Calculating a Cap Hit

by Johnny Fantasy

Many fantasy leagues incorporate a salary cap concept – whether as part of a continuous cap scheme or simply as a mechanism to select keeper players.  For those leagues that base player salary costs on real-life cap hits, figuring out what the actual cap hit for each player is very important. 

Each league will of course have its own specific rules for what numbers get used, but if you’re starting a new league, you have to think about your source of cap hit data and how the cap hits are and should be calculated.  Under the current collective bargaining agreement, calculating most players’ cap hits is not controversial – it is simply the average annual value of the player’s salary over the life of the contract.   But, certain contracts are permitted to include bonuses, including performance bonuses, and for those there is some disagreement between salary cap sites as to what is listed as cap hit.[1]  Most salary cap sites list information not necessarily for fantasy purposes (which need not be precise to real life), but for NHL fans in general to know what the various cap situations are for each team and player.  Some sites count only the player’s salary as the cap hit (and do not include performance bonuses).  Others do include performance bonuses.  But, which is the correct number?  And, which is the best number to use for fantasy purposes?

Well, if we are looking for NHL accuracy, then we need to go to the source of the NHL’s salary cap scheme: the collective bargaining agreement.  Under the CBA, no team is permitted to have an “Averaged Club Salary” that exceeds the salary cap (called the “Upper Limit” in the CBA).[2]  Averaged Club Salary is equal to Player Salaries and Bonuses calculated in accordance with the “Average Amount”[3] (i.e. by averaging the Player Salary and Bonuses over all years of the player’s contract).[4]  Indeed, the CBA is even more explicit in Section 50.5(h)(i) where it states that, for the purposes of calculating a team’s Averaged Club Salary, the Averaged Amount of Performance Bonuses shall be included as fully earned in the year in which it may be earned (and Performance Bonus amounts may be subtracted from the calculation only once they become impossible to earn in the given year).[5]

Based on this, it would seem that when a site lists a player’s ‘cap hit’, that number should include their (average) performance bonuses.  However, the CBA provides for a ‘cushion’ to the salary cap specifically for performance bonuses: team’s are permitted to exceed the salary cap by up to 7.5% solely as a result of performance bonuses.[6]  That means for this year’s $71,400,000 salary cap, teams can pay out up to an additional $5,355,000 in performance bonuses without breaching that $71.4 million limit.  This cushion amount is usually significant compared to total potential bonuses due and so, for all but a few teams that could potentially have to pay more than $5.355 million in performance bonuses,[7] the base salary is the main factor to worry about when checking cap compliance.[8]  In this respect, for the average NHL fan just wanting to know where its team is in terms of cap room, looking at cap hits that do not include performance bonuses is typically accurate.

But what about for us fantasy folks?  What should we use when setting up a salary cap league?  Well, this should of course depend on your own preferences and how complex your league’s cap compliance system is going to be (i.e. will it have a bonus cushion itself?).  But (assuming you are using a salary cap (without a bonus cushion) to maintain league parity), shouldn’t better players generally carry a higher cost?  Isn’t that the principle driving the idea that a salary cap brings parity to a league?  If so, this points to including performance bonuses in fantasy cap hit calculations.  Choosing not to do so then results in high-performing rookies (i.e. the ones typically with bonuses in their entry-level contracts) becoming an unfair jackpot for any lucky owner.  Should the owners of Connor McDavid, Jack Eichel, Nathan MacKinnon and Johnny Gaudreau (just to name a few of the many examples of entry-level players that are (or have the potential to be during the term of their entry-level contract) elite fantasy contributors) get to hold these players for the negligible cost of $925,000, or should they at least be charged the (still bargain) price of up to $3,775,000?  I think fairness and parity favour the higher number.

Unfortunately, the terms of specific player contracts (including the benchmarks for earning performance bonuses) do not seem to be consistently available,[9] and so we can’t determine how much of those performance bonuses are actually earned each year.  Including only the amount of bonuses actually earned would be a great way to more accurately value entry-level players, as it would make it easier for owners holding players that are good prospects, but aren’t producing yet and don’t actually earn those performance bonuses.[10]  Perhaps an even better measure might be a customized fantasy cap hit based on a player’s actual performance (hence, eliminating the ‘cheap rookie’ problem altogether, although such a scheme would probably quite labour-intensive to set up (and would also lose the ‘tracking real life’ component of fantasy in respect of salary).[11]

 

[1] See for example hockeyscap.com and nhlnumbers.com and their different treatment of the ‘cap hits’ for the players on everyone’s favourite team-overflowing-with-first-round-entry-level-contract-players.

[2] CBA p.261, s.50.5(c)(ii)(A)

[3] CBA p.261, s.50.5(d)(i)

[4] CBA p.265, s.50.5(d)(ii).  Interestingly, this means that in the rare case where performance bonuses are not the same from year to year, only the averaged amount counts against the salary cap when earned.  This is good news for the Calgary Flames this year since Johnny Gaudreau is eligible to earn $2,775,000 in actual salary and performance bonuses this year, but since he his (potential) performance bonuses were less in the previous years of his contract, the averaged value (and thus his cap hit this year) will only be $1,850,000 even if he does (inevitably) earn all of his performance bonuses this year and is paid more.

[5] CBA p.280, s.50.5(h)(i)

[6] CBA p.281, s.50.5(h)(ii)

[7] capfriendly.com.  Currently, the Oilers, Blue Jackets, Panthers and Sabres could each potentially pay out more bonuses than the 7.5% cushion, and would thus have to worry about fitting such excess under the $71.4 million cap.

[8] …in general; the cap calculation rules under the CBA are very complex and there are many nuances, exceptions and additional things to take into account, such as carry over hits from previous years.

[9] generalfanager.com seems to have the bonus details for some players (see Artemi Panarin) but not many.  I’d be very interested in hearing about any place where this information for all players can be found, if there is any.

[10] Jonathan Drouin, I’m looking in your direction.

[11] I’d also be interested in hearing about any such schemes that people have used.

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