WEBVTT

00:00:00.000 --> 00:00:03.000
Apple podcast title, The Deep Dive, The Hidden

00:00:03.000 --> 00:00:05.360
Economics and Strategy of the NHL Salary Cap.

00:00:05.559 --> 00:00:08.730
Apple podcast description. Ever wonder how professional

00:00:08.730 --> 00:00:11.230
sports teams manage billions of dollars in player

00:00:11.230 --> 00:00:13.810
talent under a rigid financial ceiling? In this

00:00:13.810 --> 00:00:16.449
deep dive, we unpack the fascinating labor economics,

00:00:16.789 --> 00:00:19.390
CBA inefficiencies, and strategic roster building

00:00:19.390 --> 00:00:22.149
behind the NHL salary cap. From the wild west

00:00:22.149 --> 00:00:24.969
of uncapped spending to dramatic labor lockouts,

00:00:25.109 --> 00:00:27.789
17 -year loophole contracts, and the intricacies

00:00:27.789 --> 00:00:31.030
of LTIR waivers and free agency, we explore the

00:00:31.030 --> 00:00:33.170
Wikipedia archives to show you the massive puzzle

00:00:33.170 --> 00:00:35.670
of human capital and professional hockey. Whether

00:00:35.670 --> 00:00:37.210
you're tracking your team's off -season moves,

00:00:37.390 --> 00:00:39.250
or studying high -stakes corporate negotiations,

00:00:39.649 --> 00:00:41.990
this deep dive is your shortcut to understanding

00:00:41.990 --> 00:00:44.509
the complex math, escrow battles, and draft pick

00:00:44.509 --> 00:00:46.350
game theory that builds a championship team.

00:00:46.590 --> 00:00:49.729
Keywords, NHL salary cap, hockey labor economics,

00:00:50.229 --> 00:00:52.789
NHL collective bargaining agreement, sports contracts,

00:00:53.009 --> 00:00:55.990
NHL free agency, salary retention, NHL lockouts,

00:00:56.049 --> 00:00:59.590
LTIR, NHL waivers, offer sheets, escrow. Welcome,

00:00:59.670 --> 00:01:01.289
everyone. We are driving straight into the Wikipedia

00:01:01.289 --> 00:01:04.010
archives today, and we're going to look at the

00:01:04.010 --> 00:01:05.879
National Hockey League salary cap. Right. The

00:01:05.879 --> 00:01:08.560
NHL cap. It's a big one. It really is. Our mission

00:01:08.560 --> 00:01:11.319
for this deep dive is to look beyond the ice,

00:01:11.459 --> 00:01:14.519
you know, and understand this fascinating, incredibly

00:01:14.519 --> 00:01:17.560
high stakes financial puzzle that dictates how

00:01:17.560 --> 00:01:20.819
a massive billion dollar organization actually

00:01:20.819 --> 00:01:23.120
builds a winning roster. And they have to do

00:01:23.120 --> 00:01:25.219
it under some of the strictest financial constraints

00:01:25.219 --> 00:01:27.920
in all of professional sports. Exactly. Because.

00:01:29.129 --> 00:01:31.049
If you're an NBA fan or a Major League Baseball

00:01:31.049 --> 00:01:33.150
fan, you're probably used to luxury taxes. Right,

00:01:33.269 --> 00:01:35.269
where you just pay a fine if you want to overspend.

00:01:35.430 --> 00:01:37.469
Yeah, you just write a bigger check to keep your

00:01:37.469 --> 00:01:39.890
championship window open. But in the NHL, that

00:01:39.890 --> 00:01:42.469
doesn't exist. We're dealing with a hard salary

00:01:42.469 --> 00:01:44.450
cap here. And for anyone listening who maybe

00:01:44.450 --> 00:01:46.629
isn't a massive hockey fan, you really should

00:01:46.629 --> 00:01:49.209
still care about this. What we are really examining

00:01:49.209 --> 00:01:52.829
here is, well, it's a master class in labor relations,

00:01:53.250 --> 00:01:55.569
macroeconomics, and human capital management.

00:01:55.810 --> 00:01:57.930
I mean, we're going to talk about 17 -year contracts.

00:01:58.629 --> 00:02:01.670
teams making huge profits by intentionally losing,

00:02:01.870 --> 00:02:05.109
and what happens when a global pandemic just

00:02:05.109 --> 00:02:08.509
freezes billions of dollars. It is a perfect

00:02:08.509 --> 00:02:10.969
study in what happens when you impose a strict

00:02:10.969 --> 00:02:13.830
corporate framework on a highly competitive market.

00:02:14.129 --> 00:02:16.569
You get general managers constantly trying to

00:02:16.569 --> 00:02:19.270
find and, frankly, exploit loopholes in those

00:02:19.270 --> 00:02:22.870
rules. Let's start with the before picture. Because

00:02:22.870 --> 00:02:24.969
the cap we have today didn't just fall out of

00:02:24.969 --> 00:02:27.699
the sky. No, absolutely not. The modern cap was

00:02:27.699 --> 00:02:30.259
forged through years of really intense labor

00:02:30.259 --> 00:02:32.580
disputes. Right. And those disputes came from

00:02:32.580 --> 00:02:34.960
just this massive financial inequality between

00:02:34.960 --> 00:02:37.800
franchises. The pre -cap era was essentially

00:02:37.800 --> 00:02:40.139
the Wild West. That's a great way to put it.

