The Rangers’ performance bonus issue gets complicated

Performance bonuses are a good problem to have and the New York Rangers have that problem

While having a slew of young players on the roster helps a team keep under the salary cap, there are issues especially when those young players are some of the best in the NHL.  We’ve discussed the issue of performance bonuses before and how it could be an issue for the New York Rangers as they manage their salary cap next season. With the addition of Alexis Lafrenière it got a lot more complicated.

To summarize, players on Entry Level Contracts (ELC’s) can be paid a maximum of $950k, but teams can supplement that with performance bonuses to a maximum of $2.85 million more.  That’s great for the player, but any performance bonus money earned counts against the salary cap and that is the issue.

While the salary cap is a hard $81.5 million, the NHL doesn’t hold it against teams if they are over the cap due to performance bonuses. They are allowed an overage of 7.5% more than the cap for bonus payments.  That means that the Rangers could be over the salary cap by $6,112,500 in performance bonus payouts.  It’s called the “Bonus Cushion.”

Here’s where it gets complicated. If the Rangers pay out more than $6.1 million in performance bonuses, it counts against their 2020-21 salary cap of $81.5 million.  For example, if they pay $10 million in performance bonuses, $3.9 million would count against the salary cap.

Since performance bonuses are not paid until the end of the season, teams are never sure of how much they will have to ante up.  As a result, if a team goes over the cap because of performance bonuses, they are hit with a “Bonus Cushion Penalty.”   The penalty reduces the salary cap for the next season by the amount that a team is over.  So, if the Rangers exceed the Bonus Cushion by several million dollars, it reduces their salary cap in 2021-22 by that much.

Of course, that is if the team has no salary cap space when the season ends.  If team can absorb the overage within the $81.5 million, there is no penalty the next season.

Vince Mercogliano of Lohud.com did a story laying out the salary cap issues and opined that a big payout of performance bonuses to young Ranger players could mean that the team will not promote some players to the NHL roster to keep their performance bonus exposure to a minimum.   That  could mean that we won’t see Vitali Kravtsov, Morgan Barron or K’Andre Miller in a Ranger uniform because they could earn performance bonus money that will hit the salary cap.

The Rangers’ bonus situation

While all of this speculation is valid, it is based on one fact, that the team will pay out the maximum in performance bonuses.  Realistically, that won’t happen.

The team has $13,200,000 in performance bonuses built into their roster for 16 players.  Seven of those players should automatically make the Rangers NHL roster next season and their total performance bonus exposure is $10,062,500.   Here’s that group:

• Alexis Lafrenière  $2,850,000
• Igor Shesterkin: $2,850,000
• Kaapo Kakko:  $2,650,000
• Adam Fox:  $850,000
• Filip Chytil:  $350,000
• Julien Gauthier:  $300,000
• Ryan Lindgren:  $212,500

The key question is how realistic is the possibility that these young players will max out on their performance bonuses.  The answer is that if they have good season, the odds are strong.

Here are players due performance bonuses money who could possibly make the team:

• Vitali Kravtsov:  $850,000
• Morgan Barron:  $850,000
• Justin Richards:  $500,000
• K’Andre Miller:  $300,000
• Tarmo Reunanen: $132,500
• Austin Reuschhoff: $107,500

How realistic is a big performance bonus payout?  It’s worth taking a look at performance bonus targets:

Performance bonus targets

Performance bonuses are broken down into two categories.  Category A bonuses are for hitting team targets and each category pays a maximum of $212,500.  The most a player can make is $850k, meaning that the player has to achieve four of the targets to make the maximum. Here are the targets for a forward:

• Top six forward on the team in average ice time
• 20 goals
• 35 assists
• 60 points
• .73 points per game average
• Top three forwards in plus/minus on the team
• End-of-Season NHL All-Rookie Team
• NHL All-Star Game (selected to play or plays)
• NHL All-Star Game MVP

Category B bonuses are for league-wide  recognition and max out at $2 million. All of the targets are laid out in the CBA.

• Top 5 in balloting for Hart, Norris, Vezina, Selke or Richard  Trophies
• Top 3 in balloting for Lady Byng
• Jennings Trophy winner
• Top 3 in balloting for Calder Trophy
• 1st or 2nd Team All-Star
• Conn Smythe Trophy winner
• Top ten in the NHL in goals, assists, points or points per game

While we don’t know what specific targets are in each player’s contract or how much a player would be paid for each, there is one example that reveals how bonus payments are structured.  That would be Connor McDavid.

The Connor McDavid example

In 2015 Connor McDavid signed his ELC with the maximum of $2,850,000 in performance bonuses.  Despite playing only 45 games due to an injury, he received the whole bonus because he hit some of his targets.  In his second year he played a full season and maxed out on his performance bonus by hitting seven of his Category A targets and three of his Category B targets.  His third season was even better so he made the full $2.85 million in performance bonuses.

In his first year he hit four category  A targets for $850k and by finishing in the top ten in points per game, he made an additional $2 million.

You can see how these performance bonuses are structured in the player’s favor.  In McDavid’s case he made the full $2 million in category B by achieving just one of the ten targets, which he did despite missing half the season with a shoulder injury.  He barely made it though as he needed to play in 42 games to qualify for the points per game average and he played in 45.  If he had not played the requisite 42 games he would have made $850k in performance bonus money in that first season.

