What does it mean to be ‘buyout proof,’ and which Vancouver Canucks are?
Photo credit:© Isaiah J. Downing-USA TODAY Sports
3 months ago
Buyouts, how do they work?
The buyout is one of the most frequently misunderstood and misinterpreted processes in professional hockey. Today, we’ll go over some of the basis, some of the misconceptions, and how they apply to the Vancouver Canucks.
First and foremost, the “buyout window,” otherwise known as the only time of the year during which a team can perform buyouts.
That window opens on June 15, or 48 hours after the conclusion of the Stanley Cup Finals, whichever comes later. This year, it could go either way.
The buyout window stays open until the cusp of the Free Agent Frenzy, otherwise known as June 30.
Which means that teams have two weeks or less to decide on and execute their buyouts.
The one exception to this rule is in the instance that a team has at least one player undergoing salary arbitration. When their last case is settled by an arbitrator or otherwise, a team receives a second, 48-hour buyout window. Players have to have been on their team’s reserve list by the previous Trade Deadline in order to be eligible to be bought out during this second window, and they have to be over a certain salary threshold, which is currently set at $4 million. It’s a workaround designed to help teams out that have been put at or over the cap due to an arbitration case. It could be relevant to the Canucks if Ethan Bear files for arbitration, but it’s not something they can count on.
With it now being as little as a week away from the opening of the first buyout window (and only, for several teams), we’re beginning to hear lots of talk about buyouts. We’re also hearing more mention than ever of the phrase “buyout-proof.”
But what does that really mean? Understanding on this topic can be inconsistent.
It does not, for instance, mean that a player has a no-trade or no-movement clause. Those players can still be bought out. A NTC is irrelevant to the discussion, and all a NMC means is that a player can choose not to be put through waivers before a buyout is completed. That’s it.
Nor is there a special “no-buyout” clause available to be added to standard player contracts.
No, when someone describes a player as “buyout-proof,” they mean that the player’s contract is designed to make a buyout so unfavourable, and to save the owning team such little cap space, as to render it entirely impractical.
To get more into that, we have to briefly explain how the finances of buyouts are determined.
And the answer to that is a five-step, semi-complicated math problem.
The first thing you’re going to need is the total buyout cost. This one’s pretty simple: for players under 26, you take 1/3 of their remaining contract value and spread it out over twice the amount of years left in the contract, and for players 26 and over, you do the same with 2/3 of their remaining contract value.
But that’s just the amount that the owners have to pay out to the player in question. To find out how a buyout effects the cap books, we’ve got to dig a little deeper into the contract particulars.
The formula is as follows, and is repeated for each year of the buyout:
- Annual Buyout Cost: Start with the total buyout cost, divided by twice the number of years left on the original contract.
- Annual Savings: Subtract the annual buyout cost from player’s BASE salary in each year to determine the annual savings (this will result in a negative number for those years past the conclusion of the original contract).
- Annual Buyout Cap Hit: Subtract the annual savings from a player’s annual average salary COMBINED WITH any signing bonuses they have for that year. The resulting number will be the cap hit on the books for that player following their buyout, and this amount will typically change from year-to-year until the buyout is concluded.
Okay, but what does all that mean?
In practical terms, it means that players with descending salary structures — those who make a lower salary at the tail-end of their contract than they did at the beginning of it — are less practical to buy out. The lower the base salary in a year, the lower the annual savings, so if that number is dramatically lower than the AAV, it doesn’t leave much for savings.
This was something that was intentionally put into the CBA to prevent teams from signing overly lengthy, front-loaded contracts that they intended to eventually buy out as a sort of retirement severance package.
But such players are not buyout-proof. Buyout-adverse, sure, but buyout-proof is something else all together. Being buyout-proof has to do with signing bonuses.
The shorthand of the third rule listed above is that signing bonuses must still be paid in full after a buyout and still hit the books at their full value, cap-wise, after a buyout is complete.
In other words, if a player’s signing bonus in any given year is higher than the potential savings, they can still technically be bought out, but the result would be little to no savings in terms of either salary or cap hit. That renders such buyouts pointless, and thus those contracts are considered “buyout-proof” — especially when said signing bonuses come in the latter portion of a contract.
To explain further, we’ll be using a few key Canucks as case studies.
OEL’s contract has been described as “buyout-proof,” but it is not, which is why he’s among the most frequently-discussed potential buyouts of the 2023 offseason. Ekman-Larsson’s contract contains no signing bonuses from here on out, so that can’t complicate his cap hit any.
What Ekman-Larsson does have is a contract of descending annual salary, which does make his contract less practical to buy out, in that the amount of savings offered will decline rapidly in step with his original compensation.
