The Cap Advantage Recapture Penalty: What It Is and Why It Matters

by @Chris_Beardy

Over the next few days I will be writing some articles that cover the cap advantage recapture penalty. It is something that I think is under-considered by the media and fans alike while discussing teams’ cap situations and the potential for player movement.

This introductory article will explain what the penalty is and how it is applied. Follow-up articles will give real examples of the penalty in action as well as my beliefs on how this penalty affects the league moving forward.

What is the Cap Advantage Recapture Penalty?

In addition to placing some regulations on how salary structure can be done, the 2013 collective bargaining agreement (CBA – available here) introduced a penalty to punish teams that made cap-circumventing contracts under the previous CBA signed in 2006. This penalty is called the Cap Advantage Recapture Penalty (CARP) and it basically makes sure that a team is affected by the full value of a contract should a player happen to retire early.

The reason why the CARP is a necessity is because there is a discrepancy between how players are paid and how their “cap hit” affects the team’s payroll. Starting in 2006, the CBA established a hard cap ceiling and floor for every team in the league, meaning that each teams’ player payroll had a maximum and minimum limit. Instead of using the year-to-year salaries for players, instead the averaged annual value (AAV) of each contract is used. As a result, there are seasons where the team pays players more than they are “charged” by the league. These situations are referred to as “cap advantaged” seasons. A hypothetical contract can be seen below:

Year Salary Cap Hit Cap Advantage Net Cap Adv.
1 $10m $4m $6m $6m
2 $5m $4m $1m $7m
3 $4m $4m $0m $7m
4 $3m $4m -$1m $6m
5 $1m $4m -$3m $3m
6 $1m $4m -$3m $0m

The salary is the amount of money that the player is paid in a given year. The cap hit is the per year average of the $20m salary, which comes out to $4m AAV. The cap advantage is (Salary) – (Cap Hit) in a given year. The net cap advantage is the running sum of the cap advantage over the course of the contract. Because the total salary and total cap hit are the same at the end of the contract, there is a net cap advantage of $0. This goes for every contract that runs to termination.

Now if the player on this hypothetical contract were to retire early, then the CARP would be incurred. The CARP is calculated as the net cap advantage spread out over the remainder of the contract. So below is a table of calculated CARPs if this hypothetical player were to retire after n seasons of his contract:

Retire After Year n Net Cap Adv. Contract Years Remaining CARP (per year)
1 $6m 5 $1.2m
2 $7m 4 $1.8m
3 $7m 3 $2.3m
4 $6m 2 $3.0m
5 $3m 1 $3.0m

As we can see, putting large salary years at the front end of a contract can create the potential for large penalties against the cap for a team. The effect really intensifies if the deal has minimum salaries at the back end of the contract as well.

Closing Notes

The best understanding of the nuances around the CARP can be found in the 2013 CBA (linked to in the first paragraph), specifically in  Section 50.5(d)(ii)(A)-(B). This document also goes into a lot of detail about other aspects of the player contracts and cap system if you’re ever adventurous to dive into the text. But for those with better things to do, here is an overview of things to know about the CARP:

  1. It can only be triggered by contracts signed prior to 9/15/12.
  2. It can only be triggered by contracts that are 6+ years long.
  3. The only early termination of a contract that will not trigger the CARP is by death of the player.

In the future, I will expand on this topic with some examples of the CARP in action, contracts that can qualify for the CARP, and the interesting case of Roberto Luongo’s contract and CARP.

 

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