Like many professional sports leagues, the NHL has a salary cap to keep teams in larger markets (with more revenue) from signing all of the top players and extending their advantage over smaller-market franchises.
A notable instance of this was when the Detroit Red Wings stockpiled expensive high-end performers for their Stanley Cup-winning 2001–02 season;[1] the New York Rangers often also used a similar approach, offering massive contracts to marquee, veteran players.
Overall, the salary cap varies on a year-to-year basis, calculated as a percentage of the NHL's revenue from the previous season.
With the impact on sports revenue associated with the COVID-19 pandemic in North America, there has been a "flat cap" of $81.5 million from the 2019–20 through the 2022–23 seasons.
[4] Prior to the resolution of the 2004–05 lockout, the NHL was the only major North American professional sports league that had no luxury tax, very limited revenue sharing and no salary cap.
Not all NHL owners were willing to engage in a bidding war, in particular, Harold Ballard of the Toronto Maple Leafs spent as little as possible, making his team the most profitable.
[5] There was little financial incentive for Ballard to spend money on star players to improve the quality of the on-ice product and attract fans, as all Maple Leafs games were sold out regardless of how poorly the team played.
NHL Commissioner Gary Bettman successfully persuaded the American-based teams to donate towards a pool to mitigate the effect of the exchange rate.
The league contended that its clubs spent about 75% of revenues on salaries, a percentage far higher than existed in other North American sports.
NHL Commissioner Gary Bettman demanded "cost certainty" and presented the NHLPA with several concepts that the Players' Association considered nothing more than euphemisms for a salary cap, which it had vowed it would never accept.
The NHL salary cap was formally titled the "Upper Limit of the Payroll Range" in the new collective bargaining agreement.
The practice of paying all players in U.S. dollars (that had already been adopted prior to the lockout) was made mandatory, to preclude the possibility of payrolls being taken over the USD-denominated cap by exchange rate fluctuations.
League owners have said that the current revenue sharing plan is designed to provide some protection to small market teams on either side of the border from the effects of future changes in the Canadian dollar's value.
[7] The collective bargaining agreement also contains a "Lower Limit of the Payroll Range", which is the minimum that each team must pay in player salaries.
Each year of an NHL player contract, the salary earned contributes to the team's "cap hit".
The NHL became the first of the major North American leagues to implement a hard cap while retaining "guaranteed player contracts".
As a regular buyout, the team does not receive cap relief, instead they free a roster position and decrease the salary owed to the player.
[10] Players, agents or employees found to have violated the cap face fines of US$250,000 – US$1 million and/or suspension.
A new, lower salary cap limit was negotiated for the collective bargaining agreement starting with the 2012–13 season.
One notable incident of this involved Ilya Kovalchuk, who signed a 17-year deal with the New Jersey Devils in July 2010, prompting the NHL to nullify the contract.
The parties used this time to discuss the collective bargaining agreement, which had been in effect since the end of the 2012–13 lockout, and was set to enter its penultimate season in 2020–21.
Most NHL players will need to clear waivers before they are assigned to a minor league team; exceptions are listed below.
For the current collective bargaining agreement, the draft picks owed for signing a restricted free agent is as follows.
[22] Additionally, starting with the 2013 collective bargaining agreement, the average annual value for purposes of draft pick compensation is determined by the lesser of the number of years of the deal or five.
This provision was inserted into the collective bargaining agreement after defenceman Shea Weber signed a 14-year offer sheet after the 2011–12 season.
As further discussed below, buy-outs do not provide a club with either financial or cap relief from any signing bonuses still outstanding, if any.
A major part of the benefit derived from the buy-out comes from the fact it is paid out over twice the number of years remaining on the contract.
Since NHL revenues and the salary cap have both steadily increased since 2005, bought-out contracts typically consume both a smaller portion of a team's revenues and a smaller portion of the cap compared to what would be the case if they were paid out over the original length of the contract.
Currently, the only limitation to the proportion of compensation that can be paid as a signing bonus is that the base salary of all NHL contracts must be at least the league minimum.
Since the NHL salary cap was reintroduced following the ratification of the current collective bargaining agreement, it has risen almost every year since being instituted.