Were OEL to be bought out this year, the amount of savings for 2023/24 would be $7.1 million to the Canucks (and $970K to the Coyotes, who still retain a portion of his salary). For 2024/25, the Canucks’ savings would dip to $4.9 million, then to $2.49 for the next two years; a reflection of Ekman-Larsson’s base salary going from $10.5 million to $8 million to $5.25 million over that same period. Those savings then become penalties of $2.13 million for the four years following the conclusion of the original contract.
Put OEL down as “buyout-adverse” at best. He’s far from buyout-proof.
Myers, on the other hand, is absolutely buyout-proof.
Entering the final season of his contract, Myers is infamously due a $5 million signing bonus, which will be added to his $1 million base salary for the year. The base salary is what determines the annual savings, so they’re miniscule at just $667K. And the full signing bonus remains on the books, which means that if the Canucks bought out Myers this summer, he’d still be on the books for 2023/24 at a $5.33 million cap hit, instead of the $6 million he already incurs.
Then, he’d also hit the books for a $333K hit in 2024/25.
So, Myers could be bought out, but it’d be pointless and impractical for all involved.
Thus, he is buyout-proof.
Now, this is an interesting case, because technically Miller is buyout-proof this offseason…but only in that his current contract is ending, and his other won’t officially kick in until July 1. You can’t buyout a contract before it has even begun.
Starting with the 2024 offseason, Miller could theoretically be bought out.
However, his contract seems almost designed to, if not prevent a buyout, at least make one overly complicated.
Over the course of his seven-year extension, Miller’s base salary goes from $1 million to $4 million (for two years) to $7 million to $4.5 million (for two years) and then back up to $7 million for the final year.
His signing bonuses are somewhat interspersed, too, with $8.5 million due the first year, $5 million each in the next two years, then a gap, then $3 million, then $2.5 million, and then no signing bonus in the final year.
So, a Miller buyout happening anytime soon would result in some dreadfully uneven results. The amount of savings would swing wildly from as low as $2.2 million in some seasons to as high as $5.3 million in those non-signing bonus years, which doesn’t sound like something a team would ever want to deal with.
It should be noted, however, that with no signing bonus and a fairly high base salary, that final year of Miller’s extension is remarkably buyout-friendly. Come the summer of 2029, the Canucks could buyout Miller and have his cap hit the books at just $3.33 million in 2029/30 and then $2.33 million in 2030/31.
That should assuage at least a little of the worry about Miller’s contract becoming an untradeable albatross in its later stages.
This is the perfect neutral example of a buyout-able contract. Boeser’s contract contained no signing bonuses, and his AAV and his base salary are exactly the same ($6.65 million) in each season.
Boeser’s not good for a buyout or bad for a buyout, he just is. The formula works out to exactly 2/3rds of his remaining contract, leaving the math uncomplicated.
Okay, we know that nobody in their right mind would ever even hypothesize about the buying out of Hughes. But we did want to point out that, if ever there was a contract begging for a buyout, it’s Hughes’, which is among the more buyout-friendly contracts out there.
Over his six-year term, Hughes has zero signing bonuses and a backloaded base salary that starts low and ends high.
For the next two years, the Canucks could theoretically buy Hughes out at the cost of 1/3 his remaining contract. Even if they were to buy him out after the age of 26, they’d still find it to offer an abundance of savings in any of the years.
Buying Hughes out in the summer of 2025, for example, leaves the Canucks with four years of the following cap hits: -$858K (not a typo), $1.14 million, $1.54 million, and $1.54 million.
Again, we’re not suggesting that Hughes being bought out is anywhere close to the realm of possibly happening. We’re just noting how well it would work out for the Canucks, financially-speaking, if it went down.
Obviously, Hughes and his agent negotiated under the belief that a buyout was something they didn’t really have to worry about, and they’re almost certainly correct about that.
Now, someone who is also exceptionally buyout-friendly and could feasibly be bought out is one Conor Garland.
If you’ve heard rumours of a potential buyout for Garland this offseason and thought it didn’t make much sense, this is probably why those whispers are happening. Like Hughes, Garland’s contract contains no signing bonuses and a base salary structure that ascends from $3.75 million to $4 million to two years of $6 million before dropping back down to $5 million for the final year.
No signing bonus+ascending salary structure=favourable buyout.
Buying Garland out this summer would incur six years of cap hits, which would go in order of $838K, $838K, $1.83 million, and then three final years of $1.89 million.
If the Canucks are truly unable to trade Garland without a significant sweetener, this outcome sounds like it might be preferable, on the whole.
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