Keith Ballard’s Contract, Compliance Buyouts and “Payroll Room”

How do you solve a problem like Keith Ballard?
Image via wikimedia commons.

To put it kindly, Keith Ballard’s Canucks tenure has been forgettable.

The likable defenceman with speed to burn made sense as an acquisition at the time, but he never really earned the trust of Vancouver’s coaches, and was rarely able to keep a spot as high sixth on the blue-line depth-chart. In the 2013 postseason Ballard didn’t dress in a single postseason game, with raw rookie Frank Corrado and lumbering Andew Alberts playing on the team’s third pairing instead…

Keith Ballard will turn thirty-one in late November. He has two years and according to capgeek.com 8.4 million dollars in actual salary and salary cap-hit commitments remaining on his contract. With the Canucks pressed up against the cap this offseason and deep along the blue-line, a 4.2 million dollar depth defenceman is not a luxury item the team can afford for another year. With that, let’s look at several ways the Canucks could potentially remedy their situation as it pertains to Mr. Ballard.

Read past the jump.

There are certain provisions in the new collective-bargaining agreement (CBA) that the Canucks can use to help them get out from under an onerous contract like the one possessed by Keith Ballard. Laurence Gilman recently described these provisions on the Team 1040 as "weapons.. in the arsenal known as the collective bargaining agreement." Now that the new CBA is available to the public (you can download a .pdf here), let’s look at these instruments more generally and also touch on how they might be leveraged by the Canucks in regards to Keith Ballard.

I’d note before we proceed that I have no formal legal education. I’m just a layman hoping to use Keith Ballard’s situation to illustrate some of the more intriguing new instruments in the new CBA.

In the 2013 CBA, "Compliance Buy-Outs" are covered by article 50.9(i) (ii,iii,iv).

Compliance buyouts function exactly like "Ordinary Course Buy-Outs," except that the Buy-Outs of the compliance variety will not count against the club’s salary cap. Compliance buyouts are limited, as teams are only permitted to use two compliance buyouts, and those two compliance buyouts come with an expiry date and can only be excercised during the "Ordinary Course Buy-Out Period" that follows the 2012-13 and 2013-14 NHL seasons.

There are two "Buy-Out Periods" in any given NHL season, but only the first one really applies here (the second window applies only to clubs with salary arbitration cases). The relevant "Buy-Out Period" will open 48 hours after the conclusion of the Stanley Cup Final this June, but in seasons thereafter the first Buy-Out window will open on the later of June 15th of the league year, or 48 hours after the conclusion of the Stanley Cup Finals. 

The Buy-Out Period closes on the eve of free-agency, so June 30th in a normal season. This season however, the first "Buy-Out Period" will close on July 4th (before free-agency opens on July 5th) as stipulated in Exhibit 16B of the 2013 NHL CBA.

During the two relevant Buy-Out Periods, there are no restrictions on how clubs can use their two compliance buy-outs over the next two years (beyond the fact that they’ll expire after the 2013-14 Buy-Out period closes). So for example, a team will be permitted to use a Compliance Buy-Out on two players this June if they so choose.

Any player who is bought out "under the Compliance Buy-Out Provision" of the CBA will be "prohibited from rejoining the club that bought him out" for one year by any means.

Here’s an interesting wrinkle. As stipulated in article 11.18 of the 2013 CBA, teams will be permitted to use three "Ordinary Course Buyouts" outside the regular Buy-Out Period during the life of the new agreement. The language of article 11.18 is clear that any Buy-Outs which occur outside the regular Buy-Out Period will be of the Ordinary Course variety only.

So for Keith Ballard, who is due 8.4 million over the remaining two years of his contract and is over the age of 26, the Canucks would need to dish out 5.6 million dollars over four seasons (1.4 million per year) in order to buyout his current standard player contract. If the Canucks excercise a compliance buyout on Keith Ballard this June, they’ll net 8.4 million in direct cap-savings over the next two seasons. Needless to say, that would be massively valuable. 