00:02:40.180 --> 00:02:43.800
Before the 2005 -2006 season, the NHL was the

00:02:43.800 --> 00:02:46.979
only major North American pro sports league operating

00:02:46.979 --> 00:02:50.439
with absolutely no luxury tax, barely any revenue

00:02:50.439 --> 00:02:53.300
sharing, and zero salary cap. So if your ownership

00:02:53.300 --> 00:02:55.400
group had deep pockets, you could literally just

00:02:55.400 --> 00:02:57.819
buy the best roster available. Yeah. The source

00:02:57.819 --> 00:03:00.419
points to the 2001 -2002 Detroit Red Wings as

00:03:00.419 --> 00:03:02.939
the prime example of this. They basically stockpiled

00:03:02.939 --> 00:03:05.060
the most extensive high -end stars money could

00:03:05.060 --> 00:03:07.259
buy, and they won the Stanley Cup doing it. The

00:03:07.259 --> 00:03:08.819
New York Rangers were doing the same thing, right?

00:03:09.080 --> 00:03:11.860
Exactly. Offering massive contracts to veteran

00:03:11.860 --> 00:03:15.080
marquee players just because their specific market

00:03:15.080 --> 00:03:17.580
allowed them to outspend the smaller market teams.

00:03:17.879 --> 00:03:20.259
But what's fascinating here is the opposite side

00:03:20.259 --> 00:03:23.050
of that spectrum. That unchecked spending by

00:03:23.050 --> 00:03:25.750
wealthy clubs was a problem, but the other extreme

00:03:25.750 --> 00:03:28.069
is equally illustrative of why the system was

00:03:28.069 --> 00:03:30.090
completely broken. Oh, you're talking about Harold

00:03:30.090 --> 00:03:32.969
Ballard. Yes, Harold Ballard's ownership of the

00:03:32.969 --> 00:03:35.710
Toronto Maple Leafs. When there is no mandated

00:03:35.710 --> 00:03:39.129
floor, no minimum spending limit ownership can

00:03:39.129 --> 00:03:42.150
just exploit the loyalty of a fan base for pure

00:03:42.150 --> 00:03:45.469
profit. It's wild to read about. The source highlights

00:03:45.469 --> 00:03:48.800
this as a textbook case. Ballard realized that

00:03:48.800 --> 00:03:51.639
in a hockey -crazy market like Toronto, the demand

00:03:51.639 --> 00:03:54.020
was completely inelastic. People were going to

00:03:54.020 --> 00:03:56.000
buy tickets no matter what. Right. The games

00:03:56.000 --> 00:03:58.180
were going to sell out regardless of how competitive

00:03:58.180 --> 00:04:01.969
the team actually was on the ice. He just minimized

00:04:01.969 --> 00:04:04.629
his payroll. He refused to spend money on star

00:04:04.629 --> 00:04:08.030
players. Which led to, what was it? Between 1972

00:04:08.030 --> 00:04:11.090
when he took over and his death in 1990, the

00:04:11.090 --> 00:04:13.250
Maple Leafs had 12 losing seasons. 12 losing

00:04:13.250 --> 00:04:16.509
seasons. But financially, the team remained incredibly

00:04:16.509 --> 00:04:19.589
profitable because the overhead was kept artificially

00:04:19.589 --> 00:04:22.230
low. So you end up with a league where some owners

00:04:22.230 --> 00:04:25.149
are spending upwards of 75 percent of their revenues

