Fun with the NHL’s Cap Advantage Recapture Rule.

In the wake of Ilya Kovalchuk’s surprising decision to retire from the NHL to play in the KHL, it was revealed the New Jersey Devils wouldn’t be severely penalized under the new cap advantage recapture rule.

As explained by CapGeek.com:

Teams receiving a “cap advantage” from long-term contracts — defined as seven years or more for contracts signed prior to the January 2013 CBA — will be penalized in the event the player retires or “defects” from the NHL before the contract expires. A team receives a “cap advantage” when the player’s actual salary exceeds his cap hit in a given year.

Following retirement/defection, the “advantage” will be “recaptured” and charged against the club’s cap in equal amounts each year until the contract expires. This penalty applies to any team that received a cap advantage from the contract — ie. a traded contract — except in the event that the trade occurred prior to the new CBA coming into place in January 2013.

[ Edit: June 2, 2013 ] Teams do not receive a credit for net negative cap benefit (where cap hit exceeds salary over the course of the contract prior to retirement). However, in calculating net “cap advantage,” teams do receive a credit for seasons in which cap hit exceeds salary.

Under this rule, because Kovalchuk retired this summer, the New Jersey Devils would only be penalized $250K per season for his “defection” up to 2025, when his contract would’ve officially expired.

As per The Hockey Guys, the penalties over the course of Kovalchuk’s contract started off quite low for the first couple of years of the remaining tenure, then climbed sharply beginning in the third year (2014-15), topping out at over $4.66 million had he retired at the end of 2019-20. The penalty would decline between 2020-21 through 2023-24 but would remain expensive (in the millions of dollars).

In other words, it was to the Devils advantage Kovalchuk retired this summer, rather than in 2020, when the cap advantage recapture penalty would’ve been considerably more expensive.

Canucks cap advantage recapture penalty wouldn't be expensive if Roberto Luongo retired this summer.

Canucks cap advantage recapture penalty wouldn’t be expensive if Roberto Luongo retired this summer.

I was curious, therefore, to find out what the cap advantage recapture penalties would be for the Vancouver Canucks if goalie Roberto Luongo retired this summer since, after all, the rule was nicknamed for him.

Using CapGeek.com’s invaluable “recapture calculator”, if Luongo retires this summer, the Canucks would be penalized just over $825K per season through 2021-22, the final season of his contract.

As with Kovalchuk, the recapture penalty increases each year, topping out at over $4.3 million for either 2020-21 or 2021-22, the final two seasons of Luongo’s contract. If Luongo retires before either season, the penalty for the Canucks will be a steep one.

Because of the difference both in the remaining tenures of both contracts and how they were structured, the penalties in the final years of Luongo’s contract are significantly higher than those at the end of Kovalchuk’s.

Following Kovalchuk’s NHL retirement, several pundits and bloggers made dire predictions forewarning further departures by other NHL Russian stars.

While I doubt we’ll see similar “defections”, let’s see what happens if Washington Capitals captain Alexander Ovechkin announced his NHL retirement, assuming the Capitals were willing to let him go.

If Ovechkin retired or defected this summer, the Capitals wouldn’t be charged a cap benefit recapture penalty. That’s because they’d receive no actual cap benefit from his departure.

As per CapGeek.com, cap benefit is defined as:

Cap benefit the team received (total salary payment less total cap hit) while the player was on the team prior to retirement. Teams do not receive a credit for seasons with negative cap benefit (where cap hit exceeds salary).

Indeed, if Ovechkin retires or defects at any time over the remaining tenure of his contract, the Capitals won’t incur a cap advantage recapture penalty.

That’s because his contract, while lengthy, doesn’t have the wide salary variance to secure a lower cap hit as Kovalchuk’s and Luongo’s did.

Over the thirteen-year tenure, the average cap hit is over $9.538 million. In the first six years of his contract, he earned $9 million per season in real salary, and over the remaining seven years, he’ll earn $10 million per season.

Let’s assume Zach Parise, one of the Minnesota Wild’s major signings of last summer, decides to call it quits this summer, terminating the remainder of his 13-year, $98 million contract.

