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Base Salary, Cap Hit, AAV, and Bonuses: What’s the Deal?

Updated: Sep 2, 2022

Yesterday, the New York Rangers announced that they agreed to terms with 2-time Stanley Cup champion Barclay Goodrow on a six-year contract. Goodrow is a pesky, versatile 28-year-old winger who can also hold his own in the faceoff dot. Ian Pulver, Goodrow’s agent, reported that the deal holds a total value of $21.85 million over the aforementioned six years. The average annual value (AAV) of the deal will therefore come in at $3.642 million. The AAV of a player’s deal is often very different from the actual dollars the player takes home each year. Below, you will find a layout of Goodrow’s contract structure, provided by the good folks at Puck Pedia [records].

The highlighted rows above are “Cap Hit” and “Total Salary.” Total salary is a player’s gross annual income, and consists of base salary and signing/performance bonuses. Goodrow’s cap hit and AAV have the same, fixed value: $3,641,667. Yet, Goodrow’s base salary varies, starting at $750,000[1] this coming season and reaching a peak of $5,100,000 by the 2023-2024 season.

The maximum salary cap allowed of all players counting towards an active roster, or the “salary cap ceiling,” is currently $81,500,000. Goodrow’s contract will carry a cap hit of $3,641,667 (his AAV) towards that figure. That is why fans tend to care more about cap hit than total salary. Once the monetary value and term (length) of a contract are agreed upon, players and corresponding front offices can’t adjust the cap hit and AAV. Those figures are automatically calculated; a simple math equation (total dollars/years) even for a law student like me. Total salary simply represents how much money a franchise owner will pay a player in a given year; it has no effect on salary cap.

In the past, teams often tried to “front-load"[2] a contract to minimize long-term risk and entice players to sign. As in most sports, players tend to decline with age, so teams looked for ways to diminish risk with time. For example, in 2010, the New Jersey Devils signed then superstar winger Ilya Kovalchuk to a 17-year, $102 million deal. Over the final five years of the deal, Kovalchuk’s base salary was set to just $550,000. The AAV was $6 million! The NHL Commissioner’s Office was not at all fond of what it labeled “cap circumvention,” and thus revoked the contract while issuing penalties and fines.

NHL franchises with historically low budgets often look to acquire players with modest base salaries owed. Under that principle, a franchise without liquidity concerns would typically be happy to front-load a player’s total salary. Therefore, if that franchise looked to move on from the player in the latter years of the deal, they would undoubtedly have an easier time finding trade partners. The backend years would come with a lower base salary owed for the acquiring team’s owner to have to shell out, even though the cap hit and AAV remain constant. Franchises with real-dollars budgets find value in contracts that carry a larger cap hit than actual dollars owed.

The NHL has implemented rules under the current collective bargaining agreement, adding structure to this space. The leading guideline mandates that “[f]ront-loaded contracts in any ‘immediately adjacent years’ can’t exceed 25% variance with the first year of that contract, and any year of the contract can't exceed 60% variance from the highest year of the deal.”

With that established, let’s revisit the newest member of the New York Rangers. Goodrow was acquired from the almighty, yet cap-suffocated, Tampa Bay Lightning last week. While it may have made sense to front-load this deal in the past, PuckPedia points out that escrow rates likely led the parties to do the opposite. In the new CBA, years 3-5 of a contract carry the lowest escrow rate (6%), while the first year carries the highest rate (17.5-18%). The most lucrative chunk of Goodrow’s base salary deliberately falls in years 3-5 of the term: 2023-2026.

P.S. For those claiming this is an overpay, please see the chart below from Shayna Goldman of The Athletic. The term admittedly raises an eyebrow, though.

[1] The 2021-2022 base figure is intentionally low to avoid the NHL’s high first-year escrow rate. Goodrow is set to pocket $1.75 million upon signing along the dotted line as a bonus, in an effort to sidestep the rate. [2] A contract is considered front-loaded if the majority of a player’s base salary is paid in the first half of the contract’s life.

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