When the Leafs signed free agents Patrick Marleau and Ron Hainsey this summer, there was some concern about the team's ability to re-sign their remaining Restricted Free Agent, RW Connor Brown. That was eventually cleared up when the Athletic's James Mirtle discovered that the Leafs were using "offseason LTIR". What exactly that is has still not been cleared up, but I believe it is similar to the prior to season start illustration of LTIR, just applied to the off-season cap. Regardless, the focus here is on the opportunity the Leafs have with Connor Brown still being RFA.
I will preface this by saying I don't think it is necessarily realistic, or a good idea, but the thought is too interesting not to explore. As we all know, the Leafs will be in a cap crunch in 2019-20, as a result of it being a contract year for Auston Matthews, Mitch Marner, Jake Gardiner, and Kasperi Kapanen, in addition to Matt Martin, Marleau, and Nathan Horton still being on the books for a combined $14.05M. I will dive deeper into that topic in a later post, if people are interested. In order to remedy this, the Leafs could use a loophole that they have actually exploited fairly recently.
In 2016, in the wake of the Dion Phaneuf trade with Ottawa, the Leafs expressed their intent to buy out one of the players they'd just acquired from the Senators: struggling defenceman Jared Cowen. After Cowen contested it on the grounds of an injury, the buyout eventually went though, resulting in a $650k cap credit for the Leafs. This was due to a oddly worded rule, designed to prevent teams buying out front loaded contracts to avoid recapture penalties--50.5 (d)(iii) of the Collective Bargaining Agreement.
When a player is bought out, you typically take 2/3 of the salary and spread it out over twice the remaining years. The result is the buyout amount that has to be paid to the player, and that shows up as a cap hit, each season. This is still the same, however now you take the difference between remaining actual salary and cap hit, and add that to the cost during the years covered by the contract. For example, a player with a $6M cap hit has one year remaining with $3M in actual salary. The buyout cost is $1M for the next 2 years, but since the cap hit is $3M higher than the actual salary, the cost would be $4M for the first year.
The problem comes in the unlikely event that a "backloaded" contract is bought out. It is unlikely because backloaded contracts are usually only given to young, up and coming players, that are rarely signed to deals bad enough to be bought out. Back to Jared Cowen, because he was younger than 26 at the time of the buyout, it was 1/3 of his remaining salary ($4.5M), spread out over 2 years. This resulted in a $750K cost for the next 2 years, however the difference in salary and actual cap hit was -$1.4m, so it came to a cap hit of negative $650k in the first year. In other words, a credit.
In theory, the Leafs could try to strategically use this to their advantage once again. They need all the space they can get during that crunch year, and a Connor Brown contract that is Backloaded could give it to them. For example, if they were to give him a 3 year, $4m contract with a structure of $2m, $4m, then $6m (Just barely within the CBA guidelines for non-front loaded contracts), a buyout in 2019, while he's still 25, would result in a $1M cap credit for 19-20.
This is because he has a $2M difference in actual salary and cap hit, and his buyout cost would be $1M per year for 2 years. The disadvantage would be the $1M hit in the following year; however, it would be less of an issue in that season, with Martin, Marleau, and Horton’s contracts expiring. In my opinion it would be wise to avoid Bonus Overages in 18-19, but if the Leafs are in a position to contend, a contract that is structured this way may allow the Leafs to not only contend for a cup, but keep all of their core players (minus Brown) in the process.
Maybe this is all nonsense because Connor Brown is a rookie that just scored 20 goals, but let's look at it differently. It's the 2018-19 trade deadline, and the Leafs need to plug their gap at RD. Even though Zach Hyman would be over 25 at the time of the buyout, let's use him as an example, and assume he got the same contract. They spend their last $5M to do make an upgrade at RD, meaning any earned Performance Bonuses will be applied in full as overages the following year.
They win the Cup (awesome), but have $4M in overages. It's time to re-sign players, and after signing Matthews and Marner they only have $6M to sign Gardiner and Kapanen. Two years ago, the Leafs wisely chose to backload Hyman’s three-year contract, and they buy him out. Not only does that leave them with $10m in cap space, which would allow them to sign Kapanen and Gardiner, but the $1m cap credit allows them to replace Hyman with Grundstrom, who is (let's say) superior at this point anyways.
It may seem unrealistic, but a team would be wise to keep a back-loaded contract up their sleeve in order to get them out of cap trouble. At the very least it's an entertaining thought, but in my opinion it's a legitimate strategy, because even if the team doesn't need the cap space, they can keep the player for an additional year. Nearly no risk involved.
I hope you guys liked my first Fanpost, I'm sure there will be more to come. For those of you who aren't familiar, you can find me on Reddit as /u/Earlisaboss. I have a ton of similar posts there, hopefully I can begin transferring them here soon. You'll find that a lot of my stuff is based on CBA intricacies and cap related things, but sometimes I like to dive into player analysis, and I love to talk about prospects.