A four-year contract for a 30-year-old mid-range forward loaded with signing bonuses marks the return of a strategy the Maple Leafs used before the pandemic flattened the NHL salary cap.
It may have caught some by surprise when the Toronto Maple Leafs inked forward Calle Jarnkrok to a four-year deal worth $8.4 million. It wasn’t that the club didn’t have the need for a gritty forward who can play anywhere from the second line to the bottom six. It was the four-year commitment to a player coming off a down year by his standards, split between the Seattle Kraken and Calgary Flames, that made the move potentially problematic.
That was of course until the details of Jarnkrok’s deal came out when it began to make sense. According to PuckPedia.com, the maximum allowable amount of Jarnkrok’s deal will be paid out in signing bonuses.
Before the COVID-19 pandemic wreaked havoc on the NHL salary cap, the Maple Leafs dolled out signing bonuses to pretty much anybody. In 2019, I wrote about how the Leafs were the leader by a wide margin over any other club and how they used the strategy of paying money up front to lure free agents.
How signing bonuses in the NHL work
There is no limit — outside of the NHL’s minimum salary under the collective bargaining agreement — to how much of an players’ average annual value can be paid out in signing bonus. In most cases players can earn a majority (if not most) of their annual remuneration as an upfront lump sum. It still counts in calculating a player’s average annual value against the salary cap.
Why players like it
There are numerous advantages here. Getting most of your money up front allows for a player to put that money to work right immediately. Whether it’s for big purchases or key investments, there is more value to a player for having money up front than having it paid out over the course of a year.
It’s a simple economic principle about the time value of money: A dollar today is worth more than a dollar tomorrow. In today’s landscape of widespread inflation, this couldn’t be more true!
Another benefit for the player is buyout protection. Under the CBA, a player 26 or older can be subjected to a buyout of two-thirds of the remaining balance owing. Signing bonuses are exempt from that calculation, allowing the player to guarantee more of their money should things go awry.
Why the Maple Leafs like it
There’s been a lot of talk about how Canadian teams are at a disadvantage because of high taxes compared to many destinations in the United States. While states like Florida, Texas and Washington can use no state income tax as a means of recruitment, the Maple Leafs don’t have that advantage.
While there are several mechanisms in place that cushion that blow. Signing bonuses are also subject to a different taxation than ‘salary’ thanks to a US-Canadian tax treaty as outlined here.
How the Leafs do it differently
Teams around the league usually have no problem handing out signing bonuses to top starts who are already making a lot of money. It’s the depth players where the Maple Leafs showed the most flex.
In 2019, the Maple Leafs signed forward Andreas Johnsson and Kasperi Kapanen to deals not unlike Jarnkrok’s where most of the dollars outside of the minimum NHL salary was paid out in signing bonus.
“In some cases the players feel like a they can be getting a greater average annual amount elsewhere so some of it has to do with the present value of money and their willing to forgo some of the average if the bonus structure is split up in various different ways,” Maple Leafs GM Kyle Dubas said after signing those deals. “We get the taxation used against us a lot, if you play elsewhere you play in a lower tax bracket. Other teams use that, so we’re fortunate here because of our fan base, because of our coverage and because of our corporate structure partners. For us, to have the taxation argument used against us but not use any of the advantage we have would be foolish on our part.”
The added flexibility for the Leafs
The Maple Leafs are able to use paid-out bonuses as incentive for budget-conscious teams looking to get players at a lower cost, or as a means of reaching the NHL’s required salary floor.
There are several examples of this:
After signing Johnson to a four-year contract worth $13.6 million where $8.8 million was paid in bonuses in 2019, the Leafs traded him to the New Jersey Devils for forward Joey Anderson just on season later. Although Johnsson played just one season of the deal for Toronto, the front-loaded, bonus-rich nature of the deal meant the Leafs had paid $5.3 million for just one year of service.
Johnsson didn’t seem too caught off guard by the move.
“I thought I’d be in Toronto for a longer time but it’s hockey and it’s business and the way it could be,” he told reporters after the deal. “I think I was prepared it could happen so I wasn’t too shocked.”
There are several examples, almost too many to list.
Kapanen found himself traded back to the Pittsburgh Penguins after a $1 million signing bonus was paid by the Maple Leafs. In 2017, former Maple Leafs Connor Brown and Nikita Zaitsev were moved to the Ottawa Senators after a combined signing bonus payout of $3.5 million just before the deal was consummated. On July 1, 2019, Nazem Kadri was paid a $2 million signing bonus before the Leafs orchestrated a trade with the Colorado Avalanche that brought Tyson Barrie and Alex Kerfoot in return.
When the uncertainty that came with the COVID-19 pandemic in March, 2020, the strategy of signing bonuses came to a pause. A new CBA was drafted that year that saw a locked amount for escrow on a declining scale. For a short period of time, it made sense for players to defer money to following seasons where the escrow was guaranteed to decrease. But in future years, the escrow will start to flat line. And with the NHL touting better than expected revenue, it seems like players are close to paying back money owed during the pandemic and the cap could start increasing earlier than expected.
That is, at least, what the Leafs are counting on.
Jarnkrok’s deal wasn’t the only one filled with signing bonus. The Leafs signed forward Nicolas Aube-Kubel to a one-year, $1 million deal with a $250k bonus.
Toronto is making a bet that Jarnkrok had an off year and will rebound to the player he was with the Nashville Predators where his on-ice PDO (save percentage + shooting percentage) onsistently eclipsed the 100 mark.
But if it fit doesn’t work, or in the event they need to move money. the Leafs showed with the current strategy outlined, that the contract is very moveable in future years.
Further Reading
It’s Way Too Early to Worry About Auston Matthews’ Future with the Maple Leafs
Maple Leafs Prospect Fraser Minten is Built Like an NHL Player
How Being Around the Maple Leafs Made Prospect Ryan Tverberg Better