Timing is Everything: Maximizing LTIR Benefits
Author’s Note: The numbers in this story have been updated to reflect Tuesday’s signing of defenseman Erik Gustafsson.
The choice between two slightly nuanced alternatives could have significant effects on how much utility the Flyers can muster from Chris Pronger’s LTIR exemption to the salary cap. (Photo by Travis Golby/NHLI via Getty Images)
By Tyler J. Altemose (@TJamesAltemose)
The Philadelphia Flyers have undergone more than a few changes in philosophy and direction throughout the past several seasons. There has, however, been one common denominator underlying those changes. Despite their metamorphoses, the Flyers have, on a perennial basis, operated up to or very close to the upper limit of the salary cap.
The Flyers operate so close to the salary cap, in fact, that they finished both the 2010-11 and 2012-13 seasons with bonus overages. This means that—after accounting for performance bonuses achieved by various players—the Flyers exceeded the upper limit of the salary cap in both of those seasons. The amount by which a team exceeds the salary cap in a given season—$1,402,500 in 2010-11 and $182,927 in 2012-13 according to the archives on Capgeek—is tacked onto the next season’s payroll and is effectively that much less that a team is allowed to spend the following year.
The spending tendencies of the Flyers have more or less forced management—Flyers GM Paul Holmgren and Assistant GM Barry Hanrahan in particular—to become familiar with the NHL’s collective bargaining agreement. More to the point, those responsible for personnel decisions have had to familiarize themselves with the various avenues of recourse with which to bring the team to a position of compliance within the salary cap.
Looking to the 2013-14 season, the Flyers are yet again in a position of having to utilize the CBA in an effort to work within the $64.3-million salary cap. According to Capgeek, the Flyers have a 24-man roster and a cap payroll of $69,153,522. Accounting for the $2.8-million in performance bonuses which are reduced from the cap payroll under the league’s performance bonus cushion, the Flyers currently exceed the salary cap by $2,053,522.
It has become common knowledge throughout the fan base that the easiest and most effective way for the Flyers to become salary cap compliant is to use the Long-Term Injured Reserve (LTIR) exemption. The LTIR exemption to the salary cap effectively allows a team to exceed the salary cap by the amount of an injured player’s cap hit. It is not “cap space” because it cannot be banked and put toward future use. Rather, it is a day-to-day form of relief for any team with a player expected to miss 10 games or 24 days due to injury. It can only be utilized if the team exceeds the salary cap while replacing the injured player, as the injured player’s cap hit remains on the cap payroll.
The Flyers are able to use the LTIR exemption to the salary cap because of an injury sustained by former captain Chris Pronger on October 24, 2011. In that game against the Toronto Maple Leafs, Pronger suffered an injury after being hit in the eye by the stick of Mikhail Grabovski. He was sidelined for six games before returning on November 9. On November 17, Pronger took a clean hit from Phoenix’s Martin Hanzal. It is believed that the hit worsened Pronger’s symptoms, and it was revealed thereafter that he was suffering from severe post-concussion syndrome. Pronger has not played since November 19, 2011.
Because of the way Pronger’s contract is structured—and in part because of his injuries—the Flyers are essentially forced to keep him on the books. His contract accounts for a $4,941,429 cap hit that the Flyers must absorb until 2018. Placing him on LTIR effectively allows the team to exceed the salary cap.
This is where the situation gets interesting.
On Monday, Capgeek tweeted this article discussing the importance in timing when implementing the LTIR exemption. After reading through the article I discovered that there are two ways the Flyers could become salary cap compliant heading into the 2013-14 season. However, only one of those scenarios will allow the Flyers to maximize the benefit they can receive from Chris Pronger’s LTIR exemption.
There are two pieces of information that need to be understood before I discuss these two scenarios. The first is that the Flyers currently sit $2,053,522 over the upper limit of the salary cap. The second is that every team must be within the $64.3 million upper limit of the salary cap by last day of the off-season (excluding performance bonuses). That day is the last day of training camp.
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On the last day of training camp, the Flyers have a cap payroll of $66,353,522 (excluding performance bonuses). Chris Pronger is placed on LTIR. By doing so, the Flyers will be deemed to have already replaced him and will not be eligible for further relief. This is because the team’s cap payroll exceeded the upper limit. If Pronger stays on LTIR all season, the cap payroll of the Flyers may not exceed $66,353,522.
In layman’s terms, by embarking upon this scenario the Flyers will effectively only be able to exceed the salary cap by $2,053,522 under Chris Pronger’s LTIR exemption.
On the last day of training camp, the Flyers have a cap payroll of $66,353,522 (excluding performance bonuses). Jay Rosehill, Bruno Gervais, and Adam Hall are placed on waivers, effectively removing $2.1 million from the books ($675,000 for Rosehill; $825,000 for Gervais; $600,000 for Hall).* The Flyers’ cap payroll would then be $64,253,522, slightly below the upper limit.
On the first day of the NHL season, the Flyers place Pronger on LTIR. Accounting for the LTIR exemption, the Flyers would then be afforded a maximum cap payroll of $69,194,951.
After that, the Flyers may recall Rosehill, Gervais, and Hall. This would bring their cap payroll back up to $66,353,522. They would then have a remaining LTIR exemption of $2,841,429.
In layman’s terms, by embarking upon this scenario the Flyers will effectively be able to exceed the salary cap by $2,841,429 under Chris Pronger’s LTIR exemption.
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The situations are only slightly nuanced, but the alternative chosen could have quite an impact. By conforming to a position of cap compliance before the regular season starts, the Flyers will be able to utilize $787,907 more of Chris Pronger’s LTIR exemption (that figure fluctuates depending on the personnel used, but the point remains the same). That can go a long way for a team that operates so close to the upper limit of the salary cap.
As they say: timing is everything.
*It should be noted that I used these players purely for the sake of argument.