Hostile Summer: A guide on Offer Sheets

The NHL has become a young man’s league over the last 15 years. The average age of the NHL has dropped from 28.11 in 2005-2006 to 27.24 in 2016-2007. One of the main reasons for this is the Salary Cap crunch. Ever since the league introduced the Salary Cap in 2005-2006, the rapid development of top young players has become essential for cap strapped teams. If a younger player, either on his Entry-Level Contract (ELC) or on a cap-friendly 2nd contract, could play a pivotal role in the success of your team, it would allow you to spend the precious cap-space elsewhere.

With the rise of young players in the NHL, it also means that there are more Restricted Free-Agents (RFA) during the summer months. An RFA is a young player whose contract has come to term and has not committed to re-signing with his team. RFAs have no choice but to sign a contract with the team that owns their rights, unlike an Unrestricted Free-Agent (UFA) who can sign anywhere as of July 1st.

What is an RFA?

To qualify as an RFA, your contract must have come to terms prior to the age of 27 or within the first 7 seasons of a player’s NHL career (whichever comes first). In other words, if a player begins his career in the NHL at 18, he can be an RFA until the age of 25 (7 seasons), after which he would gain full autonomy to sign anywhere as a UFA. However, if a player were to start playing in the NHL at 23, he would only be able to qualify for RFA status until the age of 27, after which he would become a UFA at the end of his contract.

NHL franchises pushed hard to have the 7 year/27-year-old rule implemented within the CBA in 2012 and evene moreso in the 2020 negotiations, as it gives them far more control and leverage on contract negotiations with their players. When a young player, who qualifies as an RFA, has their contract expire, their NHL team must present them with a qualifying offer (QO). This QO must be a minimum of 10% more than their previous salary and is necessary to retain their rights beyond July 1st. Any young player that goes un-qualified instantly becomes a UFA and may sign anywhere they please.

Therefore, if a player is drafted by a team at 18 and begins his 3-year ELC right away (2018), he would be an RFA as of July 1st 2021 if he has not agreed to a contract yet. He can then re-sign with his team for 1 to 8 more years. If the team decides to play it safe and offer a 2-year bridge deal to their young player (ranging from the 2021-2022 season to the 2003-2024 season) the player would still be an RFA in the summer of 2024. In fact, that player would only be able to get their full autonomy if he is without contract in the summer of 2026, after 7 years of service in the NHL (from 2018-2019 to 2025-2026).

 

What is an Offer Sheet?

An RFA could, under special circumstances, sign with another team with an Offer Sheet. This kind of move is rarely seen in today’s NHL, as team’s are very protective of their key young players. If a player is given a QO by their team, but doesn’t request salary arbitration (by choice or by ineligibility), they are susceptible to receiving contract offers from rival teams as of July 1st.  However, there are a few rules that teams must follow:

  • A team cannot offer a term longer than 7 years.

Similarly, to UFA contracts, the maximum length of a contract offered to a player via Offer Sheet is 7 years. Only the team which owns a player’s rights can sign him to a league maximum 8-year contract. Any  team whom the player did not play for the previous season can only offer a maximum length of 7 years.

  • Compensation will be made in the form of draft picks depending Avaerage Annual Value(AAV).

When a team makes an Offer Sheet and the player accepts, the player’s current team (Team A) has 7 days to decide whether they will match the other team’s (Team B) contract offer to their player. Should Team A come to the conclusion that the contract offer is simply too long or rich to match, they will lose said player to Team B and will be compensated with draft picks by Team B. The draft picks that go from Team B to Team A depend on the AAV of the new contract and, in some cases, the length of the contract.

  • A team must own the picks necessary for compensation when they make the offer.

In order to make an Offer Sheet, Team B must have the required draft picks necessary to compensate Team A *before* the Offer Sheet is made. If Team B is missing the necessary draft pick(s), they would be ineligible to make an Offer Sheet.

  • The draft picks must be for the next NHL Entry Draft and cannot be substituted by draft picks acquired from other teams.

If the Offer Sheet is made in the summer of 2018, then the draft pick used for compensation must be for 2019 NHL Entry Draft. The only exception is for compensation that requires multiple 1st round picks, which would then require Team B to give up their 2019 *and* 2020 1st round picks (for example).

  • The compensation is based on a 5-year Average Annual Value calculation (to be explained below).

 

How to Calculate an Offer Sheet

This is a tricky rule. We will be showing you a table below, which indicates the compensation of draft picks for Offer Sheet contracts. This grid are for offers that range between 1 and 5 years in term. However, should the Offer Sheet be 6 or 7 years in term, the compensation would be more expensive. The reason behind this is because Offer Sheets compensation is based on an Annual Average Value of 5 years.

 

    Compensation chart for contracts of 1 to 5 years                             (Based on contract’s AAV)

 

 

Ex 1: 5-year contract for $30 million = $6 million AAV

Thus the compensation  is a  1st and 3rd pick in 2019.

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Ex 2: 4-year contract for $40 million = $10 million AAV 

The compensation becomes two 1sts (2019 and 2020) , a 2nd (2019) and a 3rd round pick (2019).

 

 

 

 

 

 

 

 

What about 6 or 7-year contracts?

Here’s where things get tricky. Offer sheet compensation is calculated on the AAV. The Average Annual Value (AAV) is calculated normally on the basis of Salary/ Contract Length. However, with Offer Sheets, the maximum length is 5 years for AAV calculation. WHAT?! You read correctly. If the player is awarded a 6 or 7-year contract, the compensation would still be based on an AAV calculated over a max of 5 years.  Here’s an example below:

7-year Offer Sheet
       Adjusted Compensation for 7-yr contracts                                  (Based on contract’s AAV)

 

A 7-year contract for $42 million

 

For the Cap Hit:

7-year contract for $42 million = $  6 million AAV  in normal circumstances and as it pertains to the contract’s cap hit.

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For Offer Sheet Compensation:

$42 million/ 5 years (maximum) = $8.4 million AAV (even though cap hit is $6 million)

The compensation, based on the newly adapted board,is of  2 1st round picks (2019 and 2020), a 2nd round pick (2019) and 3rd round pick (2019).

 

 

 

 

 

More Offer Sheets Coming

With more and more RFAs every year, most notably William Nylander of the Toronto Maple Leafs, staying un-signed until September, fans could possibly see the return of Offer Sheets sooner rather than later. When thinking about offering elite players long-term contracts, the potential compensation weighs heavily on the minds of GMs. For any further questions on Offer Sheet compensation or rules, keep it locked on Scrimmage and Stats for more info.

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