The results would be similar to Kovalchuk and Luongo. If Parise retired this summer or next, the cap hit would be very low (over $300k and $800K respectively), but it start rising significant starting in the summer of 2015 ($1.238 million), topping out at over $6.5 million in 2023 and 2024.

In other words, the longer Parise remains with the Wild, the more expensive the cap advantage recapture penalty if he retires before his contract expires.

Depending on the remaining tenure and salary variance of those lengthy contracts signed during the previous CBA, the earlier a player on one of those contracts retires, the more beneficial to their respective teams.

So, if you’re looking for a way to cure the off-season NHL blahs, why not check out CapGeek’s recapture calculator, find out which players fall under “the Luongo rule”, and learn how much it could cost their respective teams in cap benefit recapture penalties.

3 Comments

  1. The thing is, there is a substantial difference for Russian born player who “retire” from the NHL and immidiatly resign for the same money with a KNL club ( the KHL does not have an agreement with the NHL like other leagues )

    Luongo or others if they retire….they retire that’s it baby they ain’t going to Chelyabinsk for one tenth of the salary to endure winters that stopped Napolean dead in his tracks. Sure Luongo would pull the same trick as Kovachuk if it meant going home to family and kin….but it doesn’t

    There’s a fundamental difference between players of different nationalities. It may be legal and indeed it is legal under the new CBA….but it doesn’t mean it’s right or equal in a pratical way. Hate to make this comparison. The current Martin / Zinnerman case. Legallly according to the courts the right verdict was reached but a huge porition of the population say it’s morally wrong. Sure what Kovalchuk found a legal way for him and his club to wash their collective hands of a burdening contract…..but there’s lots of burdening contract that others would like to do the same…….but because of nationality and circumstance don’t fit

    NJ signed a stupid contract….true…will they have to live with their mistake like every other club apprently not. They’ve been given a get out of jail free card and no repercussions. This “out” should be plugged because the opportunity for every other and only Russian players exists. At this time Ovechkin may choose to stay in the NHL but he has a incredible hammer to play should he decide one bright sunny day…..stuff Washington ….this coach… the travel or what ever. If he marries a Russian girl that might just be the incentive…who knows, but he does have the league by the short and curly’s

    • I disagree completely. There is nothing that needs to be plugged. What Kovalchuk and New Jersey did, wasn’t a circumvention of the cap, doesn’t violate the spirit of the CBA, and doesn’t set a bad precedent for other players. While it may have been extremely convenient for both parties, it doesn’t make it wrong, or something that needs to be monitored going forward. The NHL certainly isn’t hurt by this, they didn’t want these types of deals to exist, so one of them getting nullified doesn’t bother them.
      The NHLPA could take issue if it was New Jersey that asked Kovalchuk to leave, but it was Kovalchuk’s decision, and the team accomodated.

      Each one of these situations would be looked at on their own merits, but it won’t be often that this type of thing happens as there really won’t be many situations where both sides will be as happy to do it. Ovechkin has no real re-capture threat, so if he is playing well, Washington can simply block him from playing elsewhere. If he isn’t playing well, what are the chances he wants to give up 10 million a year to try to sign a deal in the KHL on the downswing of his career?

  2. First of all I used Ovechkin simply as an example, it could be any Russian player, now or in the future. And if the dude wants to retiure the club cannot stop him. There is no ageement between the KHL and the NHL. This only works for Russian players. No star NA player wants to spend his days in Chelybinsk. In the Luongo deal the agreement that was signed was retroactively changed. Luongo is not going to mother Russia to play/endure the KHL…in theory he could practically he wouldn’t. If Mrs Luongo can’t handle Vcr how the heck is she seeing Russia in her future.

    I have no doubt Betteman has overlooked any number of clauses….for a start in the previous CBA he never thought any one would sign a 15 year deal…but they did. You give Bettman way to much credit.

    They chnaged the Luongo contract because they wanted to set an example…you signed the contract so you pay the price…KOvalchuk you get a pass