Salary cap implications if the Flames buy out Milan Lucic for the expansion draft

Let’s be very clear about one thing: The Calgary Flames will not be protecting Milan Lucic in the 2021 NHL Expansion Draft.

His current contract includes a no movement clause (NMC) which basically means the furthest place he can go from the NHL club is the press box. The Flames can’t send him to the minors, they can’t waive him, they can’t trade him to another team, and they can’t expose him to the Seattle in the expansion draft without his approval. The only other way for the Flames to get out of Lucic’s contract is to buy him out.

In terms of the expansion draft, it’s well assumed that Lucic has a handshake deal with Brad Treliving that he will waive his NMC for the expansion draft, allowing the Flames to expose him. However, if that is not the case, the Flames will be forced to buy him out. The Flames will not — I repeat — will not be including Lucic on their protected list.

Contract buyouts are tough. They are not easy to digest in normal times, let alone the financially unstable times we’re in right now. Money needs to be paid over a much longer term, and sometimes the savings are barely worth it for teams.

Lucic’s contract has been called “buyout proof” ever since he signed it back in 2016. While that’s not technically true, his contract can definitely be bought out, there are significant cap implications that would come from a Lucic buyout.

How do buyouts work?

Teams are allowed to spread a portion of the player’s remaining contract value over double the remaining term. This portion depends on the age of the player:

  • If the player is younger than 26 years at the time of the buyout, 1/3 of the remaining value is to be paid
  • If the player is 26 or older, 2/3 of the remaining value is to be paid

The cap hit of each year is calculated using the formula below. Thanks to CapFriendly for their handy Buyout FAQ page.

  1. Multiply the remaining salary (excluding signing bonuses) by the buyout amount (as determined by age) to obtain the total buyout cost
  2. Spread the total buyout cost evenly over twice the remaining contract years
  3. Determine the savings by subtracting the annual buyout cost from Step 2. by the players salary (excluding signing bonuses)
  4. Determine the remaining caphit by subtracting the savings from Step 3. by the players Annual Average Salary (AAV) (including signing bonuses)

As you can see, depending on the structure of the deal, the cap hit can be very different year to year. The only time the cap hit of the buyout is the same is if the contract is purely salary based with no signing bonuses. When signing bonuses are in play, things can get messy.

There is one more rule we need to add to this list, and it applies to this contract because the Edmonton Oilers pay 12.5% of Lucic’s contract. That means that in the event of a buyout, the Oilers would be on the hook for 12.5% of the buyout cap hit in each year.

5. If the contract is a retained salary contract, multiply the cap hit in each year by the percentage of the contract paid by the respective teams.

A Lucic buyout in 2021

If we assume the Flames buy out Lucic’s contract just before the expansion draft, say in June 2021, he’d have two years remaining on his current contract. Of the total $42 million contract he signed, $33 million will have already be paid, with just $9 million remaining. Because Lucic is over 26 years old, 2/3 of his salary will be used.

This is how a Lucic buyout would play out:

Remaining contract years

YearSalarySigning BonusesTotal Compensation
2021-22$2,500,000$2,500,000$5,000,000
2022-23$3,000,000$1,000,000$4,000,000
Total$5,500,000$3,500,000$9,000,000

Of the $9 million Lucic is owed, only $5.5 million is actual salary, and the remaining $3.5 million as signing bonuses.

Step 1: Total buyout cost (salary)

$3.5 million is remaining in salary, so 2/3 of this amount will be spread over double the term of the remaining contract.

This works out to $2,333,333 to be be paid to Lucic.

Step 2: Term

The total length of the buyout is four years, therefore Lucic will receive $583,333 each year until the end of the 2024-25 season to cover the 2/3 remaining salary.

Step 3: Calculate savings

The savings are calculated on a yearly basis by taking the original salary to be paid and subtracting the $583,333 from above. Saving by year would be:

  • 2021-22: $1,916,667
  • 2022-23: $416,667
  • 2023-24: -$583,333
  • 2024-25: -$583,333

Step 4: Calculate the cap hit

The cap hit then becomes the original AAV of the contract minus the savings value in each year from above. The total buyout cap hit would then look like this:

  • 2021-22: $4,083,333
  • 2022-23: $5,583,333
  • 2023-24: $583,333
  • 2024-25: $583,333

Step 5: Retained salary

Breaking the total buyout cap hits between the Flames (87.5%) and the Oilers (12.5%) completes the buyout calculation. Here’s how it breaks down in total:

SeasonInitial
Base Salary
Initial
Cap Hit
Signing
Bonus
Buyout
Cost
SavingsFlames
Cap Hit
Oilers
Cap Hit
2021-22$2,500,000$6,000,000$2,500,000$583,333$1,916,667$3,572,917$510,417
2022-23$1,000,000$6,000,000$3,000,000$583,333$416,667$4,885,417$697,917
2023-24$0$0$0$583,333-$583,333$510,417$72,917
2024-25$0$0$0$583,333-$583,333$510,417$72,917
Total$3,500,000$12,000,000$5,500,000$2,333,333$1,166,667$9,479,168$1,354,168

THe Implications

During the two remaining years of Lucic’s original contract, the Flames would be saddled with a very significant cap hit, especially in the final year where it’s almost $5 million. As well, the total dollars paid to Lucic actually increases in the case of a buyout, simply because of how buyouts are calculated.

This is why contracts with very large signing bonus structures are considered buyout proof; the cap savings for teams that do buy out these contracts is very minimal for the years still left on the deal, and they end up needing to pay more money than if they just stuck with the original deal.

That being said, there still would be cap savings for the Flames in a Lucic buyout, albeit just around $2.4 million in the first year and $1.1 million in the second.

Fortunately, with the added bonus of an additional protection slot for the expansion draft, the expensive buyout becomes much more worth it. It’s also a bit of a consolation prize that the Oilers would need to pay Lucic $1.3 million as well.

Likely Scenario

Despite what fans up the highway might say, I think it’s very unlikely the Flames end up needing to buy out Lucic. I have full faith that Treliving planned for this during the time of the trade, evidenced by the fact that he chose to honour Lucic’s NMC when he could have simply negated it during the trade. Expansion was top of mind and there is almost definitely a deal in place for Lucic to waive that clause for the expansion draft.

If that’s not the case though, a buyout would be inevitable. The Flames won’t waste an protected slot on Lucic and may need to face the music with a hefty buyout.

What do you think will happen with Lucic’s deal? Let us know in the comments or on social media.


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Photo courtesy: Derek Leung/Getty Images

4 thoughts on “Salary cap implications if the Flames buy out Milan Lucic for the expansion draft

  1. Thanks for posting this. I was wondering how Treliving was going to navigate the Lucic situation. This makes total sense. Now, the question is (and I think the answer is no), will Treliving give Seattle a 1st round pick to take Lucic in the expansion draft? Otherwise Seattle gets either Bennett or Mangiapane (as it stands right now).

    Liked by 1 person

  2. Let’s hope Looch does the right thing and retires.
    Otherwise its best to play him for 2 more years and learn the lesson of don’t take or sign bad contracts.

    Like

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