How the Leafs can creatively bypass the salary cap

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With the salary cap staying flat at 81.5 million for the 2020/21 NHL season, most teams are seeking out solutions for managing their finances and the Maple Leafs are no different. Because of the hard cap, rich teams like Toronto aren’t able to flex their financial muscle in the same way that certain MLB or soccer clubs can.

…Or can they?

Sure the team can’t spend over the salary cap and aren’t able to directly send cash to other teams but Kyle Dubas and co. have shown a willingness to get creative when necessary. We saw it most recently at the 2020 trade deadline when the Leafs received a fifth-round pick as part of a three-way trade that saw them take on 1.1 million of Lehner’s cap hit.

Having Brandon Pridham as an Assistant General Manager gives the team some insider information as he helped draft the CBA. Between that knowledge and the comical amount of wealth the franchise holds compared to other teams, there’s some potential to bend but not break the rules. While the Leafs have gotten in trouble for doing so in the past, unless there’s an official rule against what they’re doing, all the league can really do is change the rules to prevent it from happening again.

So with that in mind, let’s look at some things the Leafs could do to work around the cap that technically doesn’t break any rules, but would no doubt cause some unrest around the league.

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The “Incentives”

NHL free agency isn’t fair for every team. There’s plenty of incentives other than the contract they’ll receive that can help a player choose where to sign. Some teams play in states with no income tax rates, some have better nightlife, while others offer better training facilities. As one of the league’s richest teams, Toronto should go all out with as many of these incentives as possible. 

Examples

  • Have personal trainers and chefs for each player listed as “team personnel.” 
  • Have the team employ drivers for extra security who coincidentally happen to be super forgetful and sometimes leave their brand new Porsche at the player’s home on weekends. 
  • State that there are mandatory team dinners every week except oops we’ve ordered way too much $10,000 cognac once again and we can’t let it go to waste so why doesn’t everyone just take a bottle home?

Chance the NHL will be mad about this: 10%

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Honestly, this probably already happens throughout the league. Look no further for the sweetheart deals that Tampa Bay is able to sign players to when they have no state tax and play in a beachside paradise of a city as proof.

The Sign and Trade (and Retain)

Perhaps the simplest solution, one that is so glaringly obvious it’s shocking more teams don’t do it.

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The way it works is a team who knows they won’t be spending to the salary cap, takes on the cap-hit of a new signing in exchange for an asset of some sort. The Leafs get a player at a fraction of their cost, and the assisting team essentially gets a pick or prospect for free.

Example

The Leafs reach an agreement with free agent Radko Gudas. To reduce the cap hit, they have the signing go through Ottawa in exchange for a future pick.

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  • Ottawa Signs Gudas to a 2-year deal worth $4,000,000/year.
  • Ottawa retains 50% and trades Gudas to Toronto for a 2021 fifth-round pick.
  • Toronto gets their player at a fraction of the price, and Ottawa gets a free pick as they weren’t planning to spend to the cap anyway.

Chance the NHL will be mad about this: 30 %

Teams have retained salary before, it’s just rare that it’s ever for a player who has never played a game for them. With the Leafs having been the retaining team in the Lehner deal, they at least have the defense of pointing out no one made a fuss when they were the ones sacrificing cap space.

The Signing Bonus Payout

Unlike some other leagues, NHL teams aren’t able to just send over cash as part of a trade agreement. What they are able to do however, is make a trade after a player’s signing bonus has been paid, effectively reducing the real money cost of the player. We see this happen just about every year during the offseason when most teams will wait until all bonuses have been paid off before making a trade official.

What we haven’t seen anyone do yet is sign a player another team wants just to pay off their signing bonus before trading them to said team. This is virtually the same as sending a team money just with a little extra paperwork involved and could be a great way to acquire assets in exchange for some cash.

Example

The Florida Panthers want to sign Taylor Hall for two years at $10,000,000/year. However, Florida’s financial struggles have only been worsened by the pandemic and they’re unsure if they can afford to pay off such a large contract. This is where the Leafs get involved.

Toronto agrees to sign Taylor Hall with a front-loaded contract that carries a massive signing bonus and then immediately trade him to Florida after paying off the bonus in exchange for assets. Effectively, Toronto is trading cash considerations in exchange for picks or players.

