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How do buyouts work?

Please note, this FAQ entry refers to ordinary-course buyouts that count against the cap. For details on compliance buyouts that do not count against the cap, please read our separate FAQ entry titled "How do compliance 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:

  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 buyout amount (as described above)
  4. Spread the buy-out amount evenly over twice the remaining years of the contract
  5. Take the number in No. 1 and subtract the number in No. 4. This is the "buyout savings."
  6. 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?)

While compliance buyouts prohibit a player from rejoining the team that bought him out for one season, there is no rule prohibiting this with ordinary-course buyouts.

In order for a team to execute a buyout, the player must first clear unconditional waivers. A waiver claim by another team pre-empts the buyout process. Players with no-move clauses can reject the option of waivers and proceed immediately to a buyout.

The buyout period begins the later of June 15 or 48 hours after the Stanley Cup Final ends. It concludes on June 30 at 5 p.m. ET. Teams with salary arbitration filings can additionally execute buyouts during a 48-hour period beginning on the third day following the team's last award/settlement. The following notes pertain only to the second buyout window following salary arbitration: a) the second buyout period does not apply in the event a team has only one club-elected salary arbitration case; b) buyouts during this second window are limited to three per team over the term of the CBA; and c) players bought out during this window had to be on the team's reserve list as of the most recent trade deadline and must have a cap hit of $2.75 million or more.

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 [1] above would exclude signing bonuses as would "remaining value" used in [3] 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.

SEE ALSO: Can a team buy out an injured player?

CBA reference: Section 50.5 (d-iii ) (Document Pages 268-271/PDF Pages 288-291)

— By Matthew Wuest – CapGeek.com