The Cap Advantage Recapture Penalty: How it Shapes the Future

This post is the third part of a three part series. In case you missed them, here are the two articles that help introduce this final discussion:

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

The Cap Advantage Recapture Penalty: Real Life Examples


There’s something funny about Roberto Luongo. I’m not talking about his twitter or him reading poetry about Byfuglien, I’m talking about the potential cap advantage recapture penalty (CARP) attached to his contract:

Yes, if Roberto Luongo retires as a Panther in 2021 (at the ripe old age of 42), then the Panthers are not hit with any CARP while the Canucks will have a one-year penalty of $8.5m. Now the explanation will be quite complex, but it’s manageable:

The Original Contract and the Trade

Below is a table of the original Luongo contract from the Canucks signed in 2010 along with calculations of AAV, annual cap advantage, and net cap advantage:

 Season Salary (mil $) AAV (mil $) Annual cap Adv. (mil $) Net Cap Adv. (mil $)
 2010-11  10.0  5.3  4.7  4.7
 2011-12 6.7  5.3  1.4  6.0
 2012-13  6.7  5.3  1.4  7.4
 2013-14  6.7  5.3  1.4  8.8
 2014-15  6.7  5.3  1.4  10.2
 2015-16  6.7  5.3  1.4  11.6
 2016-17  6.7  5.3  1.4  13.0
 2017-18  6.7  5.3  1.4  14.3
 2018-19  3.4  5.3 -2.0  12.4
 2019-20  1.6  5.3 -3.7  8.7
 2020-21  1.0  5.3 -4.3  4.3
 2021-22  1.0  5.3 -4.3  0.0

As can be seen above, all but the last four years of Luongo’s deal are cap advantaged. When he enters the first “cap disadvantaged” year he will be 39 years old, which would be an accomplishment in today’s game. Luongo, at 36, is this year’s oldest goalie to start a game. His phenomenal play this year leaves hope that he can join the ranks of Brodeur, Khabibulin, and Roloson, as the only 40+ goalies since 2010. None of them played until the age of 43, which is when Luongo’s contract ends.

Roberto Luongo was traded on March 4, 2014, by the Vancouver Canucks to the Florida Panthers along with Steve Anthony in exchange for Jacob Markstrom and Shawn Matthias. In addition, the Canucks retained $800k of Luongo’s salary. As a result, the Canucks take an $800k salary and AAV hit through 2021-22 while the Panthers have their cap hit and salary obligations regarding Luongo reduced by that same amount.

Because Luongo was traded on the 154th day of the 194-day 2013-14 season, his salary and cap hit were prorated and split between the teams. The Canucks paid for about 79% of his salary and took about 79% of his cap hit while the Panthers accounted for 21% of his salary and cap hit. As a result, his cap advantage was prorated the same way between the two teams. So the $1.4m cap advantage for Luongo that year was split as $1.1k to Vancouver and $0.3m to Florida.

The salary retention actually has no effect on the cap advantage calculation. Both the salary and cap hit values for both teams move in sync so the differences between the two result in the same cap advantages. Below is a breakdown of the new annual cap advantages (ACAs) and net cap advantages (NCAs) for each team over the course of the contract:

 Season VAN ACA (mil $) VAN NCA (mil $) FLA ACA (mil $) FLA NCA (mil $)
 2010-11 4.7 4.7 0.0 0.0
 2011-12 1.4  6.0 0.0 0.0
 2012-13 1.4 7.4 0.0 0.0
 2013-14 1.1 8.5 0.3 0.3
 2014-15 0.0 8.5  1.4 1.7
 2015-16 0.0 8.5  1.4 3.1
 2016-17 0.0 8.5  1.4 4.4
 2017-18 0.0 8.5  1.4 5.8
 2018-19 0.0 8.5 -2.0 3.9
 2019-20 0.0 8.5 -3.7 0.1
 2020-21 0.0 8.5 -4.3 -4.2
 2021-22 0.0 8.5 -4.3  -8.5

The problem at hand is that the only way that Vancouver can decrease its cap advantage from this contract is (a) wait for Luongo to play out the full term of the contract [which wipes the cap advantage without triggering the CARP] or (b) trade back for him around 2018, after which point the cap disadvantaged seasons of his contract occur. But should Luongo retire early, the CARP will be calculated for both teams as necessary. In the final years of Luongo’s deal Vancouver is at great risk of eating an enormous CARP that rivals or even exceeds some from the contracts I mentioned in yesterday’s post.

The Rest of the League

As unique as Luongo’s contract situation is, it is not because of anything truly unique per se. Every contract with the potential for a CARP can become this situation. In fact, what originally inspired me to research this topic was last summer’s incessant discussion about how Nashville should or should not trade Shea Weber. For me, the conversation started and stopped with the fact that Nashville could not take the risk of trading him because of the CARP.

At the end of this season, Nashville will have paid out $56.0m in salary to Shea Weber while having only incurred $31.4. This gives Nashville a $24.6m net cap advantage. If they were to trade him in the summer to another team, this $24.6m net cap advantage would sit on their books until the end of the contract. If the contract terminates simply because his term of play is completed, then Nashville is uneffected. But in the case of an early termination (such as early retirement), Nashville could be penalized with massive CARPs as large as $8.2m for 3 years, $12.3m for 2 years, or the full $24.6m for a single year. Even if the cap ceiling grew at 5% annually and resulted in a $116m cap in 2025-26, that penalty would still turn 21% of Nashville’s cap into dead cap space. And that’s not even the worst case scenario with Weber’s contract. His CARP could max out at $32.9m over as short a period as one year.

Marian Hossa will be an interesting player to watch going forward. He is currently 37 and only two years away from the lowest paying portion of his contract. When he enters his first $1m salary season in 2017-18, the Blackhawks will have $17.1m in cap advantage built up for him. At that point, he might not be playing at the same level that has made him one of the best wingers in the league. He might end up in a reduced role and could decide to hang up his skates “early” at age 40 or 41. It is unlikely he could be traded because he has a full No Movement Clause in his contract. So I will be very interested to see what the Blackhawks do with him. They have been a very good team when it comes to cap management and deploying a competitive roster so they are a team I could see figuring out something novel.

But like I said, everyone on my list from yesterday can hold a potentially dangerous contract. Many are unlikely to cause trouble (such as 29-year old Tyler Myers and 32-year old James Wisniewski) but others could create major issues for their current team in the future. In addition, I think we could end up seeing more usage of the LTIR, whihc to date has helped keep the Flyers (with Chris Pronger) and Bruins (with Marc Savard) avoid incurring CARPs on players that are effectively retired. But even if not, I see most, if not all, of the players on that list stick to their original signing team and not just because most of them have full No Trade Clauses or full No Move Clauses.

Odds and Ends

Lastly I just wanted to tackle a few questions I received when I initially wrote about this last summer on Reddit.

  1. Contract values are reported as AAV for the purpose of determining the cap hit. This is a strict requirement of the CBA. So the only way to avoid a net cap advantage seasons is to structure contract salaries such that it does not occur.
  2. Cap advantage and CARP are not tradable assets. They are tied to a team until the end of the contract.
  3. Cap space and salary can only be retained in equal amounts.

So all of those loopholes are closed, but I’m sure there’s some loophole I have missed that a very smart GM will come across. They’re good at that sort of thing.


 

Thanks for reading this far! If you have any questions, do not hesitate to contact me on twitter @Chris_Beardy, by email at slappersandstats@gmail.com, or even on reddit at /u/ChocolateAlmondFudge.

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