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NHL Free Agency 2013: Daniel Alfredsson and the Over-35 Bonus Cushion

We might be coming back here a lot over the course of the season.

Gregory Shamus

In the days since former Senator Daniel Alfredsson signed with the Red Wings, we've discussed elements of his contract structure piecemeal, but I want to have a repository for the applicable sections which turn his $5.5M cap hit into what's essentially $3.5M in cap space taken.

Mostly I'm doing this because I want an easy place to link to when this topic inevitably comes up six dozen times during the course of the season.

You'll see on the Red Wings' Capgeek page that Alfredsson's hit is calculated at $5.5M. His individual page adds up the $3.5M in player salary with the $2M in bonuses to get us to that figure. What's important to note is that those bonuses create a special set of circumstances for the team and player. For one, it changes how much cap space they actually have.

Under the CBA, Article 50.2(b)(i)(C)(2), there are only three groups of players which may have performance bonuses tied to their contracts. They are: players on entry-level deals; players who have 400 games of experience and were injured last season; and anybody who is over 35. In both of the latter two cases, the only way performance bonuses are allowed is if the player is on a one-year deal.

At 40 and one a one-year deal, Alfredsson qualifies for such bonuses. Unlike on entry-level deals, performance bonuses for 35+ players are not limited by the Exhibit 5 bonus rules and can be more open-ended. Unfortunately, in this case, we don't know what the specific criteria are for Alfredsson to achieve his two million, but we do know how a similar contract is built.

Let's just assume for the sake of sanity that it's not going to be difficult for Alfredsson to achieve the $2M in bonuses and that the Wings are going to end up with his whole $5.5M cap hit. It's simply easier to plan that way. [Edit: According to Capgeek's Twitter feed, the bonus is for playing in 10 games.]

The thing is that if we dig deeper into the CBA, it indicates that teams can catch a bit of a break on the off-chance that bonuses aren't met. Make no mistake, when the NHL is calculating the cap hit for Daniel Alfredsson, they're going to calculate it at $5.5M. It's just that the cap isn't really the cap until it comes time to actually pay the bonuses.

Confused? Let's head to 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 solely to the extent that such excess results from the inclusion in Averaged Club Salary of: (i) Exhibit 5 Individual "A" Performance Bonuses and "B" Performance Bonuses paid by the Club that may be earned by Players in the Entry Level System and (ii) Performance Bonuses that may be earned by Players pursuant to Section 50.2(b)(i)(C) above, 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")

So there we stand. The Red Wings may exceed the cap by 7.5% through the use of performance bonuses. For this year with the cap being at $64.3M, that amount comes out to $4.8225M.

If Alfredsson earns his $2M in bonuses, that amount will count against this year's cap hit. Some will say it will roll forward to next year, but that's not exactly true. The way it's calculated is that if he earns the bonus, it will count against the Red Wings' cap hit for this year. Given that, if that amount puts the Wings over the $64.3M cap, they will realize the difference as a cap penalty next season, meaning the overage will be deducted from their available space.

While right now, the Wings aren't over the cap and wouldn't see the overage make a difference, we can expect that they might do so. If this is the case, then what the Red Wings are doing is trading future cap space for additional room this season. Considering the salary cap is expected to rise, what they are doing is using the Alfredsson bonus to turn 3.1% of available cap space into a lower percent * simply by virtue of making it count later.

The advantage gained by this accounting trick isn't large, but as we've seen time and again in the NHL, the margin of victory can be just as small and every bit as meaningful.

*for example: $2M in cap space becomes 2.8% if the cap goes back up to $70M for the 2014-15 season.