NHL buy outs are a way for General Managers to essentially terminate a player. When a player is "bought out" by his team he becomes an undrestricted free agent and can sign with any other team in the league. The player receives 2/3rds of his remaining salary if he is over the age of 26 or 1/3rd if he is under 26 and the team frees up part of that players cap hit going forward.

When a player is bought out, the team still takes a cap hit for the player over twice the remaining length of the contract.  The amount of the cap hit (by year) is determined as follows:

 

(1) Take the actual salary due for each remaining year.

 

(2) Take the Averaged Player Salary (cap hit) for the current contract  

 

(3) Calculate the buy-out amount (two thirds of the players remaining salary owed)  

 

(4) Spread the buy-out amount evenly over twice the remaining years of the contract

 

(5) Take the results of (1) and subtract the number in (4).  This is the “buyout savings”.  

 

(6) Take the cap hit from (2) and subtract the buyout savings from (5).

 

NOTE:  This calculation has to be done for each year - meaning that the cap hit on a buyout will not necessarily be the same for all years. It can even be negative (meaning the team gets a credit).  However, it’s critical to have the correct information for #1 and #2 to get the correct cap hit.  The cap hit on a buyout is only the same for all affected years if the remaining yearly salary is the same for all years.  If it varies, then the cap hit on a buyout will vary.

 

*Source - NHLSCAP.COM

 

For this example our fictional player will be named Brett Haley. Haley has been signed to a 5 year deal, earning 1.5 million dollars a year for the first 3 years and 3 million dollars a year over the last 2 years.

 

After year one of Brett Haley's contract his play declines sharply and the team wants to use some of his cap space to sign other players.

 

Haley's team buys him out after the first year of his contract leaving 4 years left on his deal that needs to be taken into account against his teams cap.

 

Plugging his contract numbers into the formula we see above we get the following:

 

(1) Haley's remaing original contract:

2009: 1.5 M

2010: 1.5 M

2011: 3.0 M

2012: 3.0 M

 

(2) Cap Hit # (Haley's average salary over his entire 5 year contract) = (1.5 M x 3 + 3.0 M x 2) divided by 5 = 2.1 M per season

 

(3) Total buy out amount (2/3rds Haley's remaing salary owed) = 1.5 M + 1.5M + 3 M + 3 M = 9 M divided by 2/3 = 6 M.

 

(4) Buy out paymert by year is the total buy out amount spread evenly over twice the remaining length of the contract = 6 M divided by (2 x 4 years) = 0.75 M per year over 8 years.

*Brett Haley receives this amount from the team that bought him out for each of the next 8 years in addition to any other contract money he earns with another team that signs him as a free agent.

 

(5) Buy out savings are calculated by subtracting the buy out payment per year (4) from the amount per year from the remaining original contract due (1).

 

2009: 1.5 M - 0.75 M = 0.75 M

2010: 1.5 M - 0.75 M = 0.75 M

2011: 3.0 M - 0.75 M = 2.25 M

2012: 3.0 M - 0.75 M = 2.25 M

2013: 0.0 M - 0.75 M = (-0.75 M)

2014: 0.0 M - 0.75 M = (-0.75 M)

2015: 0.0 M - 0.75 M = (-0.75 M)

2016: 0.0 M - 0.75 M = (-0.75 M)

 

 

(6) To get Brett Haley's buy out cap hit, take the cap hit # (2) and subtract it by the buy out savings (5) to get the Haley's buy out cap hit each year for the next 8 years.

 

ORIG HIT (2) - SAVINGS (5) = NEW HIT

 

2009: 2.1 M - 0.75 = 1.35 M (hit)

2010: 2.1 M - 0.75 = 1.35 M (hit)

2011: 2.1 M - 2.25 M = 0.15 M (credit)

2012: 2.1 M - 2.25 M = 0.15 M (credit)

2013: 0.00M - (-0.75 M) = 0.75 M (hit)

2014: 0.00M - (-0.75 M) = 0.75 M (hit)

2015: 0.00M - (-0.75 M) = 0.75 M (hit)

2016: 0.00M - (-0.75 M) = 0.75 M (hit)

2017: Brett Haley no longer counts against his team's cap