00:04:25.149 --> 00:04:28.089
on salaries to chase a cup, while others are

00:04:28.089 --> 00:04:31.230
hoarding cash and icing terrible rosters. It's

00:04:31.230 --> 00:04:35.269
a guaranteed recipe for labor wars. And the NHL

00:04:35.269 --> 00:04:37.689
owners push hard to implement a cap, which was

00:04:37.689 --> 00:04:41.149
a major factor in the 1994 -1995 lockout. That

00:04:41.149 --> 00:04:43.250
dispute shortened the season to just 48 games,

00:04:43.329 --> 00:04:46.149
right? Yeah, but the owners still failed to get

00:04:46.149 --> 00:04:48.149
the cap they wanted that year. So they came back

00:04:48.149 --> 00:04:50.319
to the table with a much harder... line a decade

00:04:50.319 --> 00:04:54.139
later for the 2004 -2005 season. NHL Commissioner

00:04:54.139 --> 00:04:56.819
Gary Bettman demanded what he branded as cost

00:04:56.819 --> 00:04:59.300
certainty. Cost certainty, which is just brilliant

00:04:59.300 --> 00:05:01.519
corporate phrasing for a hard salary cap. And

00:05:01.519 --> 00:05:03.420
the Players Association knew exactly what that

00:05:03.420 --> 00:05:05.100
meant, and they initially vowed they would never,

00:05:05.160 --> 00:05:07.839
ever accept it. The resulting standoff led to

00:05:07.839 --> 00:05:11.060
the historic 2004 -2005 lockout. They canceled

00:05:11.060 --> 00:05:14.009
the entire season. The entire season. Gone. It

00:05:14.009 --> 00:05:16.250
was the very first time a major professional

00:05:16.250 --> 00:05:19.310
sports league in North America had lost a whole

00:05:19.310 --> 00:05:22.269
season to a labor dispute. The sheer magnitude

00:05:22.269 --> 00:05:25.970
of that loss? Zero hockey, zero ticket sales,

00:05:26.250 --> 00:05:29.310
zero television revenue. It eventually forced

00:05:29.310 --> 00:05:31.889
a resolution. Bettman and the owners ultimately

00:05:31.889 --> 00:05:35.269
got their costs certainty. The NHLPA agreed to

00:05:35.269 --> 00:05:38.670
a hard salary cap. For that inaugural post -lockout

00:05:38.670 --> 00:05:43.110
season, the cap was set at $39 million per team.

00:05:43.610 --> 00:05:45.870
You have to understand that $39 million wasn't

00:05:45.870 --> 00:05:47.629
just a random number they pulled out of thin

00:05:47.629 --> 00:05:50.790
air. The actual underlying math of the cap is

00:05:50.790 --> 00:05:53.189
tied directly to the league's overall financial

00:05:53.189 --> 00:05:55.769
health. Let's unpack that math because it sounds

00:05:55.769 --> 00:05:57.610
intimidating, but it's actually pretty straightforward

00:05:57.610 --> 00:06:00.259
once you look at it. The cap is calculated as

00:06:00.259 --> 00:06:02.660
a percentage of the NHL's hockey -related revenue

00:06:02.660 --> 00:06:05.399
from the previous season. The players are legally

00:06:05.399 --> 00:06:07.639
guaranteed a fixed percentage of total league

00:06:07.639 --> 00:06:10.360
revenues. Under the current agreement, that split

00:06:10.360 --> 00:06:13.759
is basically 57 % to the players and 43 % to

00:06:13.759 --> 00:06:15.519
the owners. But wait, how do you guarantee a

00:06:15.519 --> 00:06:17.759
specific percentage of money that hasn't actually

00:06:17.759 --> 00:06:21.120
been generated yet? Ah, that is the million -dollar

00:06:21.120 --> 00:06:23.240
question, or the billion -dollar question. Because

00:06:23.240 --> 00:06:25.939
if the league projects a certain revenue, sets

00:06:25.939 --> 00:06:28.490
the cap... and then the actual revenues fall

00:06:28.490 --> 00:06:31.089
short, the players would end up taking home more

00:06:31.089 --> 00:06:34.790
than their 57 % split. Exactly. And the mechanism

00:06:34.790 --> 00:06:36.889
the league uses to solve that accounting problem

00:06:36.889 --> 00:06:40.189
is probably one of the most contentious elements

00:06:40.189 --> 00:06:43.579
of the whole CBA. Escrow. Escrow. Every player's

00:06:43.579 --> 00:06:45.699
favorite word. To ensure strict compliance with

00:06:45.699 --> 00:06:48.420
that revenue split, a percentage of every single

00:06:48.420 --> 00:06:51.519
player's salary is withheld in an escrow account

00:06:51.519 --> 00:06:54.100
until the season is over and the final revenue

00:06:54.100 --> 00:06:56.180
numbers are audited. So the league holds on to

00:06:56.180 --> 00:06:59.839
their paychecks. A chunk of them, yes. If revenues

00:06:59.839 --> 00:07:02.259
fall short of the projections, the owners keep

00:07:02.259 --> 00:07:04.660
the necessary escrow funds to balance that 57

00:07:04.660 --> 00:07:08.259
-43 split. If revenues meet or exceed expectations,

00:07:08.519 --> 00:07:11.220
the players get that withheld money back. The

00:07:11.220 --> 00:07:13.019
source notes that in the first quarter of the

00:07:13.019 --> 00:07:16.139
2010 -2011 season, the escrow withholding rate

00:07:16.139 --> 00:07:20.040
was 17%. 17%. Can you imagine? Having nearly

00:07:20.040 --> 00:07:22.699
a fifth of your contracted salary held in limbo

00:07:22.699 --> 00:07:26.620
for months depended entirely on macro -level

00:07:26.620 --> 00:07:28.459
league revenues that you can't control. It's

00:07:28.459 --> 00:07:30.740
a massive point of friction. It is. But while

00:07:30.740 --> 00:07:33.060
the owners secured their hard ceiling with escrow,

00:07:33.220 --> 00:07:35.899
the players did secure a capped floor. The lower

00:07:35.899 --> 00:07:38.220
limit of the payroll range. Right. Teams are

00:07:38.220 --> 00:07:40.319
legally forced to spend a minimum amount on...

