Trading Salary Cap for Draft Picks
By Alec Roberson
It is no secret that the COVID-19 pandemic has created a flat cap world in the NHL. Teams are constantly analyzing the cap system like a chess board. With the likelihood of a flat salary cap for the next few years, cap space has become a valuable commodity. Teams pay individuals a lot of money to study the NHL’s CBA and salary cap in order to find legal ways to manipulate the numbers and stay competitive. While there may be many loopholes in the CBA to manipulate cap space, there are two recent examples that have generated a lot of attention. The question is are they actually legal or do they cross the line into CBA violations? This article analyzes the first of these two as Part I of our series on NHL salary cap manipulations.
Trading Cap or Trading Cash?
The first scenario we will take a look at is teams taking on cap space for picks. Under the NHL’s 2012 CBA, as modified by the 2020 Memorandum of Understanding, teams are able to trade players and retain a portion of their salary. These types of trades are subject to various restrictions. Some of these include that no more than 50% of a player’s salary can be retained by one team, that a player could only have his salary retained by two teams at most and teams could not retain more than three players’ salaries at a time.
As you can see, this is not a new phenomenon by any means; however, the flat cap world combined with the ability to retain salary has proven to be the perfect breeding ground for teams to make moves somewhat reminiscent of the pre-cap era when teams could trade players for cash. Let’s take a closer look.
The Salary Cap
Prior to the implementation of the NHL CBA in 2005, there was no NHL salary cap. Likewise, teams could trade players to other teams for cash. Oddly enough, this even included a few instances of trading players for one dollar (see Kris Draper and Ray Sheppard). The 2005 NHL CBA created a salary cap, which eliminated teams’ abilities to do this. The “policy” was that the CBA is here to create a spirit of equality and parity among the teams.
Recent Examples
In the latest 2021 trade deadline, teams utilized more than $22 million in retained salary cap space in trades. Specifically, cap-advantaged teams acted as facilitators of trades amongst cap-burdened teams. Columbus’ trade of David Savard to Tampa for a first round pick showcased this. This trade was actually a three team trade. Columbus retained half of Savard’s salary and received a first round pick. Detroit retained another half of Savard’s salary and received a fourth round pick. Then Tampa received Savard at one-fourth the cap hit. Under the CBA, Columbus was not able to retain more than 50% of Savard’s salary so Detroit, a team with a cap surplus, came to the rescue in exchange for a draft pick. A similar three-way transaction happened between Columbus, San Jose and Toronto to facilitate a trade of Nick Foligno to Toronto. San Jose stepped in as the “cap rescuer” in this trade.
Legal Cap Manipulation of Illegal Cap Circumvention?
When you analyze these transactions it makes you wonder if this could be questionable cap circumvention. Technically, the answer appears to be no. However, it is worth looking into two potential arguments since legal cap manipulation is worth its weight in gold.
1. No More than 50% of the Player’s Salary May be Retained
The first argument is that by entering into these types of three way trades, teams are circumventing the “no more than 50% of the players salary may be retained rule” under Section 50.5(e)(iii)(A) of the CBA. At its core, there may be some policy reasons behind this prohibition. The CBA helps ensure teams with greater cap or payroll abilities aren’t able to have a significant advantage over lower budget or cap disadvantaged teams. If you were to stop at Section 50.5(e)(iii)(A) you could make an argument that multiple teams joining together to ultimately retain more than 50% of the player’s salary in the aggregate through various trades seems fishy. Almost like some sort of “conspiracy” to circumvent the CBA.
However, Section 50.5(e)(iii) shows us that the NHL and NHLPA anticipated multiple teams retaining salary on one player. They might not have specifically anticipated teams trading picks for cap. They did however set up parameters to address circumstances for players being subject to multiple retained salaries. Section 50.5(e)(iii)(C)(5) prohibits more than two teams retaining salary on one player for the remainder of that player’s contract. So in these three team trades that is it until the player becomes a free agent. This is why it is usually seen involving players in the final year of their contract. Section 50.5(e)(iii)(C)(1) also prohibits any team from having more than three retained salaries on its books. This limits the amount of “selling” any one team can utilize retained salary on at a time.
The CBA intends to both allow for retained salary trades and also regulate what those trades look like. So what does this tell us? First, it’s seemingly impossible for a team to not be responsible for some of a player’s salary. Secondly, no team can trade the majority of their roster by utilizing retained salary trades. Lastly, and most importantly for this article, trading draft picks for retained salary does not run afoul of the 50% limitation per team rule under the CBA.
2. Trading Cash for Picks
The second argument is that the teams receiving the picks are actually trading cash for draft picks in violation of the CBA. This is an interesting thought but doesn’t appear to really hold much weight. The first reason is that the team taking on salary for a draft pick technically has that player and then trades him for the pick while retaining salary. As mentioned above, the CBA absolutely allows this. Sure, Detroit receiving a fourth round pick for Savard while retaining a portion of his salary is not equal value. But the rules do not dictate that every trade has to be equal for both teams as long as there is consideration (back to basic contract principles).
Another could be that Section 50.8(b) of the CBA prevents “buying” picks. The 2005 CBA that instituted a salary cap did so in order to create more parity in the league. Well 50.8(b) specifically states that “[C]ash transactions in connection with the Assignment of Player SPCs, except to the extent permitted by Section 50.5(e)(iii)” are not permitted under the CBA. Section 11.16 of the CBA likewise provides a similar prohibition on cash transactions related to the assignment of players. This focuses specifically on restricting paying cash for players and not draft picks.
In addition, Section 50.5(e)(iii) specifically allows for retaining salary in trades subject to certain limitations such as those mentioned herein. So not only does the CBA prevention on trading cash only apply to players, it specifically carves out an exception for retaining salary within the parameters of Section 50.5(e)(iii). Therefore, the CBA does not appear to merely be silent on transactions mentioned in this article, but seems to actually address them within certain confines.
Concluding Thoughts
At the end of the day, the idea of teams figuring out how to “buy” draft picks in contravention of the CBA is more of an argument based on assumed policy goals rather than technical violations. As mentioned above, it has become almost a loophole that teams have figured out how to capitalize on. This is why it is worth looking into. At the end of the day, it actually promotes greater league parity if you think about it. Teams that would otherwise be handcuffed by the cap are able to both trade and obtain players and the teams with cap surplus are able to be compensated for facilitating those transactions.
Stay tuned for Part 2 as we cover the recent hot topic of long term injured reserve cap circumvention.
Post image attribution: By: Dan4th Nicholas, CC BY 2.0 https://creativecommons.org/licenses/by/2.0, via Wikimedia Commons
