NHL players have begun to prepare themselves for the next NHL lockout. In recent years, there has been a drastic uptick in the number of NHL contracts that have a significant portion of the compensation paid in the form of signing bonuses rather than base salary alone. This increase in the number of bonus heavy contracts seems to point to a widespread concern among NHL players about the possibility of another season lost due to a lockout. From the moment the NHL Collective Bargaining Agreement (CBA) was signed, there has been rampant speculation that another substantial work stoppage is likely. Now it appears that the players have begun to actively plan for that eventuality.
How Do NHL Signing Bonuses Work?
To see how signing bonuses play a role in future CBA negotiations, and a potential lockout, it is important to first to understand what these signing bonuses really are.
In more traditional businesses signing bonuses are paid once an employee signs a contract with the company. These bonuses are often paid to entice the employee to take a reduced salary, or otherwise lessened benefit package. Though each contract is unique and may have other specific requirements, signing bonuses are generally payable irrespective of the performance of the contract.
NHL signing bonuses are similar but there is one very important difference. Traditional signing bonuses are paid as a single lump-sum payment. NHL signing bonuses may be paid in multiple installments of varying amounts across multiple contract years, typically when the new league year begins on July 1. While these bonuses may vary from season to season, they are still included when calculating the annual average value of the contract for salary cap purposes. For example, Artemi Panarin’s contract for the 2018-19 season has a base salary of $4 million and a signing bonus of $2 million, for a total annual salary of $6 million.
The most important thing to remember about these signing bonuses is that while they may vary in size and structure from contract to contract, in general, they will be paid out whether or not the player ever plays a single game for the team. This includes if a season is delayed, shortened, or canceled for any reason, including a work stoppage. The way these bonuses are paid has been prominently on display recently. Prior to being traded, the trade rumors that swirled around Ryan O’Reilly focused on his high signing bonus, and whether the Buffalo Sabres or the prospective acquiring teams would be responsible for paying it. Buffalo and St. Louis were able to complete the trade for the talented center on July 1, allowing the responsibility for paying the bonus to also transfer to St. Louis.
BUF gets 1st in 19, 2nd in 21, Tage Thompson, Vladimir Sobotka,Patrick Betglund for Ryan O’Reilly. No salary retained. STL pays ROR signing bonus.
— Bob McKenzie (@TSNBobMcKenzie) July 2, 2018
Players Are Preparing for a Lockout
The opening of Free Agency this year featured a perfect high profile example of a contract loaded with signing bonuses; John Tavares’ new contract with his hometown Toronto Maple Leafs. As Pierre LeBrun reported, Tavares’ 11-year deal contains just $6.11 million in base salary, which is less than 8% of the total value of the contract. In fact, in the first year, Tavares will make only $650,000 in base salary. This is the equivalent of the league minimum. Because the contract is over 92% bonuses, Tavares is guaranteed $70.89 million in signing bonuses over the life of the contract, whether or not he ever plays a single game.
Correction on Year 2 signing bonus, it's $14.99M, not $15.25M. So official breakdown reads like this: Year 1, $650k salary, $15.25M sb; Year 2, $910k salary, $14.99 M sb; Year 3, $910k salary, $11.09M sb; Year 4, $910k salary, $8.44M sb; Years 5-7, $910k salary, $7.04M sb each yr https://t.co/fqt0dFwl4K
— Pierre LeBrun (@PierreVLeBrun) July 1, 2018
John Tavares is not the only high profile player to agree to a contract with a significant signing bonus. Jakub Voracek, Jamie Benn, Carey Price, Steven Stamkos, and Connor McDavid are just a handful of recent examples of star players who have signed these sorts of contracts. While all of the deals these players signed contain substantial bonuses, they are all structured very differently. Some of the contracts have the signing bonuses in every year, providing guaranteed money throughout the life of the deal, while others have been structured simply to be “lockout-proof.”
Leon Draisaitl and his agents negotiated what may be the prototypical lockout-proof contract. Draisaitl’s compensation is paid exclusively through the base salary in most of the years. He has a base salary of $9 million in 2018-19, $9 million in 2019-20, $8 million in 2021-22, $8 million in 2023-24, and $8 million in 2024-25. There are no bonuses payable in these seasons. However, in the two possible lockout seasons, 2020-21 and 2022-23, his base salary drops to $2 million and $1 million respectively with signing bonuses of $7 million in each of those years. His contract structure dictates that, whether or not there is a lockout, he is guaranteed to be paid $7 million for those seasons.
Victor Hedman and his agents took a slightly different approach to guarantee his security regardless of the specifics of any new CBA. In addition to signing bonuses in 2020-21 and 2022-23, Hedman’s contract also has signing bonuses in 2023-23 and 2024-25. It is impossible to predict what a new CBA might entail and how it might change the way players are paid. This structure adds additional security and ensures Hedman will be well paid those amounts no matter the outcome of a new Collective Bargaining Agreement.
NHL Showdown Ahead
The CBA is set to expire on September 15, 2022. However, the terms of the current agreement would extend on a year to year basis from that date, unless the league or NHL Players Association (NHLPA) give written notice by May 18, 2022, that they intend to terminate the agreement. This date is crucial.
Of late, one key point of the CBA has become widely reported. Section 3.1 paragraph (b) of the CBA is the so-called opt-out clause that gives the league and the NHLPA the right to terminate the agreement before the start of the 2020-21 season.
Even more foreboding was the recent failed attempt to extend the current CBA. The league made an offer to allow players to participate in the Olympics in South Korea, in exchange for extending the current CBA by three years. The NHLPA rejected the offer due to a variety of concerns about the current deal, not the least of which is the mandated escrow payments by the players. This may seem trivial, it may also serve as the canary in the coal mine that points to trouble ahead.
The NHLPA remembers how much their bargaining power was hurt during previous lockouts with much of their membership desperate to get back on the ice and the players undoubtedly haven’t forgotten how much lighter their pocketbooks were. During the 2005-06 lockout and the shortened season in 2012-13, only a handful of players were fortunate enough to have the sort of security that signing bonuses afford. Today many players are doing everything they can to make sure that won’t be the case again.
At the same time, the negotiations that followed the cancellation of the 2004-05 season were a huge success for Commissioner Gary Bettman. He was able to shepherd in the current CBA, and it not only instituted the hard salary cap owners were clamoring for, but it also reduced player salaries by more than 20%. These were both tremendous wins for ownership.
These massive victories were the direct result of Bettman’s hardline negotiating tactics and his willingness to cancel an entire season to get what the owners wanted. Bettman remained steadfast and unwavering while hundreds of players were out of work and desperate to return. The pressure on the NHLPA to get players back on the ice was what gave Bettman and the league the leverage they needed to ask for everything they could possibly want and get it.
As more and more players continue to sign contracts with significant signing bonuses, the leverage that made the NHL so successful in past negotiations is slipping away. Commissioner Bettman garnered tremendous support from the owners because of his deft handling of previous negotiations. If teams continue to hand out massive signing bonuses, particularly for years in which a work stoppage is likely, Bettman will struggle to retain even a portion of the leverage he once had. These contracts and the bonuses they carry will drastically alter the balance of power at the negotiating table and will affect the NHL for years to come.