00:07:40.329 --> 00:07:43.129
player salaries, it prevents another Harold Ballard

00:07:43.129 --> 00:07:46.689
situation. For instance, by the 2011 -2012 season,

00:07:46.829 --> 00:07:50.230
that minimum floor was already up to $48 .3 million.

00:07:50.860 --> 00:07:54.040
And sitting that floor actually exposed this

00:07:54.040 --> 00:07:57.560
totally fascinating macroeconomic wrinkle that

00:07:57.560 --> 00:07:59.980
is entirely unique to the NHL. It has to do with

00:07:59.980 --> 00:08:02.220
the Canadian currency. Yes. The NHL operates

00:08:02.220 --> 00:08:04.860
with seven Canadian franchises. Their localized

00:08:04.860 --> 00:08:07.180
revenues, ticket sales, hot dogs, regional broadcasting

00:08:07.180 --> 00:08:09.459
rights. They take all that in in Canadian dollars.

00:08:09.560 --> 00:08:12.399
But the CBA strictly mandates that all player

00:08:12.399 --> 00:08:15.019
contracts across the entire league must be paid

00:08:15.019 --> 00:08:17.350
out in U .S. dollars. It's a structural necessity.

00:08:17.750 --> 00:08:20.529
If teams could pay players in a weaker currency,

00:08:20.829 --> 00:08:23.529
trying to calculate league -wide compliance would

00:08:23.529 --> 00:08:25.769
be mathematically impossible. People would be

00:08:25.769 --> 00:08:28.329
hiding money in exchange rates. But at the turn

00:08:28.329 --> 00:08:30.709
of the century, the Canadian dollar was exceptionally

00:08:30.709 --> 00:08:33.590
weak compared to the U .S. dollar. Right, which

00:08:33.590 --> 00:08:36.570
created a severe operational handicap for those

00:08:36.570 --> 00:08:38.970
Canadian teams. They were collecting revenues

00:08:38.970 --> 00:08:42.289
in a weak currency but had to pay massive payrolls

00:08:42.289 --> 00:08:45.100
in a strong currency. So to keep those Canadian

00:08:45.100 --> 00:08:47.700
markets alive, the American based teams actually

00:08:47.700 --> 00:08:51.100
agreed to fund a revenue sharing pool specifically

00:08:51.100 --> 00:08:54.120
to protect franchises from the exchange rate

00:08:54.120 --> 00:08:56.620
disparity. But then the global economy shifted.

00:08:56.840 --> 00:08:59.799
By 2010, the Canadian dollar surged in value.

00:08:59.960 --> 00:09:02.519
It eventually reached parity with the U .S. dollar.

00:09:02.639 --> 00:09:05.059
Which flipped the whole script. Totally. Suddenly,

00:09:05.200 --> 00:09:07.539
Canadian revenues, when converted to U .S. dollars

00:09:07.539 --> 00:09:10.389
for the league's accounting, skyrocketed. This

00:09:10.389 --> 00:09:12.970
inflated the league wide revenue pool, which

00:09:12.970 --> 00:09:15.529
drove the salary cap up for everybody. So you

00:09:15.529 --> 00:09:17.990
had Canadian teams suddenly paying into the revenue

00:09:17.990 --> 00:09:20.850
sharing plan to subsidize struggling U .S. teams

00:09:20.850 --> 00:09:23.090
that couldn't afford to hit the new higher cap

00:09:23.090 --> 00:09:26.190
floor. It's wild. It just illustrates how linked

00:09:26.190 --> 00:09:30.009
the on ice product is to global economics. But

00:09:30.009 --> 00:09:32.389
even with the cap and floor established, general

00:09:32.389 --> 00:09:34.690
managers immediately started looking for loopholes.

00:09:34.809 --> 00:09:37.129
Oh, yeah. Here is where it gets really interesting.

00:09:37.529 --> 00:09:40.669
Teams wanted to maximize their rosters, so they

00:09:40.669 --> 00:09:43.250
targeted how a player's cap hit is calculated.

00:09:43.590 --> 00:09:45.610
Because a player's cap hit isn't their actual

00:09:45.610 --> 00:09:48.529
real -world salary for that specific year. Right,

00:09:48.549 --> 00:09:51.250
it's the average annual value, the AAV. You take

00:09:51.250 --> 00:09:53.129
the total money of the contract and divide it

00:09:53.129 --> 00:09:56.049
by the total years. So to exploit this math...

00:09:56.240 --> 00:09:58.700
teams started designing these massive, heavily

00:09:58.700 --> 00:10:00.860
front -loaded contracts. They would structure

00:10:00.860 --> 00:10:03.860
a deal to pay a star player huge actual cash

00:10:03.860 --> 00:10:05.840
in the first few years, and then they'd just

00:10:05.840 --> 00:10:08.519
tack on several highly unlikely years at the

00:10:08.519 --> 00:10:10.580
end of the contract at the league minimum salary.

00:10:10.799 --> 00:10:12.639
Right. Both sides knew the player was going to

00:10:12.639 --> 00:10:15.240
retire long before those final years. But mathematically,

00:10:15.620 --> 00:10:18.340
those cheap fake years dragged down the overall

00:10:18.340 --> 00:10:21.379
AAV, creating artificial cap space in the present.

