Loophole Avoided: Growing the Performance Bonus Cushion with the LTIR Exception to the Upper Limit

One thing I’ve grown to appreciate is the ability of teams to find loopholes in the current Collective Bargaining Agreement. It’s fun to see how teams find a way to give themselves an upper hand over other teams (at least, until the other teams follow suit). Just now, while perusing the CBA, I came across a piece of text that could have easily been a loophole had the NHL not been more careful:

Section 50.5(h)(ii): A Club shall be permitted to have an Averaged Club Salary in excess of the Upper Limit resulting from Performance Bonuses […] provided that under no circumstances may a Club’s Averaged Club Salary so exceed the Upper Limit by an amount greater than the result of seven-and-one-half (7.5) percent multiplied by the Upper Limit (the “Performance Bonus Cushion”).

The key here is that the Performance Bonus Cushion is an allowed exceedance over the Upper Limit (more popularly known as the cap ceiling or salary cap). It does not actually change the Upper Limit. This is also the case for the Bona Fide Long-Term Injury/Illness Reserve, typically referred to as the LTIR. It is described in detail in Section 50.10(d) of the CBA:

Section 50.10(d): […]  the [LTIR] replacement Player Salary and Bonuses of such additional Player(s) may increase the Club’s Averaged Club Salary to an amount up to and exceeding the Upper Limit, solely as, and to the extent and for the duration, set forth below […]

Just like the Performance Bonus Cushion, the LTIR allows teams to exceed the Upper Limit, but does not actually change the Upper Limit for that team. So why is this a big deal?

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A picture of Bobby Orr probably plotting something.The metal statue in the back is likely a prototype of his cybernetics before he attempts the full conversion.

Well, let’s make up a scenario where a team can expect to have a significant amount of performance bonuses to pay out for a specific year. Let’s say that in the near future, bionic technology is mastered and Wayne Gretzky and Bobby Orr are both implanted with cyborg technology, allowing them to play at a level beyond their peaks during their dominant careers. They’re both 35+ and thus can qualify for performance bonuses of up to a maximum of $2.85m each. At $5.7m total in bonuses, you’re already at 7.8% of the 2016-17 Upper Limit of $73.0m. So what could you do? Well, if the LTIR actually changed your team’s Upper Limit then you could maneuver a player or two onto the LTIR to create $3.0m worth of cap relief. This would up your Upper Limit to $76.0m and increase your maximum allowed Performance Bonus Cushion up to exactly $5.7m.

More realistically, we see a team that has an Aaron Ekblad type of player on an Entry Level Contract (ELC) as well as a Jaromir Jagr level talent on a 35+ Standard Player Contract (SPC). And in addition, you have other lesser players on ELCs and 35+ SPCs that reach only a fraction of their potential Performance Bonuses. For example, Michal Roszival got $200k for reaching his games played threshold in 2015-16 with the Blackhawks while Teravainen made $850k for reaching various bonus milestones that same year. Panarin earned the maximum of $2.85m for the bonuses he earned. So the need for additional Performance Bonus Cushion wouldn’t be too far-fetched in my opinion.

Fortunately, this loophole is addressed with the nature of the CBA. These two mechanisms seem to have been carefully constructed to avoid this sort of shenanigans. (In addition, the Performance Bonus Cushion overage ends up rolling over to the next year’s salary cap so my hypothetical situation would have repercussions.) However, there are many incredibly smart individuals out there now working on ways to break the system for their own benefit and it will be very exciting to see how they do it.

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