The NHL salary cap is the total amount of money that each National Hockey League (NHL) team is allowed to pay its players collectively. It is a "hard" salary cap, meaning there are no exemptions (and thus no luxury tax penalties are required). The current cap system was introduced in the .
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; the New York Rangers often also used a similar approach, offering massive contracts to marquee, veteran players.
The NHL owners' efforts to include a salary cap had contributed to the 1994–95 NHL lockout, which ended with other issues, but not a salary cap, being worked out between the NHL and the National Hockey League Players' Association (NHLPA). The NHL reintroduced the desire for a salary cap as one of its conditions during the next round of contract negotiations, resulting in the 2004–05 NHL lockout, which was resolved with an agreement including the terms and conditions of a salary cap. The terms of the salary cap have been refined in subsequent NHL Collective Bargaining Agreements.
Overall, the salary cap varies on a year-to-year basis, calculated as a percentage of the NHL's revenue from the previous season. The salary cap was introduced for the 2005-06 season, set at US$39 million per team. Over the next two seasons, the salary cap surpassed the $40 million threshold, then the $50 million threshold. Following those three consecutive thresholds, the salary cap would first surpass $60 million in the , $70 million in , and $80 million in . 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 s.
A salary cap existed in the early days of the NHL. During the Great Depression, for example, the league was under financial pressure to lower its salary cap to $62,500 per team, and $7,000 per player, forcing some teams to trade away well paid star players in order to fit the cap.
Pre-salary cap 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.
During the "Original Six" era through to the early years of the expansion era, the NHL's strict reserve clause negated the need for a salary cap. Player salaries first became an issue in the 1970s, after Alan Eagleson founded the National Hockey League Players' Association (NHLPA) in 1967, and the upstart World Hockey Association (WHA) began competing with the NHL for players in 1971. 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. 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. The Maple Leafs, which had only ten losing seasons in their history before Ballard took control of the team in 1972, had 12 losing seasons up until his death in 1990.
The 1994–95 NHL lockout was fought over the issue of the salary cap. The was only partially cancelled, with 48 games and the playoffs eventually being played.
Although at the time six NHL franchises were based in Canada, by the turn of the century, nearly all NHL salaries were being paid in United States dollars.Article 11, Section 11.17, "Currency". Collective Bargaining Agreement Between the National Hockey League and the National Hockey League Players' Association. July 22, 2005.Downloadable from the NHL Players' Association official site here . This caused hardship among the small-market Canadian teams at the turn of the 21st century due to the weak Canadian dollar, as their revenues were in Canadian dollars. NHL Commissioner Gary Bettman successfully persuaded the American-based teams to donate towards a pool to mitigate the effect of the exchange rate.
Salary cap
2004–05 negotiations The previous collective bargaining agreement had expired on September 15, 2004. The negotiations for the 2005–12 NHL Collective Bargaining Agreement revolved primarily around players' salaries. 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.
A lockout ensued, leading to the cancellation of the entire , the first time a major sports league in North America had lost an entire season to a labor dispute. The lockout was resolved when the NHLPA agreed to a hard salary cap based on league revenues, although the NHL reciprocated by implementing revenue sharing which would allow for a higher cap figure.
The NHL salary cap was formally titled the "Upper Limit of the Payroll Range" in the new collective bargaining agreement. For the , the salary cap was set at US$39 million per team, with a maximum of US$7.8 million (20% of the team's cap) for a player. 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.
Revenues for the seven Canadian teams have all increased significantly since the lockout. Their cost structure has changed favourably as well, largely (but not entirely) due to the fact the Canadian dollar has risen in value significantly, reaching essential parity with its U.S. counterpart for much of 2010 (the Canadian dollar has traded between 93 and 100 U.S. cents throughout that year). As a result, league-wide revenues measured in U.S. dollars have been inflated accordingly and all seven Canadian teams pay into the current revenue sharing plan. Some U.S. teams are said to have been less able to cope with the unexpected increase in salaries and are believed to be losing money. 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.
As a result of these factors, the cap has been raised each year to the figure of $59.4 million for the , with a cap of $11.88 million for a player."", nj.com.
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. The lower limit was originally set at 55% of the cap, but is now defined to be US$16 million below the cap; therefore the 2011–12 minimum is US$48.3 million. The difference between the salary cap and a team's actual payroll is referred to as the team's "payroll room" or "cap room". Each year of an NHL player contract, the salary earned contributes to the team's "cap hit". The basic cap hit of a contract for each year it is effective is the total money a player will earn in regular salary over the life of the contract divided by the number of years it is effective. This prevents a team from paying a player different amounts each year in order to load his cap hit in years in which the team has more cap room. Teams still use this practice, however, for other reasons.
Notwithstanding the cap and the nominal value of the players' contracts, the collective bargaining agreement stipulates that a fixed percentage of total league revenues (currently 57%) is to be paid to the players each season. To ensure compliance with this provision a percentage of each player's salary is withheld in escrow until the season is over, at which time the funds are divided between the players and owners so as to balance the aggregate league payrolls to the agreed percentage. In the first season of the current collective bargaining agreement, revenues exceeded expectations to such a margin that players received the entire escrow back plus additional funds from the owners, however in subsequent seasons this has not been the case. For example, in the first quarter of the 2010–11 season, the escrow rate was 17%."
Performance bonuses count towards the cap, although there is a percentage that a team is allowed to go over the cap in order to pay bonuses. A team must still factor in possible bonus payments, however, which could go over that percentage. Salary for players sent to the minors, under most circumstances, do not count towards the cap while they are there. If a player has a legitimate long-term injury, his cap hit is still counted; however, the team is permitted to replace him with one or more players whose combined salary is equal to or less than that of the injured player, even if the additional players would put the team over the salary cap (if the team's cap room is larger than the injured player's cap hit, they may take on as much as their cap room); however, the injured player may not return to play until the team is again compliant with the original cap. All salaries still count towards the league-wide share of revenue that the players receive.
The NHL became the first of the major North American leagues to implement a hard cap while retaining "guaranteed player contracts". Guaranteed player contracts in the NHL differ from other sports, notably the National Football League, where teams may opt out of a contract by waiving or cutting a player. NHL teams may buy-out player's contracts, but must still pay a portion of the money still owed which is spread out over twice the remaining duration of the contract. Any player can be bought out for one-third of the remaining salary if younger than age 26 at the time of termination, or two-thirds if age 26 or older, over twice the length of the remainder of their contract. Trading cash for players or agreeing to pay a portion of a player's remaining salary after trading him was forbidden in the 2005 collective bargaining agreement in order to prevent wealthier teams from evading the restrictions of the cap (this provision was eased in the 2013 collective bargaining agreement; see Trades below). It is also prohibited to renegotiate a player's contract in any way. The only way to end a player's contract early is to buy it out, or have the player retire, and then only if the contract took effect prior to a player turning 35 (see the next paragraph).
The collective bargaining agreement also contains a 35-and-over rule. The rule states that if a player signs a multi-year deal when the player is 35 or older, starting in the second year of the contract, that amount will count towards the team's salary cap regardless of whether the player is on the active roster or not (unless the player is on long-term injured reserve); this provision remains in effect for the 2013 collective bargaining agreement. This is designed to keep teams from signing older players to lucrative front-loaded contracts, thus saving cap room, in which there is no expectation the player will actually play in the latter years.
A player who signs a contract at age 35 or older can be bought out as a compliance buyout, or, as a regular buyout. 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.