00:10:21.639 --> 00:10:24.159
The Ilya Kovalechik contract is the most notorious

00:10:24.159 --> 00:10:28.120
example from our source. July 2010, the New Jersey

00:10:28.120 --> 00:10:30.519
Devils tried to sign him to a 17 -year deal.

00:10:30.960 --> 00:10:34.320
17 years. The structure was so obviously designed

00:10:34.320 --> 00:10:37.460
to cheap the spirit of the cap that the NHL stepped

00:10:37.460 --> 00:10:40.370
in and officially nullified the contract. And

00:10:40.370 --> 00:10:43.149
he wasn't the only one. Elite players like Chris

00:10:43.149 --> 00:10:45.889
Pronger, Roberto Luongo, Marion Hossa, they were

00:10:45.889 --> 00:10:48.909
all playing under similar front -loaded cap circumvention

00:10:48.909 --> 00:10:51.649
structures. So the league fought back. During

00:10:51.649 --> 00:10:55.470
the 2012 -2013 CBA negotiations, they aggressively

00:10:55.470 --> 00:10:58.049
closed this loophole. They implemented stripped

00:10:58.049 --> 00:11:01.129
term limits. Now there's a maximum of seven years

00:11:01.129 --> 00:11:04.649
for free agents or eight years if a team is resigning

00:11:04.649 --> 00:11:07.610
their own player. No more 17 -year deals. They

00:11:07.610 --> 00:11:10.049
also put severe restrictions on salary variance.

00:11:10.269 --> 00:11:13.190
A contract's actual cash salary from year to

00:11:13.190 --> 00:11:16.639
year cannot vary by more than 35%. And no single

00:11:16.639 --> 00:11:19.000
year can drop below 50 % of the highest paid

00:11:19.000 --> 00:11:21.519
year. Which effectively killed the 15 -year cheat

00:11:21.519 --> 00:11:23.360
code contract. But of course, that created a

00:11:23.360 --> 00:11:25.399
secondary problem for general managers. Right.

00:11:25.620 --> 00:11:27.960
What happens if you sign a player to a legal,

00:11:28.000 --> 00:11:30.620
expensive, multi -year deal, and they suddenly

00:11:30.620 --> 00:11:33.240
just forget how to skate? Their performance declines,

00:11:33.240 --> 00:11:35.960
and you're trapped with that massive AAV on your

00:11:35.960 --> 00:11:39.059
books. The NHL does provide a mechanism for cap

00:11:39.059 --> 00:11:41.980
relief called a buyout, but it is highly punitive.

00:11:42.179 --> 00:11:44.539
Unlike the NFL, right, where contracts aren't

00:11:44.539 --> 00:11:47.480
always fully guaranteed. Exactly. In the NHL,

00:11:47.500 --> 00:11:49.960
a team can buy out a contract, but they still

00:11:49.960 --> 00:11:52.500
retain a significant chunk of the financial and

00:11:52.500 --> 00:11:55.980
cap burden. If the player is under 26, the team

00:11:55.980 --> 00:11:58.419
pays one -third of the remaining base salary.

00:11:58.620 --> 00:12:01.740
If they're 26 or older, they pay two -thirds.

00:12:01.980 --> 00:12:04.539
And crucially, that buyout cap hit is spread

00:12:04.539 --> 00:12:06.600
out over twice the remaining length of the original

00:12:06.600 --> 00:12:09.919
contract. It haunts you for years. It does. But

00:12:09.919 --> 00:12:12.740
there is a massive structural catch to buyouts,

00:12:12.799 --> 00:12:14.919
and it revolves around signing bonuses. Yes.

