The NHL Compliance Buy-Out Loophole

Mulligans are definitely nice to have in real life.

For those that are unfamiliar, a mulligan is a golf term that allows you to have a redo of a poor stroke. Hockey personalities are widely known to be golf-lovers; this may be why mulligans were adopted in the newest NHL Collective Bargaining Agreement (CBA).

According to Article 50.9, Section ii of the CBA:

Compliance Buy-Outs. During the “Ordinary Course Buy-Out” periods following the 2012-13 NHL Season and 2013-14 NHL Season, in addition to any other Ordinary Course Buy-Outs a Club may want to effectuate pursuant to Paragraph 13 of the SPC, each Club may elect to terminate and “buy-out” the SPC of up to two (2) additional Players (in the aggregate over the two (2) years) on a Compliance basis (a “Compliance Buy-Out”) (i.e., each Club shall be entitled to a total of two Compliance Buy-Outs  that may be exercised in one year or over two years). Such Compliance Buy-Outs shall be effectuated on the same terms as are set forth in Paragraph 13 of the SPC, except that (i) there shall be no charge against the Club’s Averaged Club Salary in any League Year on account of a Compliance Buy-Out and (ii) any amounts paid pursuant to a Compliance Buy-Out shall be counted against the Players’ Share in the League Years in which they are paid. Further, a Player who has been bought out under the Compliance Buy-Out provision of this Agreement shall be prohibited from rejoining the Club that bought him out (via re-signing, Assignment or otherwise) for the 2013-14 League Year (if that Player was bought out in 2013) or for the 2014-15 League Year (if that Player was bought out in 2014).

Lecavalier was bought out by the Lightning this summer.
Lecavalier was bought out by the Lightning this summer.

This section of the CBA declares that teams are awarded two compliance buy-outs to be used after the shortened 2012-13 season and after the 2013-14 season. This is a prime option for those franchises that feel they overpaid for a player or simply want to add someone else to the roster and need to make room for that addition.

This is a perfect option for both parties, as the team gets to cover their supposed mistake and it gives the player the ability to earn a playing spot on another team. For example, this has already worked in the favor of defenseman Wade Redden, who was told to not report to the New York Rangers’ camp to open last season so as not to risk injury (which would void the possibility of a buy-out at the end of the season). The NHL allowed the Rangers to buyout Redden’s contract early and he went on to sign with the St. Louis Blues before being traded to the Boston Bruins at the trade deadline. Because of the amnesty buy-out procedure, Redden found himself two games from winning his first Stanley Cup instead of toiling away in the AHL.

Certain players have followed in Redden’s footsteps. Former all-stars Daniel Briere and Vincent Lecavalier received buy-outs from their teams but quickly signed elsewhere to continue their NHL careers.

Where is the loophole?

Clowe signed a 5-year contract with the Devils on July 5 (Kevin Hoffman-USA TODAY Sports)
Clowe signed a 5-year contract with the Devils on July 5 (Kevin Hoffman-USA TODAY Sports)

It lies in the players who signed contracts this past summer.

Let’s use the New Jersey Devils as an example. In what some say was a kneejerk reaction to top-six forward David Clarkson signing in Toronto, the Devils reached a five-year, $24.25 million deal with forward Ryane Clowe. The 30-year old is coming off a very disappointing year in which he posted just three goals in 40 games.

Clowe will be expected to step into Clarkson’s role, which was on the second line (mostly with Patrik Elias and Travis Zajac). Clarkson recorded 15 goals in 48 games last season. If Clowe cannot fill the role as needed, what are the Devils left to do?

Buy him out. Yes, that’s right, buy out the contract that was signed just one year before (ignoring the Devils’ lingering financial issues, of course).

The new CBA does not guarantee newly signed contracts. This could, potentially, lead to teams overpaying a player this summer with the intention of buying out his contract the very next summer. In short, that player would become a full-season rental.

If this does prove to be the case next summer, it’s obvious why so many new contracts have been deemed ‘overpaid’ by fans and NHL media.

Has the NHL looked into this potential loophole?

It’s possible. Another loophole was discovered with the buy-out procedure a few weeks back. THW Managing Editor Mike Colligan explains how the NHL has guidelines that are not always outlined in the CBA:

The only wildcard is that the league and central registry often provide guidance and interpretation that never reaches the public eye. Think of it as a helpful hint; a wink and a nudge like “we know you’re considering this, but you probably shouldn’t try it if you know what’s good for you.”

For example, players aren’t allowed to return to the team that buys them out for at least one season.  Teams were warned that it would be deemed circumvention if they traded a player to another team, only to have the new team buy him out so he could return to the original team at a lower rate.  This isn’t written anywhere in the CBA, and the only reason we heard about it is because a source leaked it to Larry Brooks of the New York Post.

In short, it is possible that the league has already set mandates that would prohibit this course of action. Not every restriction is highlighted in the CBA.

Are any players protected from this happening to them?

No. Some players have negotiated no-move clauses into their contracts, but has defined how a NMC truly works for the player:

A no-move clause means a player cannot be traded, waived for a claim by another team, or assigned to the minors without his consent. This does not protect the player from a buyout.

Unfortunately, players will have to trust that their employer plans to honor the contract through the duration.

Danny Briere signed with the Canadiens after being a Flyers buy-out (Eric Hartline-US PRESSWIRE)
Danny Briere signed with the Canadiens after being a Flyers buy-out (Eric Hartline-US PRESSWIRE)

On the other hand, it’s not as if bought out players like Redden, Briere, and Lecavalier were dumped on the streets with nothing to show for their supposed ‘guaranteed contracts’.  Bought out players still receive one-third or two-thirds of their remaining salary (depending on age and experience) — it just doesn’t count against the team’s salary cap totals anymore.

So what do you think?

Would a move like this be salary cap circumvention, or simply another potential case of creative accounting in the NHL’s salary cap world?

Let us know your thoughts in the comment section below.

**UPDATE** The NHL has, in fact, already discovered this loophole and corrected it. The NHL CBA has a “Transition Rules” portion, found toward the end in the “Exhibits” section. This was, admittedly, overlooked.

Exhibit 16, #52 (page 355 of the CBA):

Clubs shall only be permitted to exercise their right to compliance buy-outs for SPCs that were entered into on or before September 15, 2012.

The NHL has already sealed this loophole airtight. Any contract signed after the last CBA expired is not open to a buy-out.

I apologize to all of my loyal readers for this important, neglected point.

4 thoughts on “The NHL Compliance Buy-Out Loophole”

  1. You can’t buy out guys who were signed this summer.

    Exhibit 16 #53 – Clubs shall only be permitted to exercise their right to compliance buy-outs for SPCs that were entered into on or before September 15, 2012.

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