The Leafs’ bonus problem isn’t a problem

You might not know it, but the Leafs almost have a cap crunch this season. The Dion Phaneuf trade meant the Leafs absorbed a large amount of short-term salary, most of which is expiring this year. While they’re under the cap, the excellent play of the Leafs’ rookies will lead to performance bonuses that, when applied to the Leafs salary cap for this year, push them over the limit, and result in an overage applied to next year. How real is this possibility, and how likely is it to matter? Let’s find out.

The Basics

Throughout this analysis, we’re going to err on the side of conservatism. That is, our set of assumptions will make the cap situation worse than it really is. To that end, let’s assume the Leafs finish this season with exactly $0 in unused cap space (CapFriendly currently projects them to have about $250K of it). As it currently stands, they have just short of $56M in cap space tied up next year, representing commitments to 17 roster players. With the cap projected to be in the $75.5-76M range (Source), that leaves the Leafs with about $19M of salary cap wiggle room, without replacing any expiring players or concerning ourselves with bonus overages.

The Expirings

The Leafs’ expiring players and their roles are as follows:

From the above table, we can see that in order for the Leafs to maintain their roster from this year, they need to acquire two top 9 wingers, a fourth line centre, a defensive third pair, a top 4 RD (though Zaitsev has been our de-facto 1RD), and a backup goalie. What will that cost the Leafs?

Forwards

The most obvious thing to do for the Leafs is to use the leverage they have from Connor Brown and Zach Hyman being RFAs, and re-sign them. Both are solid NHL roster players, but neither are likely to get particularly large contracts. Below are a crude selection of comparable RFA contracts from the last year for forwards.

Obviously, the points per game column is a little flawed, as that’s not the sole basis for why these contracts were given, but it’s used here as a quick and dirty comparator between players. Hyman and Brown are both on the upper side of the distribution by that metric, but it should be noted that they made it to the NHL at later ages than most of these comparables, meaning they don’t have younger seasons dragging their points figures down. The Leafs rookies also have the advantage of playing with Auston Matthews, who might be the best linemate of any player on the list above, aside from Hertl playing with the Sharks high end forwards.

Based on the contracts above, it seems likely that these two will get short term deals (2-3 years) anywhere between $2M and $2.5M per year. The only people above that figure are Tomas Hertl, JT Miller, and Kevin Hayes, all of whom are better players than either of the Leafs rookies (Miller doesn’t look great by the last column, but he had just come off a season where he averaged 0.5 PPG in the NHL for New York before signing). Let’s say the two sign for a combined $4.5M.*

Now we just have to deal with the fourth line centre. In theory, Eric Fehr can take this role. However, I don’t think that’s the most likely move. The Leafs probably sign someone in the offseason to take care of this role. We’ll assume that someone is Brian Boyle, who is probably on the pricier end of this market. He’s currently making $2M, but is coming off a strong season. Lets give him a raise up to $3M, and move on to the defensemen.

*I am assuming that all other Leafs RFAs (basically all Marlies guys) are handed qualifying offers. They don’t factor into this analysis at all.

Defensemen

Lets tackle the easy part first. We need two warm bodies to run the third pair, as replacements for Roman Polak and Matt Hunwick. Those two combined are making $3.5M. Third pairing guys can be had for cheaper (especially if Marincin / Marchenko end up taking that role). But again, lets be conservative and say we just tread water, and sign two defensemen for that cost.

Now, lets tackle the more difficult question: how do the Leafs deal with Nikita Zaitsev? This could be a whole post in of itself, and it’s not easy to answer because Zaitsev is in a unique set of circumstances. He has only one year of NHL experience, where he’s been solid, though overmatched as a default top pairing with Morgan Rielly. It’d be easy to criticize him for that, but realistically, everyone knew he wasn’t some magic 1D in waiting. His true calling seems more like that of a solid second pairing guy who can also quarterback a power play.

