Six More Years: The New NHL CBA Extension and Its Impact on Player Contract Negotiations
Hockey is back. And with it, comes a phrase that most hockey fans are not used to hearing: labor peace.
With the official ratification of the Return to Play plan, teams are set in their respective hub cities of Toronto and Edmonton, ramping up final practices, inter-squad scrimmages, and exhibition games. The twenty-four-team play-in/playoff pursuit of the Stanley Cup officially kicks off on August 1st.
Maybe more important than the restart, fans should breathe a sign of relief after players and owners announced an extension to the Collective Bargaining Agreement (“CBA”) through September 2026.
Given the uncertainty of the future, including the looming effects of the coronavirus pandemic, expiring television rights deals, an expected flat salary cap over the next few seasons, and an expansion draft in Seattle next summer, locking up a CBA extension for the next six years is an uncharacteristically prudent move for the NHL and NHLPA.
Cynical by nature, hockey fans don’t usually get a chance to look at other sport’s labor negotiations and think, “hey, at least it’s not that bad.” See Major League Baseball. I believe Columbus Dispatch columnist Michael Arace put it best in 2019: “There are three teams on the scoreboard of sports labor negotiations: the billionaire owners, the millionaire players and the poor-slob fans.”
Nonetheless, here we are. Six more years of a slightly modified version of the current CBA. While many of the headlines understandably focused on the bigger issues of escrow calculators and a return to the Olympics, it is the minor details that create interesting implications for teams and players at the negotiation table. In particular, new limits to how players may structure their contracts now alters the strategy of how restricted free agents (“RFAs”) may handle the early years under team control.
First, let’s briefly discuss some of the basics behind the restricted free agency process. Then, we can talk about how the modified CBA impacts these contract negotiations.
I. What is Restricted Free Agency?
Restricted free agency is the middle ground between players no longer on their entry-level (rookie) contracts and who have not yet qualified to enter unrestricted free agency. Unrestricted free agency opens to all players once they accrue seven seasons in the league or are twenty-seven years of age at the expiry of that season’s contract on June 30. That’s when the open market takes over and the big deals are done. Before that time is reached, any time a player’s contract expires, the team previously contracted with owns that player’s negotiating rights. A team may keep that player’s rights through the off-season to re-negotiate a new contract so long as the team extends a “qualifying offer” (“QO”) to the player by the day after the scheduled NHL Entry Draft. Once “qualified,” a player may accept the teams terms under the QO, or reject the offer and remain a restricted free agent, setting the stage for off-season negotiations. Depending on the RFA’s age and experience in the NHL, the player may then be eligible for salary arbitration, where an arbitrator, following a formal hearing between both sides, awards a middle-ground contract value to the player on a one or two-year contract.
As a concept, restricted free agency and salary arbitration remain a significant source of tension around the league. These players are normally coming off of their three-year rookie contracts and looking to balance a big pay-day with long-term security. Accordingly, RFAs have started to test their leverage at the negotiation table through specially structured back-loaded short-term contracts, known as “bridge-deals.”
II. What is a Bridge-deal?
A bridge-deal works as a compromise between the two sides to secure a short-term contract at a reasonable price, essentially delaying long-term negotiations for a few years. Recently, NHL agents have started to strategically structure these contracts to back-load the highest level of salary possible in the contract’s last year.
Why is that? Because of the old CBA’s rules on qualifying offers.
With an inflated salary number in the last season of the contract, that player’s salary represents the benchmark “qualifying offer” the team will have to make to the player under the CBA.
For example, consider the following recently signed bridge-deals:
Under the rules at the time of the contract, the salary in the last year of those deals are the default qualifying offers that the team must make to that player as an RFA. Therefore, a nice deal for the Columbus Blue Jackets to retain Zach Werenski at a $5,000,000 cap hit per year now turns into a $7,000,000 qualifying offer at expiration.
More importantly, if the player rejects the qualifying offer, and either side wants to enter arbitration, the CBA provides that the qualifying offer is the minimum value available for an offered contract. For CBA nerds and salary cap aficionados, this is a pretty cool tactic from the players side of things. On the team side, though, this likely drove executives and cap-management specialists crazy.
Enter: the new, modified CBA.
