one or two veteran hands that are currently unemployed on one-year deals to help shore up the forwards. In 2010-11 the Oilers have actually gotten a credit for buying out Nilsson. While the credit isn't much, it is $125,000 other teams won't be able to spend. After the 2010-11 season there a number of things to consider but the most important is the expiration of the CBA in September of 2011. By deferring problems to a new CBA the Oilers could well be putting themselves in a more advantageous position. Maybe there will be amnesty buy-outs available, maybe there won't be guaranteed contracts, maybe there won't even be a season (ugh). It's important not to completely throw away those years cap-wise but I don't think that a cap debit of $375,000 is much to fret over.

There are, however, some significant snags to this process. Firstly, before the buy-out is completed, the player must first be offered waivers (page 251). In other words, in order for the Oilers to receive the cap credit they would to hope that Nilsson clears waivers. This is really a win-win situation for Edmonton. If he does get claimed then the Oilers get out from under his contract. If Nilsson doesn't get claimed they can get the credit in 2010-11. This, of course, assumes that Nilsson is less valuable than the cap space he would create. Your mileage may vary on that.

Now, according to section 11.18 each team is only allowed 3 buy-outs outside of the regular buy-out period. This period is June 15th to June 30th as well as the 48 hours after the club receives its final arbitration award (page 251 of the CBA). In other words, this really shouldn't be a problem for the Oilers since they can buy Nilsson out after they come to a settlement with Denis Grebeshkov and not be penalized. Further, to my knowledge, they haven't used any of their 3 "extra" buy-outs so even if they don't come to a decision until later, they could decide to buy Nilsson out regardless. Should the Oilers keep Nilsson for this season but see the cap decline significantly next summer they could still buy him out and receive a cap credit of $83,333 for the 2010-11 season (and a debit of $416,667 for 2011-12).

The other intriguing option this scenario provides is the Oilers setting themselves up for extra cap space in 2010-11 by signing an awkwardly structured contract now to a completely undeserving player. Let's say that Edmonton decides that Ryan Potulny is going to take Nilsson's place as a scoring winger on this team for a year. The Oilers could give Potulny a two-year deal worth 1.95M per season. The maximum discrepancy the Oilers could create would be to offer 1.3M in the first year and 2.6M in the second year. If Potulny plays well, great, keep him. If he's just not very good, then, assuming he clears waivers, you can buy him out which would work as follows:

2010-11: 1.95M old cap hit - (2.6M salary - (2.6M*(1/3)/2 years = 0.433M paid to the player) = 2.167M in savings) = 0.217M cap credit

2011-12: 0.433M cap hit

Now, it doesn't need to Potulny necessarily, just someone that the Oilers have access to (their own RFA or a UFA) who won't be 26 years old until next summer. I think this is a good strategy to use, particularly for the Oilers. Moreau, O'Sullivan, Staios and Stortini are all scheduled to come off the books after the 2010-11 season. Gaining some extra room in 2010-11 at the expense of 2011-12 would probably serve them well. Further, it's a pretty low risk bet if you actually like the RFA that's getting the audition. If Potulny does well, you've found a useful NHL player that you'll keep the rights to. If Potulny does poorly he can be bought out as part of the cap solution for the following season. I think it's basically a win-win.


Maz said...

Just start signing players to 12 year front loaded contracts. Come on, all the cool teams are doing it.

Scott Reynolds said...

It's true that many teams are using that tactic. The fact that the CBA expires before they feel any real consequences of these deals is certainly a feature. Who know what restrictions might look like by that time. For the Oilers, it doesn't work so well since what they (may) need is extra space for the 2010-11. Certain contracts (Nilsson and the Potulny sign and buy-out option) can be bought out to actually manufacture extra room (for players like Gagner and Cogliano) while the Oilers wait for Staios, Moreau and others to come off the books.