The Washington Capitals hosted its first Chalk Talk of the season before the Caps-Blackhawks game. Don Fishman, Assistant General Manager and Director of Legal Affairs spoke to group of a hundred or so season ticket holders about the team’s salary cap, one-way and two-way contracts, and the salary arbitration process of this past summer.
The salary cap—the maximum amount a team can spend on player salaries—is a complex calculation of the percentage of earned revenue that is further complicated when adjusting for the value of the Canadian dollar and the Canadian TV market. Roster movement also requires constant adjustment to ensure that the teams stay above the minimum ($52.8 million) and that they don’t bump too close to the maximum or “hard cap” of $71.4 million. A word of caution to our readers: I’m not a lawyer but I have tried to do my best to explain the contract process in lay terms. Feel free to clarify anything you read in the comments section.
Fishman explained that each team must have a final roster set by October 7th and that it takes quite of bit of finesse to get the roster down to 23 players and the 2015-16 salary cap. He said they are constantly making adjustments and have to consider things like potential injuries and player movement between the NHL and AHL to ensure everything fits under the cap. For example, putting someone on Long-Term Injury Reserve (LTIR) means a player must be out for 10 games and 24 days to qualify and the team can receive some relief from the cap during that period. In the case of defenseman Dmitry Orlov last year, he broke his wrist while playing in the IIHF World Championships and was sidelined for the entire season. Because his injury occurred while playing for Russia, the Russian Federation picked up the tab for his salary. Additionally, this year the Caps had to consider Nicklas Backstrom’s injury, how long he might be out, how much they would have to pay to carry him, and if they would need to bring in a replacement player. Thankfully, Orlov is back and playing strong this season and it looks like Nicky will be back this weekend and balance will be restored!
Fishman went on to explain the juggling act of bringing in younger players who the team can pay less and from whom they can get more production. The trick is to pay younger players to perform well and then trade them as they come into their own and get a return on your investment. This led to a discussion on the average value of contracts and how that plays into calculating a team’s cap. This season the minimum the NHL can pay a player is $550,000 and no player can earn more than 20 percent of cap. Contract rates against the cap are determined by taking the total amount of the contract and dividing it by the number of years—it doesn’t matter if the contract is front- or back-loaded when calculating for cap. Using Backstrom again as the example, his contract average is $6.7 million a year over a 10-year period regardless of his situation.
Salaries; however, can change if a player is on a two-way contract with the Hershey Bears. Players, such as Sean Collins, who are on two-way contracts, receive a higher NHL salary when they play for the Caps. Their salary drops to the AHL rate if they are sent back to Hershey. So he went from earning $575,000 to $200,000 with the move. However, calling up Chandler Stephenson at the NHL rate of $692,500 meant Fishman had to ensure that there was room under the Capitals’ cap. And Chandler got a bump in salary for as long as he is playing in the NHL. Fishman also explained that the salaries for the AHL are not capped and don’t count against the NHL caps except when a two-way player is brought up. And if a player is on a one-way contract, like Justin Peters, his salary will not fluctuate as he is moved back and forth between Hershey and Washington DC. No matter where he plays his contract remains at $950,000 for this season. Are you confused yet? Read on…
Now we get to contract arbitration which we all got to see this summer with Braden Holtby and Marcus Johansson as restricted free agents. Fishman emphasized that it is a tough process as both sides present briefs regarding a players value to the team. Each side of the negotiating team has the opportunity to prepare statements to make their case and each are given 48 hours to review and settle before coming to the table with an arbitrator. Arbitrators, by the way, are not necessarily hockey people and only one arbitrator is assigned to any negotiation. Ok, so with Holtby, Fishman said they were about $3 million apart when they started. Both sides knew they wanted a long-term deal but they could not agree on the long-term contract price. If a case makes it to the arbitrator, only a one-year deal is negotiated. In the case of Holtby, they went to the table. However, under the arbitration rules they have 48 hours until the decision is rendered and are permitted to continue to negotiate. For Holtby it worked out that they were able to close on a five-year contract for $30.5 million. With Johansson they were about $250,000 apart and the negotiations were pretty straightforward. Fishman had strong comparables which he presented in his brief. Johansson ended up with a one-year contract for $3.75 million and will have the opportunity to negotiate again next year for a longer term deal.
In a nutshell, Don Fishman has his work cut out for him. It isn’t a one-time process that happens during trades but an ongoing computation of player value, team salary caps, and hoping that the Washington Capitals remain injury free this year. It is a daily process of monitoring team decisions and ensuring that salaries are paid while he keeps the team out of trouble with the NHL. Again, please feel free to comment or clarify anything that I might not have explained in my lay terms.
By Maggie Marcum
Photography by Brittney Marcum