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Salary Cap Recapture and Buyouts

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Yesterday, we covered the remaining salary cap recapture for the three Red Wings contracts which are eligible for such punitive measures in the event of an early retirement. Today I want to cover the bases on how the CBA saw to it that  GMs couldn't just buy themselves out of the mess created by the Cap Recapture rule.

You'll notice this if you head over to General Fanager's Buyout Calculator, but I want to put it all in one place for easy reference and show just how bad it would be to try a buyout on any of the three contracts the Wings have Cap Recapture on. Essentially, the CBA's buyout formula has cap recapture already built into it. Here's how it works:

For a player over 26 years old, the buyout amount he receives is 2/3rds of his salary spread over twice the remaining term length. You take this amount and that's the buyout cost. For example, Henrik Zetterberg is owed $19.85M over the remaining five years of his contract. Take 2/3rds of that as the buyout amount and you get $13,233,333. Then, you double the five-years for the buyout period to get 10. Divide that $13.233M by the remaining years (10) and you get an annual buyout cost of $1,323,333.

However, we're not done yet because Henrik Zetterberg's cap hit is the same each year, despite his salary being different. In order to make up for the difference when calculating the cap hit, the CBA next calculates what is called "Buyout Savings." This is the difference between a player's would-be salary in a league year and the annual buyout cost.

This season, Henrik Zetterberg is set to make $7.5M. If you take the buyout cost ($1.3M) from that, you end up with $6,176,667 in buyout savings. To figure the cap hit, you take what would have been the cap hit were it not for the buyout ($6,083,333) and you subtract the buyout savings ($6,176,667). You'll notice in this case that this means Henrik Zetterberg's cap hit after being bought out this year would be negative ($93,334 to be exact). If you're wondering if that means the Wings would get a credit, the answer is yes.

However, that's only magical while the pay remains above the hit. Once it dips out the other way, you get a fun hit like the one that would happen in 2019-20, when Zetterberg's salary falls to just $1M.

Salary: $1,000,000
Buyout Cost: $1,323,333
Buyout Savings (Salary -  Buyout Cost) = -$323,333
Buyout Cap Hit (Current Cap Hit - Buyout Savings) = $6,406,666

Yes, due to the way this is calculated, Henrik Zetterberg's cap hit in a buyout goes up (for two years even!). Once the contract ends and you get into those years where there would be no cap hit were it not for the buyout, you only get the buyout cost, so it would drop back down to $1,323,333, but the cap hit rising in those last years is a feature of the CBA, not a bug.

The same is true for both Kronwall's and Franzen's contracts. Here's how everything plays out with buyouts versus early retirements:

And here's the same info on the total cap charge paid out simplified. The chart below doesn't show you how long those total cap hits are spread out, but they do show you starkly what the difference in cap hits are.

Buyout/Retire Total Cap Hits
Summer of Buyout/Retirement: 2016 2017 2018 2019 2020
Henrik Zetterberg Buyout $  23,799,995 $  20,216,610 $  16,466,663 $  11,499,998 $    5,479,999
Retire $  10,566,670 $  11,983,336 $  12,900,003 $  10,166,670 $    5,083,337
Difference $  13,233,325 $    8,233,274 $    3,566,660 $    1,333,328 $    396,662
Johan Franzen Buyout $  13,318,180 $  10,530,299 $    7,242,422 $    3,621,211
Retire $    8,318,184 $    7,863,639 $    5,909,096 $    2,954,550
Difference $    4,999,996 $    2,666,660 $    1,333,326 $        666,661
Niklas Kronwall Buyout $  10,666,664 $    7,750,000 $    4,166,666
Retire $    3,500,001 $    4,250,000 $    3,000,000
Difference $    7,166,663 $    3,500,000 $    1,166,666

$13M more in cap hits for a buyout versus a retirement essentially makes that idea entirely untenable.

Thanks again to General Fanager for the calculator