00:12:15.259 --> 00:12:17.879
According to the source, signed bonuses are fully

00:12:17.879 --> 00:12:20.620
guaranteed. They provide zero cap relief in a

00:12:20.620 --> 00:12:23.279
buyout. None. If a team buys out a player, the

00:12:23.279 --> 00:12:26.039
bonus portion must be paid in full, and its entire

00:12:26.039 --> 00:12:28.019
cap hit stays on the books for the year it was

00:12:28.019 --> 00:12:30.159
scheduled to be paid. So if you're a top -tier

00:12:30.159 --> 00:12:33.159
player or a smart agent, you demand a contract

00:12:33.159 --> 00:12:35.460
that is mostly signing bonuses. It makes you

00:12:35.460 --> 00:12:37.950
practically impossible to buy out. It also makes

00:12:37.950 --> 00:12:40.669
you largely lockout proof, since bonuses are

00:12:40.669 --> 00:12:43.509
typically due on July 1st, regardless of whether

00:12:43.509 --> 00:12:46.169
a labor stoppage happens in September. The players

00:12:46.169 --> 00:12:48.330
definitely figured that out. And then there's

00:12:48.330 --> 00:12:51.149
the 35 and over rule. The league put this in

00:12:51.149 --> 00:12:53.929
to stop teams from simply burying bad veteran

00:12:53.929 --> 00:12:56.820
contracts in the minor leagues. Right. If a player

00:12:56.820 --> 00:12:59.279
signs a multi -year deal when they are 35 or

00:12:59.279 --> 00:13:02.600
older, their cap hit stays fully on the team's

00:13:02.600 --> 00:13:04.860
books from the second year onward, even if they

00:13:04.860 --> 00:13:07.340
retire or get sent down to the minors. Speaking

00:13:07.340 --> 00:13:09.960
of the minors, sending a player down is a huge

00:13:09.960 --> 00:13:12.659
calculated risk anyway because of waivers. Yes,

00:13:12.720 --> 00:13:15.000
the waiver wire. If a team wants to send a veteran

00:13:15.000 --> 00:13:16.799
to the American Hockey League to clear a cap

00:13:16.799 --> 00:13:20.110
space, they have to expose them to waivers. Any

00:13:20.110 --> 00:13:22.549
other team has 24 hours to claim that player

00:13:22.549 --> 00:13:24.769
and take on their contract. And even if they

00:13:24.769 --> 00:13:27.409
clear waivers, the CBA caps the amount of cap

00:13:27.409 --> 00:13:29.570
relief you actually get from burying a deal.

00:13:29.669 --> 00:13:32.009
You can't just hide a $10 million mistake in

00:13:32.009 --> 00:13:35.450
the AHL. The only real exception, and honestly

00:13:35.450 --> 00:13:37.570
one of the most complex parts of this whole system,

00:13:37.710 --> 00:13:41.429
is long -term injured reserve, or LTIR. Ugh,

00:13:41.590 --> 00:13:45.309
LTIR. If a player suffers a severe long -term

00:13:45.309 --> 00:13:47.769
injury, the team doesn't just erase their cap

00:13:47.769 --> 00:13:50.419
hit. Instead, the team is permitted to exceed

00:13:50.419 --> 00:13:53.480
the salary cap by an amount roughly equal to

00:13:53.480 --> 00:13:57.019
the injured player's AAV. Functionally, LTIR

00:13:57.019 --> 00:14:00.500
has become this crazy strategic tool. If an older

00:14:00.500 --> 00:14:03.360
player on a massive contract has a career ending

00:14:03.360 --> 00:14:05.779
injury, they don't actually officially retire.

00:14:06.399 --> 00:14:08.379
Because retiring means giving up their remaining

00:14:08.379 --> 00:14:11.440
salary. So they just stay on LTIR until the contract

00:14:11.440 --> 00:14:13.960
naturally expires. Exactly. It allows the team

00:14:13.960 --> 00:14:16.700
to use that relief pool to operate above the

00:14:16.700 --> 00:14:19.279
cap ceiling. It's completely legal, but it requires

00:14:19.279 --> 00:14:21.919
these highly complex daily cap gymnastics in

00:14:21.919 --> 00:14:23.740
the front office. And those daily gymnastics

00:14:23.740 --> 00:14:27.350
extend directly into trades. In 2005, the league

00:14:27.350 --> 00:14:30.330
banned trading pure cash for a player. Wealthy

00:14:30.330 --> 00:14:32.389
owners couldn't just buy draft picks from cash

00:14:32.389 --> 00:14:34.350
-poor teams anymore. So how do you make trades

00:14:34.350 --> 00:14:36.309
happen when every single team is pressed right

00:14:36.309 --> 00:14:38.690
up against the cap ceiling? You play salary Tetris.

00:14:38.850 --> 00:14:41.830
Salary retention. Introduced in the 2013 CBA.

00:14:42.320 --> 00:14:44.659
A team trading a player can agree to retain up

00:14:44.659 --> 00:14:47.419
to 50 % of that player's remaining salary and

00:14:47.419 --> 00:14:49.820
cap hit. Which makes the player way more attractive

00:14:49.820 --> 00:14:52.519
to the team acquiring them. But, again, it's

00:14:52.519 --> 00:14:54.919
strictly regulated. You can only retain a maximum

00:14:54.919 --> 00:14:58.179
of 15 % of the upper cap limit in total, and

00:14:58.179 --> 00:15:00.500
you can only have three retained salary contracts

00:15:00.500 --> 00:15:02.919
on your books at any one time. You have to be

00:15:02.919 --> 00:15:06.139
incredibly judicious. You can't just retain salary

00:15:06.139 --> 00:15:09.779
to dump every mistake you've made. And this rigidity

00:15:09.779 --> 00:15:12.860
also dictates free agency. Right. Let's look

00:15:12.860 --> 00:15:14.779
at the difference between unrestricted free agents,

00:15:14.879 --> 00:15:18.700
UFAs, and restricted free agents, or RFAs. UFAs

00:15:18.700 --> 00:15:20.559
are exactly what they sound like. Players who

00:15:20.559 --> 00:15:22.799
hit a certain age or accrued seasons and can

00:15:22.799 --> 00:15:25.919
offer their services to any team. But the RFA

00:15:25.919 --> 00:15:29.120
market, the group two free agents, this is where

00:15:29.120 --> 00:15:31.409
the real game theory comes in. These are younger

00:15:31.409 --> 00:15:33.549
players coming off their entry -level contracts.

