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CBA FAQ, Chapter 3: Qualifying Offers, Offer Sheets, and RFA Compensation

Picking up where we left off, this chapter will discuss how contract negotiations work for RFAs.

What are the requirements of a Qualifying Offer?

In order for a Qualifying Offer to be valid, it must meet a minimum set of requirements based on the player's previous salary and experience.  From Section 10.2.ii:

(ii) In order to receive a Right of First Refusal or Draft Choice Compensation ... the Prior Club of a Restricted Free Agent must tender to the Player... a "Qualifying Offer", which shall be an offer of an SPC, for one League Year, ... on at least the following terms and conditions:

(A) if the Player's prior year's Paragraph 1 NHL Salary is less than or equal to $660,000 for that League Year, 110% of the prior year's Paragraph 1 NHL Salary.

(B) if the Player's prior year's Paragraph 1 NHL Salary is greater than $660,000, but less than $1,000,000 for that League Year, 105% of his prior year's Paragraph 1 NHL Salary, but in no event to exceed $1,000,000.

(C) if the Player's prior year's Paragraph 1 NHL Salary is equal to or greater than $1,000,000 for that League year, 100% of the prior year's Paragraph 1 NHL Salary.

These numbers are based off the player's salary without bonuses.  The most important takeaway from the above rules is that you cannot offer any RFA less than he made in salary the previous year.

Our most prominent RFA next summer will be JVR.  His Paragraph 1 NHL Salary for 2011-12 is $787,500 (after subtracting his signing bonus).  That will fall into category 10.2.a.ii.B above, and he will be owed a 5% raise.  So his Minimum Qualifying Offer will be a one year SPC worth $826,875.

A Qualifying Offer can be for a two-way contract if the player has not played enough games to force the club to give them a one-way offer.  If they are eligible for a two-way offer, they cannot be offered an AHL salary lower than their previous AHL salary, defined in 10.2.a.i.D.

In order to force a one-way qualifying offer, the player has to meet all 3 of the following conditions: a) played in 180 or more NHL games over the past 3 seasons (games missed due to injury count toward the total), b) played at least 60 games in the previous NHL season, and c) not cleared waivers during the previous season.  If the player is a goaltender, games dressed and on the bench as a backup count toward the total.  These requirements are defined in Section 10.2.a.iii.

A club has issued a Qualifying Offer to one of their RFAs.  How long does the player have to accept it?

No matter when the player receives their offer from their club, it cannot be accepted prior to July 1st.  Per Section 10.2.a.v, it automatically expires on July 15th, unless the club files paperwork to extend the deadline:

(v) A Qualifying Offer shall automatically expire at 5:00 p.m. New York time on July 15; provided, however, that the Club may by written notice ... extend the deadline for Qualifying Offer acceptance to a ... fixed and definitive calendar date.

What negotiating rights does a Restricted Free Agent have?

An RFA's main negotiating tool is to get other clubs to send them an Offer Sheet, which will either force their current club to match, or the player will have an opportunity to leave and play for the new club. 

Arbitration can also be elected by a player (if eligible) who is having difficulty coming to terms with their current club; but if it is the club that elects arbitration, all of the players' rights are taken away.  The details of this process will be covered under Salary Arbitration.

The final negotiating tactic available to an RFA is to hold out and refuse to sign a contract.   

What is an Offer Sheet?

An Offer Sheet is an offer of an SPC, including the length, Paragraph 1 Salary, and Signing and Reporting Bonuses offered to the RFA by another club.  These principal terms are fixed, and must be readily determinable amounts of cash, and cannot be subject to any dependencies or conditions.  This is defined in Sections 10.3.c, e, and f.

In order to extend an Offer Sheet, the negotiating club must have the draft picks necessary for Draft Choice Compensation (aka RFA Compensation) available at the time the Offer Sheet is sent out.  If a club desires to extend more than one Offer Sheet, they must have enough picks available to support each Offer Sheet simultaneously, as if all of the sheets would be accepted. (10.3.d.i)

A full walkthrough of the negotiating process appears later in this article. 

What is the club's Right of First Refusal?

The Right of First Refusal is an RFA's current club's right to match any Offer Sheet extended to and signed by one of their RFAs.  If they choose to exercise this option, they must immediately enter into a binding SPC with the player that matches the principal terms of the Offer Sheet that was extended by the other club, although additional terms may be added. 

If a club retains the player by exercising this Right of First Refusal, they are not permitted to trade the player for one full year from the date they choose to match the Offer Sheet, as defined in Section 10.3.b.

What draft choices are required to compensate the prior club if an Offer Sheet is accepted, but not matched?

The draft choices that must be transferred to the prior club are determined by the total amount of compensation the player will receive.  The range values are adjusted upward each year as the league average salary rises (per 10.4), so below you will see the original CBA values replaced by the dollar amounts for the 2011 offseason.