There’s been speculation that the Canucks would prefer not to use a compliance buy-out on Keith Ballard, and will actively explore the option of dealing the disappointing blue-liner while agreeing to retain a portion of his salary.

"Retained Salary Transactions," as they’re called in the CBA, are a long time Brian Burke hobby-horse and a new wrinkle in the 2013 agreement. The rules governing retained salary transactions can be found under article 50.5 (e)(iii).

The rules governing retained salary transactions are actually pretty simple, though there are a number of restrictions. Teams are able to retain up to 50% of a player’s salary and cap-hit in a trade, and you have to retain an equal proportion of the player’s cap-hit and salary. The percentage of the cap-hit/salary that a club retains must remain consistent from year to year for the duration of the standard player contract traded in a retained salary transaction.

So in the case of Keith Ballard – who is an easy example because his salary and cap-hit are identical – the maximum proportion of his contract the Canucks can retain in a retained salary transaction is 50%. So it follows that the minimum amount of cap-relief the Canucks can net from a retained salary transaction involving the defenceman is 4.2 million over two years (2.1 million per season). That would probably be sufficient to boost Ballard trade value into positive territory, but wouldn’t provide the Canucks with sufficient cap-relief.

Beyond that relatively simple rule are a long list of restrictions governing retained salary transactions. For example, a team can have a maximum of three "retained salaries" on the book at any one time, and at no time can the amount of a club’s retained salary exceed 15% of the salary cap’s upper limit (so, teams can retain a maximum of 9.645 million in salary as a result of these sorts of deals under next seasons 64.3 million upper limit). 

If the Canucks were to trade Keith Ballard in a retained salary transaction, they would be unable to reacquire him in any way for a duration of one year. Though there’s an exception to that exception (!) in that, if a player is dealt using a retained salary transaction and his contract expires or is subsequently bought out, say, four months later, then that one year restriction is lifted. 

There’s also a provision that prevents a club from dealing a player, and then reacquiring him in a retained salary transaction for a period of one year. Teams are further forbidden from going Horcrux on a contract and splitting it up into more than three separate pieces. For those of you who aren’t Harry Potter fans, that means that any standard player contract can only be moved in a retained salary transaction twice (so a maximum of three seperate teams could be on the hook for a portion of one contract, but no more than that). 

Finally the percentage of a players salary that a club agrees to retain in such a deal is a pretty firm commitment. In a cap advantage recapture situation, for example, a team who has dealt a player in a retained salary transaction is on the hook for the proportion of the deal they initially agreed to retain. This wouldn’t apply to Keith Ballard whose contract carries no cap advantage, but I think we’ll look at the possibility of a retained salary transaction involving Roberto Luongo later in the week. Anyway this same basic principal applies to buyout and loan situations as well.

With Keith Ballard and the Canucks, something has to give this offseason. With the cap receding, and the Canucks pressed right up against it already, the organization cannot afford to gamble 4.2 million on Ballard rejuvenating his career under a new coaching staff.

I’ll be curious to see whether or not the club goes the Retained Salary Transaction route with Ballard, or is forced to resort to a Compliance Buyout. With the price of top-four defenceman soaring on the open market, due in part to limited availability, I have to think Keith Ballard would have some value to clubs as reclamation project with a 2.1 million dollar cap-hit. But whether or not the cap savings accrued from such a deal will be sufficient for the Canucks is another question, and I tend to think the Canucks will be hard pressed to find a trading partner for Keith Ballard if the proportion of his cap-hit they retain dips south of 40% (which would net Vancouver 2.52 million in cap savings per season).

It’ll ultimately come down to whether or not the Canucks are able to move Roberto Luongo’s contract without taking any salary back – an unlikely proposition in my view – or whether or not they move a core piece – like an Alex Edler – for a young player ideally on an entry-level deal. Basically if the team is able to generate significant cap savings elsewhere then, and only then, might it make sense to solve the Keith Ballard problem with a retained salary transaction.

Looking at this structurally, it’s crystal clear that a compliance buyout is the superior – and I’d wager more likely – option for Vancouver.