Salary Cap/Salary Floor Noncompliance: Why Teams Don't Cheat
Every summer, we see a fun dance among all 30 teams as team payrolls begin to fluctuate wildly and we see the teams both at the top and bottom of the spending range fall outside of what would be regular season cap compliance during summer months for several reasons. The reasons are always good, as are the questions we see every year: What happens if a team simply doesn't become compliant by the start of the season? Well that's what we're going to take a look at today.
Compliance, Timelines and Wiggle-Room
The good news for teams who have a lot of people to re-sign and for those who have little space left every year is that the Salary cap almost doesn't count during the offseason. The cap is usually set in late June, just before the beginning of the next hockey year (starting July 1st). From there, teams have right up until the start of the season to become compliant with the salary cap, the salary floor, and the 23-man roster limit.
I said the cap "almost doesn't count" because there is one catch for teams with big payrolls: you can exceed the cap during the offseason by up to 10%. You'll see this each year with teams like the Flyers who know that they're going to use a LTIR exception on Chris Pronger all year (edit: LOL, guess we'll go with the Bruins and Savard instead) , so they have no problem carrying a total hit above the cap. As soon as the season officially starts, he goes on LTIR and the Flyers meet their compliance requirements.
For the floor, there is no offseason limit. A team could theoretically go into early October with $0 in payroll as long as they got up to the minimum by the time the season starts
Technically, the CBA only uses "non-compliance" a couple times. The real term for a team failing to abide by either the salary cap or floor is called "Circumvention", and there's an entire article in the CBA dedicated to it. While there are lots of things about the many different ways they've thought teams and players could cheat, here's the meat-and-potatoes of what we're looking for from Article 26:
(a) No Club or Club Actor, directly or indirectly, may: (i) enter into any agreements, promises, undertakings, representations, commitments, inducements, assurances of intent, or understandings of any kind, whether express, implied, oral or written, including without limitation, any SPC, Qualifying Offer, Offer Sheet or other transaction, or (ii) take or fail to take any action whatsoever, if either (i) or (ii) is intended to or has the effect of defeating or Circumventing the provisions of this Agreement or the intention of the parties as reflected by the provisions of this Agreement, including without limitation, provisions with respect to the financial and other reporting obligations of the Clubs and the League, Team Payroll Range, Player Compensation Cost Redistribution System, the Entry Level System and/or Free Agency.
To clarify, not meeting the floor or exceeding the cap circumvents Article 50, which directs teams to obey the team payroll range. Also, it is clear in that not taking action to make your team floor compliant is the same level of circumvention as trying to pay a guy under the table or using any other "proactive" cheat.
Now that we've established that it's truly against the CBA to disobey the CBA, let's take a look at the possible punishments. Article 26 has a bunch of potential System Arbitrator-laid penalties which serve as a great guideline, but it's important to note that things don't have to go to the System Arbitrator unless the NHL and NHLPA disagree about how to solve the problem. As long as one side doesn't cause a fuss, the punishment is allowable under the law, and the punishment doesn't violate some other portion of the CBA, there's basically no limit to what can be done.
Here's the list of punishable options from Article 26 given to the System Arbitrator or the Commissioner (in cases where the arbitrator decides that the circumvention is done by a team, the commish gets to dish out the pain):
(i) Impose a fine of up to $5 million in the case of a Circumvention by a Club or Club Actor, but in no circumstances shall such fine be less than $1 million against any Club or Club Actor if such party is found to have violated Article 50 of this Agreement. If such a fine is assessed against a Club (except in the case of a financial reporting violation), that Club's Payroll Room shall also be reduced by such amount for the following League Year, and if such reduction of the Club's Payroll Room renders the Club out of compliance with the Payroll Range (i.e., the Club does not have sufficient Payroll Room to accommodate its Player commitments comprising Club Salary) for such following League Year, then the Club must take such steps as are necessary (e.g., Assignment, Buy-Out, Waivers, etc.) and as are permitted by this Agreement to ensure that the Club will be in compliance with Article 50 of this Agreement upon
commencement of the following League Year;
(ii) Impose a fine against a Player of up to the lesser of $1 million or twentyfive (25%) percent of a Player's Paragraph 1 Salary in the case of a Circumvention by a Player or Player Actor, but in no circumstances shall such fine be below the lesser of $250,000 or twenty-five (25%) percent of the Player's Paragraph 1 Salary. Notwithstanding the $1 million limitation set forth above, any additional amounts by which the Player has been unjustly enriched due to the Circumvention shall be ordered to be disgorged;
(iii) Direct a Club to forfeit draft picks (the number, placement, and League Year of which shall be determined in the Commissioner's sole discretion);
(iv) Declare a forfeiture of any NHL Game(s) determined to have been affected by a Circumvention;
(v) Direct a Club to disclose and report to the Independent Accountants all information required by this Agreement, including, without limitation, by the provisions of Article 50;
(vi) Void any SPC, or any extension of an SPC, between any Player and any Club when both the Player or Player Actor and the Club or Club Actor are found to have committed such a violation with respect to such SPC or extension; and
(vii) Suspend any Club employee, Player, or Certified Agent involved in such a violation for a period of time determined in the sole discretion of the Commissioner, the System Arbitrator, or the NHLPA, respectively.
Additionally, there's a mandatory fine of no less than $25,000 for any team that tries to register a contract that would exceed the cap.
Obviously a team that refuses to abide by the floor isn't going to care about the loss of cap space caused by the mandatory fine, but I'm pretty sure they wouldn't want to pay that $1M minimum for doing it. In reality, the majority of this is punitive stuff, but (iv) up there is the big key: a team might be able to games with a noncompliant roster, but they can't win them. There would simply be no point in refusing to abide by either the cap or the floor because all that's going to do is get your GM forcibly removed from the league by the commissioner and the operations of your team stripped from you until you're made to abide by the rules.
The ability to force the players into not throwing flying elbows at one another may still be a bit toothless all things considered, but when it comes to thumbing your nose at the league's financial rules, the CBA gives out some pretty big chompers for that stuff. So, next time somebody asks you what happens if a team simply refuses to abide by the salary cap or floor, tell them "scorched earth" and direct them here.