  • Toronto signs Taylor Hall to a 2-year deal structured as $12,000,000 in year one and $8,000,000 in year two.
  • The deal includes an $11,000,000 signing bonus to be paid off upon signing of the contract and only $1,000,000 in actual salary that first year.
  • After paying off the signing bonus, Toronto trades Hall to Florida for a sixth-round pick or a mid-tier prospect.
  • Florida gets Hall for less than half the actual cost and Toronto gets to flex their financial muscle.

Chance the NHL will be mad about this: 95%

The league would almost certainly be livid about this. The NHL has shown in the past that it isn’t okay with rich teams using their finances for a competitive advantage and may simply step in and void these deals entirely.

The extra 5% is there in the off-chance the league sees this as a sort of indirect revenue sharing and considers it more beneficial to teams like Florida being able to ice competitive rosters without risking bankruptcy.

The Pay Day Loan

There are usually specific dates throughout the year when NHL players get paid bonuses. Most signing bonuses are paid off on July 1st, although various other bonuses are often paid out throughout the year. Once the season starts, every player receives a paycheque twice a month as part of their remaining salary. These pay days happen 13 times over the course of a season.

With the upcoming shortened season, salaries will likely be prorated to the number of games played. In this case, there would be fewer than 13 pay days throughout the year, but they would still occur roughly once every two weeks and the cheques players do receive would be of full value.

As an example: If the season were cut to just under half its normal length, a player making $13,000,000 who would normally expect 13 paycheques of $1,000,000 each would instead receive 6 paycheques of $1,000,000. The size of the cheques wouldn’t be reduced, just the number received.

For teams in financial trouble, these pay day’s can be a looming mark on the calendar. The Leafs, however, have no problem with paying out big money to players. This past July 1st, the team paid out nearly $60,000,000 in signing bonus money, amounting to nearly as much as some teams spend on their roster all season.

There’s no doubt that some franchises wouldn’t mind financial assistance on these big payout days, yet league rules forbid teams from sending cash as an asset in trades. Despite this, there’s currently no rule against sending a player’s contract over entirely.

What Toronto could do in tandem with a team that has cap space but lacks real funds is essentially buy their cap space by briefly acquiring contracts that soon need to be paid off.

Example

The Carolina Hurricanes have only three players who received any sort of signing bonus for this upcoming season, meaning the vast majority of their team will be getting larger base salary payouts throughout the season. With Jordan Staal and Dougie Hamilton set to each make $6,000,000 this year, that means that each player would receive about $461,500 on each of their scheduled paycheques.

Theoretically, the Leafs could acquire Staal and Hamilton’s contracts (among others) just before midnight on payday, let the clock tick over. Send them their cheques, and then trade them right back to Carolina in exchange for some cap relief.

  • Pay day in the NHL is scheduled to happen January 15th.
  • At 11pm on January 14th the Leafs acquire Hamilton, Staal, and Jake Gardiner in exchange for Mitch Marner and Freddie Andersen.
  • Midnight passes and the Leafs pay the $1,234,615 owed to Carolina’s players who in turn pay the $130,769 owed to Marner and Andersen (since most of their contracts were already paid as July 1st signing bonuses).
  • The Leafs and Hurricanes trade back but Carolina retains 50% of Andersen’s cap hit ($2.5 Million this year only).
  • Carolina saves over 1 million in real money and the Leafs get $2,500,000 in cap space for the season.
  • Optional: The teams have a handshake agreement where every two weeks they do this again (without additional retained salary) and Toronto just acts as Carolina’s sugar daddy for the season by sending money to its players when needed as thanks for buying some of their cap.

Chance the NHL would be mad about this: 9001%

The entirety of the NHL and just about every media outlet involved would be absolutely frothing at the mouth furious about such a gross bending of the rules. They’d likely find some way to punish both teams for harming the “integrity of the sport” as a result as well. Carolina would be mocked for years as not deserving a team if they can’t pay their players, and Toronto would be branded as cheaters for trying to circumvent the salary cap. It would be chaos, and that’s what’s so exciting about it.

What have we learned?

Rules are meant to be broken and as LTIR, front-loaded contracts, and no income tax states have shown us, the CBA and its salary cap are merely a suggestion.

There’s plenty of room for Kyle Dubas to get creative when putting together a roster both on the ice and on the spreadsheets, the question is how much will the NHL let him get away with?

I’m excited to find out.