Salary Cap: Trading cap space (?)

[Clausewitz]

Please consider the following two scenarios between two arbitrary teams: Team A and Team B. Each team is $4mm under the cap, with Team A is having a horrible season, while Team B is having a great season. Accordingly, Team A decides to rebuild, while Team B looks to acquire that "extra something" for the playoffs.

Scenario 1:

While scouting the league, Team B's scouts agree that Team A's John Doe, a 30-year old all-star who takes up $8mm of cap space, is a perfect fit for Team B. Unfortunately, though, acquiring Mr. Doe would send Team B $4mm over the cap and leave Team A with a player it doesn't need. But what if Team A could sell its excess cap to Team B? Then Team B would be able to acquire John Doe, and Team A could acquire a relevant asset in return, while both teams satisfy cap requirements. In short:

- Team A receives some asset (ideally a prospect or a draft pick)
- Team B receives John Doe

And the new cap positions (relative to the cap ceiling) are:

- Team A: ($4mm original space) + ($8mm for John Doe) - ($4mm of cap space sold) = $4mm under cap
- Team B: ($4mm original space) - ($8mm from John Doe) + ($4mm of cap space bought) = at cap

Both teams acquire relevant assets; both teams satisfy cap requirements.

Scenario 2:

Now let's take things a bit further by introducing another playoff contender, Team C ($2mm of cap space), and two other poor performers: Team D ($9mm of cap space) and Team E ($8mm of cap space). Looking to bolster its defense, Team C sets its eyes on Team A's Mike Jones, a solid second-pairing defenseman who takes up $6mm of cap space. Naturally, Team C cannot acquire Mr. Jones, as the team needs at least another $4mm for the deal to go through. Accordingly, Team C acquires $3mm of cap space from Team D (in exchange for a 7th-round draft pick) and $4mm from Team E (in exchange for a 5th-round draft pick). Team C then has $7mm of cap space -- enough to cover the $6mm it needs to accommodate Mr. Jones -- whom Team C then acquires from Team A in exchange for two prospects. In short:

- Team C receives Mike Jones
- Team A receives two prospects from Team C
- Team D receives a draft pick from Team C
- Team E receives a draft pick from Team C

And the new cap positions (relative to the cap ceiling) are:

- Team C: ($2mm of cap space) + ($3mm from Team D) + ($4mm from Team E) - ($6mm for Mike Jones) = $3mm of cap space
- Team A: ($4mm of cap space) + ($6mm from Mike Jones) = $10mm cap space
- Team D: ($9mm of cap space) - ($3mm of cap space) = $6mm of cap space
- Team E: ($8mm of cap space) - ($4mm of cap space) = $4mm of cap space


What are your thoughts? Could you see the League implementing something like this?

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[Hunter Gathers]

The league wouldn't do it because the poors would abuse it.

 

[Clausewitz]

The league wouldn't do it because the poors would abuse it.

How do you mean, good sir?

 

[Tawnos]

Well, this kind of thing already exists. Teams can retain a salary and cap hit of up to 50% in any trade, which is essentially acquiring cap space. In your first scenario, team B simply retains $4m in cap hit and team A acquires John Doe at a $4m cap hit.

The second scenario will never happen, as it defeats the purpose of the salary cap and floor, which is cost control. Buut, Mike Jones could be traded to team D for a pick and team A retains $3m. Then he could be traded to team C for another pick and team D retains $1.5m. That's as far as it can go. One contract can only be dealt in salary retention deals twice over the life of the deal.

There are a couple of other rules regarding how many salaries a team can retain and for how much as a percentage of the Cap.

 

[Raspewtin]

How do you mean, good sir?

Teams like the Panthers, Islanders, Predators, etc would trade half their cap space for assets because they're barely at the cap floor. That ruins the parity in the league I guess.

 

[Clausewitz]

Teams like the Panthers, Islanders, Predators, etc would trade half their cap space for assets because they're barely at the cap floor. That ruins the parity in the league I guess.

But wouldn't the tables reverse once those assets mature?

Another idea -- though this one is a bit more extreme: swapping cap space. Example:

- Team A receives $2mm of cap space from Team B in 2015 and 2016
- Team B receives $4mm of cap space from Team A for 2014

 

[Mikos87]

Cap space itself can't be traded, but there are creative ways around this system, especially with salary retention in the new cba, where cap space can be "opened" up.

We've seen TOR buy draft picks by taking on contracts at the deadline during the Cliff Fletcher days. Jussi Jokinen going to PIT for a bargain.