Zaitsev is also unique in that he has more leverage than a typical RFA. A star in Russia, if he doesn’t feel the role and contract he wants is available for him, he can waltz home and become the best defensemen in the KHL again. While by all accounts, he likes Toronto and wants to stay in the NHL, the Leafs probably can’t treat him like any old RFA. Without the benefit of a comparables analysis, it sort of feels like I’m pulling a number from out of my ass here, but again, lets make this bad for the Leafs and say he gets 4 years at $4M per (for reference, Jake Gardiner is currently on a deal worth $4.05M over 5 years that was signed when he was 23). I’m not in love with that deal as a fan, and it probably undersells how good Lou seems to be at re-signing players (the Kadri and Rielly contracts are great examples of this). Nonetheless, we’ll pencil him in at that figure.

Goalies

This is easy. We need a backup, which are easily fungible. This year, we cycled through Enroth and McElhinney, who made about $800,000 each. Lets keep that the same for next year.

Where Does That Leave Us?

What we’ve done so far is maintain the Leafs’ current roster. That means we’re basically running back what is an average squad this year, with no improvements, besides the (likely considerable) growth of the Leafs young stars, and some decline amongst their older players.

That’s left us with this roster, in which I’ve also taken the liberty of putting Joffrey Lupul on LTIR (note that I’m using a worst-case cap of $73M). In this scenario, the Leafs have retained every key contributor of this year’s team, and have $5.7M in cap space (without having put Horton on LTIR).

Now, how do bonuses affect this? Simply put, the Leafs cap space next year is lowered by the amount of performance bonuses incurred this year that the Leafs have to pay. From my discussions with the best legal counsel money can buy (Fulemin), we believe interaction between LTIR and bonus overages specified in the CBA only states that LTIR space cannot be used as a buffer for overages. Consequently, when a team uses LTIR and faces performance bonuses, those bonuses turn into overages automatically (Fulemin LLC makes no promises regarding the truth of this interpretation. Use at your own risk. Consult your doctor if the CBA gives you an erection lasting longer than four hours).

If we total up all the potential bonuses the Leafs can pay to rookies this year, the amount sums to $5.85M, which is slightly more than the cap space the Leafs have in this situation. Realistically, they’re not going to pay all of that, or even most of it. Let’s say Matthews earns all of his performance bonuses ($2.85M) and between Nylander, Marner, and Zaitsev, they earn ²⁄₃ of their potential bonuses (total of $1.7M). This would result in total performance bonuses incurred in 2016/2017 of $4.55M.

This would then become an overage to be applied to the Leafs cap in 2017/2018 of the same amount. To be sure, this is a large amount, but it can still be absorbed in the free cap space without a huge issue. The timing of when the overage is calculated and charged may impact the ordering of how things are done, but the point is, the Leafs have the space to absorb it and maintain their roster.

And recall, we were being harsh to the Leafs at every step of this analysis. Look at how bloated that mock roster is! We signed a ‘premium’ fourth line centre. We shopped externally for third pairing defencemen, instead of just running Marincin/Marchenko. We didn’t make any salary dump trades. The reality is likely more rosy than this. Essentially, it’s clear that the Leafs can retain their current roster, absorb the bonus overages, and still easily be cap compliant for 2017/2018.

Questions/Answers

Q: Sure, we can retain our roster... but we should be trying to upgrade it in order to make a Stanley Cup run in the next few years, and take advantage of the last year for which all of the Holy Trinity will be on ELCs. We need to upgrade!

That’s a great point, but I have you covered. By changing the order in which signings are completed so as to maximize the effect of LTIR, we can sign Kevin Shattenkirk for 7 x $7M, while still having about $6M in salary cap space (again, with a very conservative $73M estimate for the salary cap)

So we can upgrade - the specific upgrade that I chose is less important than the fact that the Leafs do have the ability to splash that money if they need to. Further, I still haven’t made any sort of trade regarding the older Leafs forwards (Komarov, JVR, Bozak).

Q: But even if the Leafs can stomach next years overages, they’re in line to see almost as much in performance bonuses the year after! That will cause another overage in 2018/2019!

Again, solid point. This gets at the core of the problem, in many ways. Here is the real argument for minimizing overages.

Unless they deal with it soon, the Leafs will have a recurring overage issue, and in particular, will need every penny of cap space they can get in 2018-19 or later. Therefore, they should minimize their current salary obligations by trading a salary now, so that they complete the 2017-18 season without incurring overages. This loss of talent and flexibility for next season will pay off the season after.

The short version of my response is that the fear is overblown, and would require significant moves that severely hamper the Leafs’ ability to field a competitive team next year. For the long version, we’re going to do a bit of a thought experiment.

