In 2006, the New Jersey Devils sent Alex Mogilny down to the minors to create some cap space. By sending the right winger to the minors, his 2 year/$7 million contract would not count against the cap.
Since the Devils sent Mogilny to the minors, other teams have done the same thing. A number of players have found themselves in the minors strictly for cap reasons, including Wade Redden ($6.5M), Sheldon Souray ($5.4M), Jeff Finger ($3.5M) and Ales Kotalik ($3M).
The option of not having a player’s salary count against the cap by placing him in the minors has been referred to as a “loophole” that exists in the NHL CBA.
The NHL CBA: The Intended Consequence
The term "loophole", however, may not be accurate. A loophole is an unintended consequence. This scenario, however, was not unintended – it was contemplated by the CBA.
Article 50.9(g) of the CBA provides that a player’s salary will not be counted against the cap if that player is in the minors. Here’s the provision:
Minor League Compensation. Neither the salaries nor signing bonuses paid to minor league Players shall be counted against a Club's Upper Limit or the Players' Share.
The language in the clause is clear – minor league player salaries don’t count against the cap.
Let’s add to that. If you go back a few pages in the CBA, you will come across Article 50.2(c)(iv), which expressly states that a player’s salary will count against the cap if that player signed his contract when he was 35 years of age (as of June 30 before the contract kicks in) or older even if that player is sent to “the minor leagues”. That same clause says that the team does get a $100,000 worth of relief if it sends a 35+ player to the minors.
Here’s the clause:
For each League Year, "Actual Club Salary" for each Club shall be calculated as the sum of the following amounts:
All Player Salary and Bonuses earned in a League Year by a Player who is in the second or later year of a multi-year SPC which was signed when the Player was age 35 or older (as of June 30 prior to the League Year in which the SPC is to be effective), regardless of whether, or where, the Player is playing, except to the extent the Player is playing under his SPC in the minor leagues, in which case only the Player Salary and Bonuses in excess of $100,000 shall count towards the calculation of Actual Club Salary;
A similar provision does not exist for players who are not part of the 35 or older club. If the sides had agreed to it, a similar provision would have been in the CBA. But it’s not. So it stands to reason that its exclusion was intentional.
Given the language in the CBA, both sides knew that by not counting minor league compensation against the cap, there's was a real possibility that NHL players could be sent down to the minors to save on cap space.
This was likely the product of a compromise. NHL teams wanted to have some type of cap space relief for underperforming players and bad contracts. The NHL may have tried, by way of example, not to have buyouts count against the cap. However, they do. So the compromise was being allowed to send players to the minors to create cap room (with the exception of 35+ players).
From the NHLPA’s perspective, players would still be getting paid NHL salaries in the minors so they were happy. So for the NHLPA, this was an acceptable area of compromise.
Realistically speaking, the NHLPA knew that there were only a few teams that could afford to bury contracts in the minors solely for cap reasons. Indeed, this has been borne out by the facts as relatively few players have been sent to the minors for cap reasons.
There is also another relief valve – placing players on long-term injured reserve. As explained here, if a player is deemed “unfit to play”, the team can place him on LTIR, and by doing so, can exceed the cap in an amount equal to that player’s salary if needed.
So being able to bury contracts in the minors is not a loophole. Rather, it’s a valve to relieve salary cap pressure on teams - and one that was collectively bargained by the NHL and NHLPA.