But what the OP is describing isn't in allowable in the current CBA in terms of direct cap space, but totally achievable through contract structures. I doubt a hard cap league would allow something like this.

I'll use a hockey example of what can happen under the current CBA:

Martin Erat has a back diving contract, making ~$2M with ~$4M hit. He's a 4th liner on WSH, they gave up a prime piece to get him and now Erat is a $4M 4th liner.

Obviously this keeps WSH from adding players, and his cap hit is a big hindrance for them.

PHX is on more solid ground financially, but the city of Glendale and hockey just aren't a fit, with more trouble right around the corner.

They want Erat, thinking he'll play up to his talent level being around his fellow Czechs. Erat is making $2M in salary. If WSH ate $2M, PHX would get the player for a $2M cap hit, and for no salary while giving WSH worthwhile assets to do so.

Without something like this happening, no team is going to want Martin Erat.

 

[Clausewitz]

Cap space itself can't be traded, but there are creative ways around this system, especially with salary retention in the new cba, where cap space can be "opened" up.

We've seen TOR buy draft picks by taking on contracts at the deadline during the Cliff Fletcher days. Jussi Jokinen going to PIT for a bargain.

But what the OP is describing isn't in allowable in the current CBA in terms of direct cap space, but totally achievable through contract structures. I doubt a hard cap league would allow something like this.

I'll use a hockey example of what can happen under the current CBA:

Martin Erat has a back diving contract, making ~$2M with ~$4M hit. He's a 4th liner on WSH, they gave up a prime piece to get him and now Erat is a $4M 4th liner.

Obviously this keeps WSH from adding players, and his cap hit is a big hindrance for them.

PHX is on more solid ground financially, but the city of Glendale and hockey just aren't a fit, with more trouble right around the corner.

They want Erat, thinking he'll play up to his talent level being around his fellow Czechs. Erat is making $2M in salary. If WSH ate $2M, PHX would get the player for a $2M cap hit, and for no salary while giving WSH worthwhile assets to do so.

Without something like this happening, no team is going to want Martin Erat.

Thank you for your detailed explanation (I never really learned cap / contract treatment under the new CBA). Still, I was wondering what people thought about the prospect of acquiring cap space directly, which I know isn't permitted now. It just makes sense to me for each team to eliminate unnecessary assets and acquire relevant assets instead.

I was also considering -- though this isn't cap-space related -- the possibility of outright player rentals. Scenario 1 of my original post mentions that Team B seeks to acquire John Doe from Team A. Now, let's suppose that acquiring John Doe would actually keep Team B within the salary cap this season, but Team B needs to re-sign three core players -- each of whom will command a hefty raise. Suppose also that Team B would not be able to keep John Doe and the aforementioned core players at their new rates. Because Team B can outright rent John Doe from Team A, however, the two teams negotiate the following deal:

Scenario 3:

- Team B receives John Doe for the duration of the season and playoffs
- Team A receives a draft pick from Team B or (a) a higher pick if Team B reaches the finals or (b) an even-higher pick if Team B wins the cup

I figure such an arrangement creates possibilities -- rather than a fixed outcome -- which increases the likelihood of both teams "winning" the trade.

 

[Tawnos]

Cap space itself can't be traded, but there are creative ways around this system, especially with salary retention in the new cba, where cap space can be "opened" up.

We've seen TOR buy draft picks by taking on contracts at the deadline during the Cliff Fletcher days. Jussi Jokinen going to PIT for a bargain.

But what the OP is describing isn't in allowable in the current CBA in terms of direct cap space, but totally achievable through contract structures. I doubt a hard cap league would allow something like this.

I'll use a hockey example of what can happen under the current CBA:

Martin Erat has a back diving contract, making ~$2M with ~$4M hit. He's a 4th liner on WSH, they gave up a prime piece to get him and now Erat is a $4M 4th liner.

Obviously this keeps WSH from adding players, and his cap hit is a big hindrance for them.

PHX is on more solid ground financially, but the city of Glendale and hockey just aren't a fit, with more trouble right around the corner.

They want Erat, thinking he'll play up to his talent level being around his fellow Czechs. Erat is making $2M in salary. If WSH ate $2M, PHX would get the player for a $2M cap hit, and for no salary while giving WSH worthwhile assets to do so.

Without something like this happening, no team is going to want Martin Erat.

You don't retain dollars. You retain percentages. You can't retain more than 50%. If you retain 50% and the contract pays $2m and has a cap hit of $4m, then the acquiring team pays the player $1m and gets a hit of $2m. Your scenario is impossible.