Let’s consider the case where the Leafs decide they want the overage cycle to end ASAP. That means that they need to structure the team so that next year, they don’t use LTIR and have enough cap space that the bonuses incurred by Leafs players on their ELCs. CapFriendly has the Leafs potential bonus liability next year as $4.675M, which considers players on the active roster. Assume the Leafs incur 75% of their maximum liability (we assumed similarly in the analysis conducted above). That would result in bonuses of $3.5M. With a cap of $76M, that means the Leafs need to have a cap hit of no more than $72.5M. But in addition, they can’t use LTIR at all. This means that Lupul and Horton, making $10.5M combined, cannot be buried in any way. As a result, the Leafs have $62M to construct their actual roster.

As I mentioned near the start, the Leafs currently have $56M committed to 17 roster players for 2017/2018. You don’t need to be a genius to see that to achieve that, the Leafs need to shed some salary, or troll the bargain bin and sign a lot of sub-$1M contracts (in order to replace all the roster spots that are open). Realistically, the latter isn’t possible, so there needs to be some trades made. That’s fine in a vacuum, but this constraint also means we can’t take much salary back. The type of team who want Tyler Bozak or James van Riemsdyk are already good. They don’t have cap room as it is, and they’re unlikely to be able to accomodate those cap hits without sending some notable contract back. So we’d not only have to trade someone like JVR or Bozak - we’d have to trade them for a collection of assets that is cheaper than they are. Which almost certainly means we’d be taking a significant short-term step back. If you feel that the Leafs prospects can take over for those players without missing a beat... well, I think you’re underrating how good those players are, and I’ll leave it at that. You’d also have to commit to not using LTIR in 2018/2019 as well, essentially conducting a similar exercise to the above.

Now, let’s consider the other option, which is basically to say ‘fuck it’ and commit to building a roster that uses the flexibility LTIR allows the Leafs. Essentially, that’s the upgraded roster above. What we need evaluate are the long-term cap ramifications of doing that, with respect to bonuses and potential overages. In the case I specified above, the Leafs upgraded their roster, didn’t move anyone, and had $6M in space left over (on an unrealistically low cap). Let’s say $5M of that space is eaten up off the bat due to the bonuses incurred this year, applied as an overage to next year’s upper limit . Again, this is an estimate that makes things look worse for the Leafs. The bonuses incurred in 2017/2018 would then automatically result in an overage of that amount to be applied to the 2018/2019 cap, due to the use of LTIR. If we assume (as in the other case) that this is $3.5M, then that’s $3.5M less they’ll have in 2018/2019.

The team will be more expensive in that season, so that (potential) $3.5M is annoying. At that point, the performance bonus cycle will largely be complete - just the final year of Matthews’ and Marner’s ELCs remain.

That’s not ideal, but it’s also not a big deal. The Leafs (in a roundabout way) are still paying the price for the Clarkson deal, and there’s no way around that, short of the Leafs using $10M less in space than they possibly could in each of the next two seasons, in order to save, at most, 70% of that.

Q: (INSERT PLAYER) you signed would actually (COST MORE / NOT COME HERE).

That’s fine. The players are less important than the roles they play. If Brian Boyle doesn’t come here, the Leafs can sign a cheaper version, or promote a Marlie. The point is, they have flexibility.

Q: How does the expansion draft change this analysis?

It doesn’t affect it much. It basically just takes a player who doesn’t factor in as a core part of the future off the hands of the Leafs. For example, someone like Leivo or Marincin may be taken. In my analysis, I have both on the Leafs roster, but in extra-man roles. So in this case, one of them being taken would actually free up some salary for the Leafs.

Takeaway

The Leafs salary cap situation is fine going forward. There’s been some mongering about how they’re in a real pickle because of the bonus overages and how that may spill over into following years, and while it’s not ideal, the Leafs are in the position to keep using LTIR and basically just eat it until they no longer face the bonuses. It’s not the best situation, but it’s also not a huge problem, especially given how clean the rest of their books are.

Acknowledgements

All figures courtesy of CapFriendly.com

Thank you to Fulemin and Katya, who provided key edits and insights into the cap, specifically with regards to LTIR and performance bonuses.