How do buyouts work?
Teams are entitled to buy out player contracts for a portion of the remaining value of the contract — paid over a period of twice the remaining length of the contract. Following are the buyout amounts:
- Younger than age 26 at the time of buyout, 1/3 the remaining value
- Age 26 or older at the time of the buyout, 2/3 the remaining value
When a player is bought out, the team still takes a cap hit for the player over a period of twice the remaining length of the contract. The amount of the cap hit (by year) is determined as follows:
- Take the actual salary due for each remaining year
- Take the Averaged Player Salary (cap hit) for the current contract
- Calculate the buyout amount (as described above)
- Spread the buy-out amount evenly over twice the remaining years of the contract
- Take the number in No. 1 and subtract the number in No. 4. This is the "buyout savings."
- Take the cap hit from No. 2 and subtract the buyout savings from No. 5.
It's a bit complicated, so take Shea Weber as an example. His buyout works out to:
- 2013-14: -$3,523,810
- 2014-15: -$3,523,810
- 2015-16: -$3,523,810
- 2016-17: -$1,523,810
- 2017-18: -$1,523,810
- 2018-19: $4,476,190
- 2019-20: $4,476,190
- 2020-21: $4,476,190
- 2021-22: $4,476,190
- 2022-23: $7,476,190
- 2023-24: $9,476,190
- 2024-25: $9,476,190
- 2025-26: $9,476,190
- 2026-27: $2,619,048
- 2027-28: $2,619,048
- 2028-29: $2,619,048
- 2029-30: $2,619,048
- 2030-31: $2,619,048
- 2031-32: $2,619,048
- 2032-33: $2,619,048
- 2033-34: $2,619,048
- 2034-35: $2,619,048
- 2035-36: $2,619,048
- 2036-37: $2,619,048
- 2037-38: $2,619,048
- 2038-39: $2,619,048
- 2039-40: $2,619,048
Take the Shea Weber example from above. The first 4 years give you an additional $3.5M in cap and the 5th and 6th an additional $1.5M (double this if you were to do this with two players). Obviously, beyond this the team is handcuffed by the buyout, specifically and most severely, during years 12, 13, and 14 at a $9.5M cap hit for a player who has been bought out.
Now have a look at all the teams and their cap space available
There are 12 teams, currently, who could not afford the worst part ($9.5M) of the above buyout. While there are 4 teams who could handle two players bought out at the above scenario. Keep in mind how much easier it would be for a team in a rebuilding stage and again keep in mind that there's a reason some of these teams are so far below the cap ceiling (owners unable/unwilling to spend all that money).
Now take a team like Edmonton, where 3 of their top young players in Taylor Hall, Sam Gagne, and Jordan Eberle are all RFAs come 2013/14. Could a GM manoeuvre around the massive $9.5M deficit in cap by planning a rebuild and aligning his young new players entry level contracts (Entry Level Contract with bonuses - player can't be paid more than $3.775M) to coincide? It would take a tremendous amount of planning, some luck, and would be difficult, as you'd have to hope the draft year you plan it for is deep but technically is it a loophole that could work? Using the Edmonton example, if they're rebuilding, do they really need Shawn Horcoffs $5.5M? Ales Hemsky at $5M?
It would be pretty bold of a GM to buyout 2 players as per Webers contract and have an additional $7M for the following 4 years and $3M for the 4th and 5th years. The question is, is it possible to survive the 3 years at an $18M cap loss by planning to rebuild?