Gear: How third-party brokers will make the money move at NHL’s trade deadline
Commerce has always relied on third-party brokers to make transactions work. Stock brokers, customs brokers and even used car salesmen have long been instruments through which deals get done.
Now, more than ever, you can add NHL teams with cap space to that list.
With more than half of the NHL’s 32 teams currently being either at the cap or already exceeding the cap using LTIR relief, there has never been a better opportunity for teams with cap space to get into the trade brokering business.
The mechanism for salary retention was first introduced in the 2013 Collective Bargaining Agreement, and it has offered a lot of flexibility for buying and selling teams to make deals.
The basic rules are as follows: A team can retain up to 50 percent of a player’s cap hit when trading him. Each team can only have a maximum of three retained salary transactions on its books at any one time, and retained salary transactions may not total more than 15% of the team’s salary cap. An individual player can only be part of two transactions in which his salary is retained.
In the initial years following the introduction of the new CBA mechanism, there were many examples of transactions involving salary retention, but it has only been in recent years that teams have been more creative and have started to involve middlemen as brokers.
The acquisition of David Savard by GM Julien BriseBois and the Tampa Bay Lightning at last season’s trade deadline was cap space brokering at its finest. Savard was in the final year of a deal that cost $4.25 million on the cap of the Columbus Blue Jackets. That was not a contract that the cap-strapped Lightning could afford, even with Columbus agreeing to retain half of Savard’s money in the deal.
Enter Detroit and BriseBois’ old boss in GM Steve Yzerman, who was crafty and flush with cap space.
Through a three-team trade, Columbus was able to retain half of Savard’s salary, move him to Detroit, have Detroit retain half of what was left, and instantly move him onto Tampa for the “brokerage fee” of a fourth round draft pick.
In the end, everyone was happy. Tampa got its player for roughly 25 percent of his cap hit, Columbus got a first and third-round draft pick from Tampa, and Detroit received a fourth-round pick for playing middleman. Clever work by all three teams.
By agreeing to retain salary on Savard, Detroit effectively paid $1,062,500 in cap space for a fourth-round pick. In real dollars, though, because there was only 29 days remaining in the season, it cost Detroit approximately $266,000 in cash.
With no ongoing obligation to Savard, it was a risk-free way to simply buy a pick.
The Carolina Hurricanes arguably established the monetary value of a first-round pick in 2019 when they agreed to take Patrick Marleau and his $6.25 million cap hit off the hands of the Toronto Maple Leafs in exchange for Toronto’s first rounder. Carolina promptly bought Marleau out, so in real dollars the Hurricanes purchased a first-round pick for approximately $2.8 million.
Worth it? Hurricanes owner Tom Dundon would say so.
That pick, No. 13 overall, became Seth Jarvis. Not quite 17 months after the 2020 Draft, Jarvis is already a half point-per-game producer for the Hurricanes at the NHL level.
Based on transactions like these – each retained salary transaction or purchased pick that sets the market price – the goalposts have been set for NHL GMs.
You could view $6.25 million in cap relief as equating to a first round pick based on the Leafs-Hurricanes deal, while a fourth-round pick is worth about a million based on the Detroit brokering scenario. You could draw the conclusion that a second rounder would be worth approximately $4-$4.5 million in cap relief.
These are the type of analyses that teams looking to shed cap space will be doing as the deadline approaches.
Eating a bad contract in exchange for a getting a pick has long been part of the NHL landscape in the cap world. Arizona has taken that to a new level over the last year, stockpiling picks by seemingly taking on any contract that a team wishes to part with.
But eating a contract without actually acquiring the player, as the Red Wings did with Savard, seems to be a relatively new strategy. It’s one I think we will see more of at the upcoming deadline.
So, which teams are poised to play this role as we approach March 21?
There are ten teams with current cap space in excess of $5 million. Buffalo leads the charge at over $13 million in free space. Detroit, Ottawa, Columbus, Anaheim, Nashville, Arizona, Seattle, San Jose and the New York Rangers round out the list of teams able to get into the brokerage game.
With the Rangers, Nashville and Anaheim all squarely in the playoff mix, they are more likely to utilize their cap space to add players, so you can probably count them out as middlemen. That leaves seven teams that could realistically offer a lifeline to buyers in the market.
Keep in mind that for teams currently under the cap, “current cap space” translates to much more “deadline cap space” because teams only to need to fit a player into their cap for a pro-rated portion of the 200 days used in the calculation of a player’s annual cap charge. That means teams with space have even more purchasing power than it appears from just looking at their existing space and a player’s annual cap hit.
Detroit was in the game last year. Ottawa traditionally has had a tight budget. Columbus and San Jose would be wise to operate as brokers – and GM Doug Wilson has previously volunteered his services.
Arizona has already let teams know that they’re interested in playing middleman broker. They will have to retain to trade Phil Kessel, who was already involved in one retained salary transaction, and therefore his contract cannot be “chopped twice” this deadline.
Another team I could see being active on the brokerage front is Seattle.
A number of the other teams with cap space are already overflowing with draft picks, but Seattle has relatively empty cupboards, and they need to start building out their farm system. After shelling out $650 million for their franchise, what’s a few more million to buy draft capital?
If they were to move a UFA like Mark Giordano, his freed up cap space together with the cap space they already have would give them lots of flexibility to act as brokers and start building up their coffers. There is one caveat though that Seattle in particular has to beware of: Teams that had a player on their roster last season (take Calgary for instance with Giordano) cannot reacquire the same player in a retained salary transaction. So Seattle cannot, as an example, trade Joonas Donskoi back to the Avalanche at half price.
One thing is certain. With the cap flat this year and likely not increasing by much over the next few years, the need for cap brokers will remain strong, and we should expect to see more of these multi-team transactions in the days ahead.
In my view, involvement of third-party brokers add an element of interest and intrigue to deadline day because they will hopefully facilitate more action than we would otherwise see in a financially constrained market. And the more brokers that are available and ready to do business, the more teams may be willing to get competitive and challenge historical market prices for their services.
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Chris Gear joined Daily Faceoff in January after a 12-year run with the Vancouver Canucks, most recently as the club’s Assistant General Manager and Chief Legal Officer. Before migrating over to the hockey operations department, where his responsibilities included contract negotiations, CBA compliance, assisting with roster and salary cap management and governance for the AHL franchise, Gear was the Canucks’ vice president and general counsel.
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