00:15:33.850 --> 00:15:36.110
Their original team retains their negotiating

00:15:36.110 --> 00:15:38.889
rights as long as they extend a qualifying offer.

00:15:39.090 --> 00:15:41.570
However, a rival team can aggressively pursue

00:15:41.570 --> 00:15:44.490
an RFA by giving them an offer sheet. The drama

00:15:44.490 --> 00:15:46.809
of the offer sheet. If the player signs it, the

00:15:46.809 --> 00:15:49.350
original team has exactly seven days to match

00:15:49.350 --> 00:15:51.690
the contract terms perfectly or let the player

00:15:51.690 --> 00:15:54.559
walk. And if they don't match it... The poaching

00:15:54.559 --> 00:15:56.899
team gets the player, but they have to pay a

00:15:56.899 --> 00:15:59.440
brutal penalty in future draft picks. This is

00:15:59.440 --> 00:16:02.299
where poison pill contracts come into play. A

00:16:02.299 --> 00:16:05.200
rival GM will structure an offer sheet with massive

00:16:05.200 --> 00:16:08.059
front -loaded signing bonuses. They know the

00:16:08.059 --> 00:16:09.700
original team might be dealing with internal

00:16:09.700 --> 00:16:12.240
cash flow issues and literally can't afford to

00:16:12.240 --> 00:16:15.059
match the actual cash payout. But the cost of

00:16:15.059 --> 00:16:17.440
doing that? I mean, you're paying in future assets.

00:16:17.899 --> 00:16:21.059
Draft picks are the absolute lifeblood of a salary

00:16:21.059 --> 00:16:23.940
cap system because they are cheap, cost -controlled

00:16:23.940 --> 00:16:26.519
labor for up to three years. The compensation

00:16:26.519 --> 00:16:29.460
brackets are incredibly steep. According to the

00:16:29.460 --> 00:16:33.000
source's 2024 numbers, if you sign an RFA to

00:16:33.000 --> 00:16:36.679
an AAV between roughly $7 million and $9 .3 million,

00:16:36.960 --> 00:16:39.120
you have to give up a first, second, and third

00:16:39.120 --> 00:16:41.320
round draft pick. And if you push into the highest

00:16:41.320 --> 00:16:44.840
tier stealing a player for over $11 .7 million.

00:16:45.690 --> 00:16:47.889
The compensation is four first round draft picks.

00:16:48.049 --> 00:16:50.669
Four first rounders. You are mortgaging a half

00:16:50.669 --> 00:16:53.049
decade of your franchise's future for one guy.

00:16:53.330 --> 00:16:55.289
Which is why we almost never see offer sheets.

00:16:55.450 --> 00:16:57.409
The risk is just terrifying for a general manager.

00:16:57.649 --> 00:17:00.450
If an RFA doesn't get an offer sheet and can't

00:17:00.450 --> 00:17:02.549
agree on a deal, they can go to salary arbitration.

00:17:02.769 --> 00:17:05.309
The player and the team argue before an independent

00:17:05.309 --> 00:17:08.150
arbiter who decides a fair AAV. But the owners

00:17:08.150 --> 00:17:10.900
built an escape hatch there, too. If the arbiter

00:17:10.900 --> 00:17:13.200
awards a contract above a certain threshold,

00:17:13.500 --> 00:17:16.900
which was over $4 .5 million as of 2021, the

00:17:16.900 --> 00:17:19.859
team has 48 hours to exercise walkaway rights,

00:17:20.000 --> 00:17:22.400
making the player an unrestricted free agent

00:17:22.400 --> 00:17:24.599
immediately. And you have to remember, every

00:17:24.599 --> 00:17:27.099
single mechanism we've talked about, escrow,

00:17:27.359 --> 00:17:30.859
LTIR, offer sheets, it all relies on the assumption

00:17:30.859 --> 00:17:33.619
that league revenues will constantly trend upward.

00:17:33.900 --> 00:17:36.710
So the cap ceiling keeps rising. giving teams

00:17:36.710 --> 00:17:39.650
breathing room. But in 2020, a global pandemic

00:17:39.650 --> 00:17:42.349
completely shattered that assumption. The NHL

00:17:42.349 --> 00:17:45.390
suspended play and revenues absolutely plummeted.

