When the 2012 lockout murdered half a season of hockey (and stole from us even more games from Pavel Datsyuk's career), one of the big changes that the NHL and NHLPA fought over was a way to set maximum contract term limits and also fix a loophole in the previous CBA called "backdiving." What had become a contentious point eventually got worked out into what colloquially became known as the "Luongo Rule," named for what was then probably the most-popular example of backdiving that the league actually allowed to happen without punishment.
What is Backdiving?
Simply put, when a contract tapers down from the first few years to a much lower annual salary, this is backdiving. The purpose for doing it is that a player's annual cap hit is averaged out over the life of the contract, called AAV. For example, a guy who gets paid $10M in one year and $8M the next would have a cap hit of $9M over those two years. This would allow a GM to pay a player the $10M he's worth right now, but tack on extra years with tiny salaries to drop the AAV to a reasonable level. The player would simply retire before playing those years and the team would benefit from having those cap savings on the books this whole time.
Nowadays, contracts are limited in how long they can be and also by how far annual salaries are allowed to fall both year-to-year and total. Roberto Luongo's famous 12-year deal with a $5.33M cap hit would be disallowed for three reasons
- The contract exceeds the 8-year maximum allowable (7 years if the player signs as a free agent with a new club).
- The contract sees more than a 35% change in year-to-year salary (three straight years starting in 2017).
- The contract has years where the annual salary is below 50% of the maximum salary in any one year.
Luongo's deal is far from the only one which runs afoul of these three rules, but it's considered the standard. However, it's not just about preventing these deals in the future; it also became about punishing GMs who used the loophole.
When the current CBA was drafted, aside from rules preventing further backdiving, rules were also put in place to punish GMs who gave out those contracts. This is called Cap Recapture.
The spirit of the rule is simple: if a contract is longer than six years, then the total cap hit of the entire deal is going to count regardless of whether the player retires early. The $64M promised to Luongo in his 12 year deal is going to be a cap hit somewhere in the NHL until the summer of 2022, even if he retires.
How it Works
For every year the player's salary exceeds his AAV, that amount of cap savings is "banked" against the team. The only way to "un-bank" this amount is for the player to play in the years where his salary drops below his cap hit. By the end of the deal, the entire banked amount will be exhausted. If the player retires early, then the banked amount will be divided by the number of seasons the player walked away from and charged against that team's cap hit for those seasons he isn't playing.
It's important to note that a team cannot trade away this burden. If a team banks a player's cap savings and then trades him somewhere else, the new team doesn't assume that amount if he retires. Instead, it will stay on the original team's books.
The Red Wings' Burden
Detroit has three contracts which qualify for the Cap Recapture penalty in the event of early retirement (since Ken Holland was something of a pioneer in these kinds of deals which became problematic):
Henrik Zetterberg - 12 years, $73M: This deal runs until summer of 2021 with a $6.083M cap hit. The salary stays at or above $7M until 2017-18, at which point it jumps down to $3.35M for one year and then finishes out with two years at just $1M. Zetterberg will be just shy of 41 years old when the contract expires.
Niklas Kronwall - 7 years, $33.25M: Kronwall's contract has a $4.75M cap hit that sees him still getting paid $5.5M for the 2016-17 season before jumping down to $3.5 and $1.75M in the last two years before expiring in 2019. Kronwall will be 38 years old by then.
Johan Franzen - 11 years, $43.5M: Franzen's AAV is $3,954,545 until 2020 thanks to taking seven years to drop from $5.5M down to 5 and then 3.5-2-1-1 to finish off (Starting next season at the $3.5M level). Franzen will be 40 years old at the expiry of this deal.
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With this in mind, here's how the cap punishment goes for the Red Wings on these three players if they retire early, starting with what would happen to the Wings this summer:
Table 1: retire summer 2016
|Player||Total Recapture Pool||2016-17||2017-18||2018-19||2019-20||2020-21|
|Total Cap Penalty||$22,384,854||$5,359,547||$5,359,547||$5,359,547||$4,192,880||$2,113,334|
Table 2: retire summer 2017
|Player||Total Recapture Pool||2017-18||2018-19||2019-20||2020-21|
|Total Cap Penalty||$24,096,976||$7,742,047||$7,742,047||$5,617,047||$2,995,834|
Table 3: retire summer 2018
|Player||Total Recapture Pool||2018-19||2019-20||2020-21|
|Total Cap Penalty||$21,809,098||$10,254,549||$7,254,549||$4,300,001|
Table 4: retire summer 2019
|Player||Total Recapture Pool||2019-20||2020-21|
|Niklas Kronwall||$0 (Contract Expired)||$0||$0|
|Total Cap Penalty||$13,121,220||$8,037,885||$5,083,335|
Table 5: retire summer 2020
|Player||Total Recapture Pool||2020-21|
|Johan Franzen||$0 (Contract Expired)||$0|
|Niklas Kronwall||$0 (Contract Expired)||$0|
|Total Cap Penalty||$5,083.337||$5,083,337|