III. What’s Changed in the “New” CBA?
Under the new agreement, a qualifying offer for an RFA is no longer automatically equal to that final year’s salary. Now, the qualifying offer is the lower of (1) the salary in the final year, OR (2) 120% of the average annual value of the contract.
This means that a back-loaded contract does not have the same effect as it had in previous summers. For example, in the contracts previously listed above, the change in expected qualifying offers would look something like this:
Not so sweet anymore for Mr. Werenski. The lower end value for his qualifying offer or potential salary arbitration is now $1 million less. For Timo Meier, it would be a reduction in almost $3 million in value. For cap-strapped teams trying to squeeze every penny out of each contract, this money-saving mechanic is essential for off-season roster adjustments.
Importantly, this arrangement only affects new deals, so the above contracts are not actually affected in any way. Though, this minor tweak is a big win for ownership and a new opportunity for agents to have to figure out how to better leverage short term contracts for RFAs.
In the end, does this really mean anything other than closing a small point of leverage on the player’s side of contract negotiations? Will this prevent more bridge-deals from being completed, therefore leading to more strenuous late-summer contract holdouts? Will this lead to a higher frequency of long-term deals? We won’t know for sure for a few years at least.
Part of the strategy behind the back-loaded contracts was the possibility of entering arbitration with a generously inflated floor value on the player’s side. Reports from the recent CBA negotiations suggested players wanted to discuss a complete overhaul on the arbitration system. From the player’s perspective, conceding the back-loaded contract strategy now could have been the first step in longer, down-the-road modifications to an arbitration system that some consider unnecessary and unworkable. Or, this could be just another shift in power towards NHL ownership.
Either way, the deal is done. For now, the era of labor peace is upon us. We might as well enjoy it while it’s good.
 See Tom Gulitti, NHL, NHLPA ratify CBA extension through 2025-26 season, NHL.com (July 10, 2020), https://www.nhl.com/news/nhl-nhlpa-ratify-cba-extension-through-2025-26-season/c-317377214.  Michael Arace, NHL keeps labor peace; fans finally win out, The Columbus Dispatch, (September 19, 2019, 5:30am), https://www.dispatch.com/sports/20190919/michael-arace--nhl-keeps-labor-peace-fans-finally-win-out.  See Missy Zielinski, What exactly is a restricted free agent?, NHL.com (June 5, 2014), https://www.nhl.com/lightning/news/what-exactly-is-a-restricted-free-agent/c-721878.  See Ryan Lake, How Free Agency Works in the NHL, Lake Law Group, LLC (last visited July 30, 2020), http://www.lakelawgroup.com/how-free-agency-works-in-the-nhl/.  See Zielinski, supra note 3.  See James Mirtle, Where the Mitch Marner negotiations are at – and why they’re holding up so many other RFAs, The Athletic, (August 2, 2019), https://theathletic.com/1109845/2019/08/02/mirtle-where-the-mitch-marner-negotiations-are-at-and-why-theyre-holding-up-so-many-other-rfas/.
 See Frank Seravalli, Structure of Werenski deal could be a blueprint for remaining RFAs, TSN, (September 9, 2019), https://www.tsn.ca/structure-of-werenski-deal-could-be-a-blueprint-for-remaining-rfas-1.1362956.  See Kyle Gipe, NHL Bridge Deals Are Falling Down, The Hockey Writers, (May 14, 2018), https://thehockeywriters.com/nhl-bridge-deals-are-falling-down/ (defining “bridge deal” as a short-term contract intended for the team as cost-efficient measure to the keep the player, and for the player to improve over the short-term and bank more money for their next long-term contract extension).  See Seravalli, supra note 7.  See Seravalli, supra note 7.  See Jamie Fitzpatrick, NHL Restricted Free Agents, Liveaboutdotcom (May 24, 2019), https://www.liveabout.com/nhl-restricted-free-agents-2778980.
 See Thomas Drance, Canucks return to play nears, Jack Rathbone’s status and the Judd Brackett thing , The Athletic (July 9, 2020), https://theathletic.com/1919490/2020/07/09/canucks-return-to-play-nears-jack-rathbones-status-and-the-judd-brackett-thing/.  See Elliotte Friedman, How the NHL and NHLPA found labour peace in a pandemic, Sportsnet (July 12, 2020), https://www.sportsnet.ca/hockey/nhl/nhl-nhlpa-found-labour-peace-pandemic/.  See id.