Performance bonus realities for the Rangers

First, we have to make it clear, we don’t know what the bonus structure is for any individual Ranger player.  We only know what the total potential performance bonus is and not how it is broken down. Based on the McDavid contract, we can make some assumptions that most contracts are similar though there is no way of really knowing.  All of the websites that track salary cap information like capfriendly.com, spotrac.com and puckpedia.com don’t have that information and don’t even know how much a player on an ELC really made as the teams do not reveal that information.

For example, Kaapo Kakko has a maximum performance bonus of $2,650,000.  There is no way of knowing if he made any performance bonus money last season. Looking at his statistics, it’s easy to assume that he didn’t.

Adam Fox is a different story.   He definitely earned performance bonus money last season. Here are the criteria for defenseman:

• Top six defenseman on the team in average ice time
• 10 goals
• 25 assists
• 40 points
• .49 points per game average
• Top three defenseman in plus/minus
• Top two defenseman in blocked shots
• NHL All-Rookie team selection
• NHL All-Star  Game selection
• NHL All-Star Game MVP selection

Fox’s performance bonus target was $850k and if he made the maximum $212,500 for any of these categories he did well.  He achieved his targets in all statistical categories except goals.  That probably means he made his $850k performance bonus, but we will never really know. What’s interesting is that it appears that Fox has no category B performance bonus targets in his contract.

So what is the performance bonus issue for the Rangers?  The big three are Lafrenière , Kakko and Shesterkin.  What is the likelihood that any of those three will hit their targets and max out?

Why it won’t affect roster decisions

Mercogliano’s argument that bonus payment exposure will keep players like Barron, Kravtsov and Miller doesn’t really apply.  Combined, the performance bonus payments for these three total $2 million.  It’s likely that Barron and Miller will start the season in Hartford anyway.  It’s likely that the Rangers will let Kravtsov play most of the KHL season.   If they do not play a full season in New York, they would have a hard time hitting any of their statistical bonus targets.

Think about it.  If Miller is tearing up the AHL and is deemed ready to play in the NHL, would the Rangers keep him in the minor leagues just because of how he affects the salary cap?   if Kravtsov plays to his potential would $850k in performance bonus exposure keep him from the major league roster?

Where it does affect the team is in how they manage the cap.  Remember that it’s where the team is cap-wise at the trade deadline that matters. They can still make moves at the trade deadline to reduce salary.  One simple way of managing the cap would be to maintain a smaller roster than the league maximum.  Teams are allowed up to 23 players and they all count against the cap.  The Rangers could reduce the NHL roster to 21 players (12 forwards, seven defensemen, two goalies) and only those salaries would count against the cap.

The Rangers cap issues have been well documented and the performance bonus issue is nothing new.  13 NHL teams will be carrying salary cap overages into the 2020-21 season.  Dallas leads the way with almost $3 million with the Flyers on the low end at $66,037.  Note that for Dallas their bonus payouts weren’t for ELC players but for veterans like Corey Perry.

Because the Blueshirts were under the cap, they have no issues next season.

What is pretty much a given is that the team will head into 2021-22 with a salary cap overage, the only question is how much.   It could be the entire $6.1 million or much less if they can manage the cap or if the players don’t hit their targets.    What that means is that the windfall that Rangers fans have been expecting in a year when the buyout hit drops from $13 million to $4 million and  Brendan Smith departs will be offset somewhat by a cap overage that could result in $3.9 million in dead money against their salary cap.

What does it all mean?

The salary cap looms over every decision the team will make, but it shouldn’t prevent the Rangers from icing the best possible team. It’s well known that teams need fans in the seats and playoff revenue is pure gravy.  If bringing Vitali Kravtsov over from the KHL to help the team make the postseason is what they need to do, it will happen.

What you won’t see is any more free agent signings unless the team sheds salary.   Any salary additions have to be offset by reductions.

What is for sure is that it is in the Rangers’ best interests to see Lafrenière, Kakko, Shesterkin and any other Ranger prospects max out on their bonus payments.  That would mean all-star level seasons for these players and that could mean a deep postseason run.

While Jeff Gorton has to be managing his roster with the salary cap constraints in mind, he will also cross his cap bridges when he comes to them.  The good news is the Rangers are not over the cap, unlike some of their competitors.  There are at least ten teams in the NHL that are going to have to  basically give away players in order to get under the cap.

We’ve already seen it, starting with Marc Staal’s trade to Detroit.  The Islanders had to give up Devon Toews for two picks.  The Golden Knights surrendered Nate Schmidt for a third rounder.   This is only a beginning.  The next shoe to drop will be when teams walk away from RFA’s who have won big awards in arbitration.

Historically, Jeff Gorton has waited to make moves when he needed to.  Whether it was swapping Jimmy Vesey for a third round pick to make cap room for Artemi Panarin or giving Vlad Namestnikov to Ottawa for Nick Ebert and a fourth round pick or trading Brady Skjei at the deadline, Gorton will bide his time and make the moves when he has to.

As we said at the beginning of this post, it’s a good problem to have, complicated, but good.