How do buyouts work?
Teams are entitled to buy out player contracts for a portion of the remaining value of the contract — paid over a period of twice the remaining length of the contract. Following are the buyout amounts:
- Younger than age 26 at the time of buyout, 1/3 the remaining value
- Age 26 or older at the time of the buyout, 2/3 the remaining value
When a player is bought out, the team still takes a cap hit for the player over a period of twice the remaining length of the contract. The amount of the cap hit (by year) is determined as follows:
- Take the actual salary due for each remaining year
- Take the Averaged Player Salary (cap hit) for the current contract
- Calculate the buyout amount (as described above)
- Spread the buy-out amount evenly over twice the remaining years of the contract
- Take the number in No. 1 and subtract the number in No. 4. This is the "buyout savings."
- Take the cap hit from No. 2 and subtract the buyout savings from No. 5.
This calculation is done for each year, meaning the buyout cap hit is not necessarily the same for all years. It can even be negative, meaning a team can receive a credit.
This formula also applies to 35-plus contracts. (More: What's a 35-plus contract?)
The buyout period typically begins the later of June 15 or 48 hours after the Stanley Cup Final ends and concludes on June 30. In 2013, it begins 48 hours after the Final ends and it concludes on July 4 at 5 p.m.
Calculating buyout cap hits for contracts that include signing bonuses is largely uncharted territory. However, based on information gleaned from a variety of CapGeek.com sources, it is believed signing bonuses would be paid to the player even in the event of a buyout, while the league would exclude those signing bonuses from the standard buyout calculation.
Further to that point, "actual salary" described in  above would exclude signing bonuses as would "remaining value" used in  to calculate the buyout amount.
Since April 2, 2014, CapGeek.com's buyout calculator accounts for signing bonuses in its results.
MORE: David Clarkson and his buyout-proof contract, The Globe and Mail, April 2, 2014
NOTE: Vincent Lecavalier's 2009-2020 contract was bought out using the 2013 CBA's compliance buyout option. In this case, there was no cap charge, but he did receive $8 million in remaining signing bonuses on top of 2/3 of the remaining value (excluding signing bonuses) of his contract.
Please see our buyout calculator to see these formulas in action.
NOTE: During the ordinary course buyout periods in June 2013 and June 2014, teams will be permitted two compliance buyouts. Compliance buyouts follow the same formula as ordinary-course buyouts but do not count against the cap. For one season following a compliance buyout, the player is prohibited from rejoining the team that bought him out. According to the New York Post on June 26, the NHL notified teams that "re-signing of a player following a trade and a subsequent (compliance) buyout" would be deemed cap circumvention. Per Transition Rule 53, a compliance buyout can only be executed on a contract entered into on or before Sept. 15, 2012.
CBA reference: Section 50.5 (d-iii ) (Document Pages 268-271/PDF Pages 288-291)