There is a common misconception that the compensation amount is always determined by the cap hit, but that only applies if the term of the new contract is 5 years or lower.  If a player were to sign a longer offer sheet, the compensation range would be determined by the total dollar amount divided by 5.  Per Section 10.4:

Any Club that is entitled to but does not exercise its Right of First Refusal pursuant to Section 10.3 shall be entitled to obtain Draft Choice Compensation from the New Club. The number and quality of draft choices due to the Prior Club shall be based on the average annual value of the compensation contained in the Principal Terms (as defined in Section 10.3(e) hereof) of the New Club's Offer Sheet (determined by dividing such compensation by the lesser of the number of years of the Offer Sheet or five), based on the following scale:
GROUP 2 COMPENSATION CHART
OFFER SHEET COMPENSATION
$1,034,249 or below                           None
Over $1,034,249 to $1,567,043           Third Round
Over $1,567,043 to $3,134,088           Second Round
Over $3,134,088 to $4,701,131           First Round and Third Round
Over $4,701,131 to $6,268,175           First Round, Second Round,
                                                           and Third Round
Over $6,268,175 to $7,835,219           Two First Rounds, Second Round,
                                                           and Third Round
Over $7,835,219                                Four First Rounds
...
Clubs must use their own draft picks (being those awarded directly to the Club by the League for use by it in the Entry Draft, ... Clubs cannot acquire picks to use as compensation (with the exception being a Club's own draft selections that are traded and then re-acquired).

The draft picks must be available in the upcoming draft, unless multiple choices in the same round are required.  In those cases, the club has one extra year to provide them (ex. if a club owed 2 first round picks, they must be available in the next 3 drafts).  This is not at the club's discretion; the league will transfer the next available picks automatically.  

How do the processes of Offer Sheets, Right of First Refusal, and Draft Choice Compensation work as a system?

Let's walk through the entire process, step by step.

Note: Salary Arbitration will be its own topic, but if at anytime either the club or the player requests arbitration, it aborts this entire process. They can no longer be sent an offer sheet, as defined in section 10.2.a.i.B.

We start with a Restricted Free Agent who has been sent a Qualifying Offer by his current club, by the later of June 25th or the first Monday after the draft.

On the later of June 26th or the first Tuesday after the draft, RFAs can make contact with other clubs to discuss Offer Sheets, but they will not be open to acceptance prior to July 1st.  (This is defined in Exhibit 15.)

A club decides to extend an Offer Sheet to an RFA, which is accepted and signed by the RFA.  Once the RFA has signed the Offer Sheet, it is irrevocable, per Section 10.3.d.ii.

The signed Offer Sheet is provided to the player's current club (referred to as the Prior Club), the league's Central Registry, and the NHLPA.  Immediately upon receipt of the offer sheet, the NHL Central Registry will freeze the draft choices of the new club that will be required for RFA Compensation.  If the proper draft choices are not available, the Offer Sheet is null and void. (Sections 10.3.a, g, and h).  Additionally, once the prior club has received the Offer Sheet, they may no longer trade the player's rights to another club. (10.3.a)

The Prior club has 7 days from the receipt of the Offer Sheet to make a decision to match the offer sheet or take the draft picks as compensation. (10.3.b)

Option A) The prior club exercises its Right of First Refusal, and matches the Offer Sheet.  Once they have submitted the form to the player and his agent to notify them that the club will match the offer, they have entered into a binding contract agreement; and must promptly formalize an SPC including all of the terms of the Offer Sheet and any additional terms they negotiate with the player.  The NHL Central Registry will now unfreeze the draft picks of the club that extended the Offer Sheet.  As noted above, the current club is not permitted to trade the player for 1 full year from the date they choose to exercise their Right of First Refusal.  (10.3.b) 

Option B) The prior club does not exercise their Right of First Refusal within 7 days.  The RFA and the new club have now entered into a binding contract agreement, and must finalize an SPC with the terms of the Offer Sheet.  The compensatory draft picks are immediately transferred to the prior club by the NHL Central Registry.  (10.3.c)

What is the deadline for signing a Restricted Free Agent?

A Group 2 RFA must be signed by December 1st, or they will be locked out and will not be able to play in the league for the duration of the season.  (Exhibit 15)

 

Disclaimer:  The content in this CBA FAQ is based on my own interpretation of the wording in the NHL Collective Bargaining Agreement, unless a link to the source of another person's interpretation is explicitly provided.  The full PDF document of the 2005 CBA is available for public download from the CBA section of NHL.comI will do my best to ensure the accuracy of each article, but I welcome any comments, feedback, and discussion to improve and/or correct each section.

This item was written by a member of this community and is not necessarily endorsed by <em>Broad Street Hockey</em>.

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