00:17:45.430 --> 00:17:47.369
So what happens to the math? The NHL and the

00:17:47.369 --> 00:17:50.289
Players Association negotiated a new Memorandum

00:17:50.289 --> 00:17:52.769
of Understanding in July 2020, and we entered

00:17:52.769 --> 00:17:55.180
the flat cap era. Because of the massive shortfall

00:17:55.180 --> 00:17:57.359
in revenues, the salary cap was completely frozen

00:17:57.359 --> 00:18:00.700
at $81 .5 million. It stayed there from the 2019

00:18:00.700 --> 00:18:04.119
-2020 season all the way through the 2022 -2023

00:18:04.119 --> 00:18:06.539
season. And to manage the immediate cash flow

00:18:06.539 --> 00:18:09.000
crisis, players actually had to defer 10 % of

00:18:09.000 --> 00:18:12.779
their salaries for the 2020 -2021 season. General

00:18:12.779 --> 00:18:15.299
managers had negotiated these massive long -term

00:18:15.299 --> 00:18:17.539
contracts years prior, assuming the cap could

00:18:17.539 --> 00:18:21.059
be way higher by 2021. When it froze... Teens

00:18:21.059 --> 00:18:23.779
were just suffocating, pushed right against the

00:18:23.779 --> 00:18:26.759
ceiling with zero margin for error, which makes

00:18:26.759 --> 00:18:29.140
the roster limits even more brutal. The limits

00:18:29.140 --> 00:18:32.619
are uncompromising. An NHL franchise cannot have

00:18:32.619 --> 00:18:34.759
more than 50 players under contract at any given

00:18:34.759 --> 00:18:37.119
time, including guys stashed on injured reserve.

00:18:37.480 --> 00:18:40.859
And of those 50, a maximum of 23 players can

00:18:40.859 --> 00:18:43.900
be on the active roster. And exactly 20 18 skaters

00:18:43.900 --> 00:18:46.390
and two goalies can dress for a game. They also

00:18:46.390 --> 00:18:49.230
have a 90 -player maximum reserve list for unsigned

00:18:49.230 --> 00:18:51.549
draft picks and college prospects. The source

00:18:51.549 --> 00:18:53.910
mentions how teams juggle this, like the Blackhawks

00:18:53.910 --> 00:18:55.990
signing Marcus Kruger, leaving him in Europe

00:18:55.990 --> 00:18:57.990
for a year to develop, and then bringing him

00:18:57.990 --> 00:19:00.529
over to the active roster for the 2010 -2011

00:19:00.529 --> 00:19:03.309
stretch run. But under a completely flat cap,

00:19:03.569 --> 00:19:06.589
managing those 50 contracts and 23 active spots

00:19:06.589 --> 00:19:09.750
was a nightmare. Teams literally couldn't afford

00:19:09.750 --> 00:19:11.769
to call up an extra defenseman from the minors

00:19:11.769 --> 00:19:13.829
because they were hundreds of dollars away from

00:19:13.829 --> 00:19:16.250
the cap ceiling. Teams were forced to trade away

00:19:16.250 --> 00:19:18.509
highly productive players for basically nothing

00:19:18.509 --> 00:19:20.750
just to become cap compliant. Or they had to

00:19:20.750 --> 00:19:22.950
rely heavily on rookies who were still on cheap

00:19:22.950 --> 00:19:26.109
entry level contracts. So synthesizing all this.

00:19:26.230 --> 00:19:28.809
Yeah. Building a successful franchise isn't just

00:19:28.809 --> 00:19:31.509
about drafting good skaters. It's about mastering

00:19:31.509 --> 00:19:34.410
an incredibly rigid economic system. It really

00:19:34.410 --> 00:19:36.680
is the ultimate corporate puzzle. Surviving in

00:19:36.680 --> 00:19:39.079
the NHL means having a front office capable of

00:19:39.079 --> 00:19:42.539
weaponizing LTIR, balancing escrow, evaluating

00:19:42.539 --> 00:19:44.900
the draft capital risk of an offer sheet, and

00:19:44.900 --> 00:19:47.559
managing those strict roster limits. It is pure

00:19:47.559 --> 00:19:50.079
human capital management under intense financial

00:19:50.079 --> 00:19:53.400
regulation. But to wrap up, I want to leave you

00:19:53.400 --> 00:19:55.220
with a final thought to mull over. What's that?

00:19:55.539 --> 00:19:58.819
Well, looking at the source facts, for years,

00:19:58.980 --> 00:20:01.240
teams have been suffocating under that flat cap

00:20:01.240 --> 00:20:04.519
of $81 .5 million. But the newest CBA states

00:20:04.519 --> 00:20:06.779
the cap is scheduled to suddenly spike. Right,

00:20:06.839 --> 00:20:10.700
a huge jump. A massive jump to $95 ,500 ,000

00:20:10.700 --> 00:20:15.470
for the 2025 -26 season. After nearly a half

00:20:15.470 --> 00:20:18.430
decade of financial starvation, what is going

00:20:18.430 --> 00:20:21.549
to happen when over $14 million in brand new

00:20:21.549 --> 00:20:24.490
cap space suddenly hits every single team's books

00:20:24.490 --> 00:20:27.190
all at once? That is the big question. Will we

00:20:27.190 --> 00:20:30.710
see a chaotic spending spree reminiscent of the

00:20:30.710 --> 00:20:33.990
pre -cap Wild West? Or have these front offices

00:20:33.990 --> 00:20:36.400
finally learned their lesson about... bad contracts

00:20:36.400 --> 00:20:38.420
it's going to be absolutely fascinating to watch

00:20:38.420 --> 00:20:40.640
the market react it really will be thank you

00:20:40.640 --> 00:20:42.299
for joining us on this deep dive into the hidden

00:20:42.299 --> 00:20:44.200
economics of the ice we'll catch you next time