Knowing Your CBA : The Two Way Contract
I’ve spent a lot of time reading the NHL CBA. Probably too much. I also spend a good deal of time reading various message boards. (Probably too much there too.) There’s a lot of confusing legalese in there on a variety of topics, but there is one that I find constantly misunderstood. That’s the two way contract, and what it really means.
All players that sign an NHL contract sign basically the same form. It’s called the Standard Player Contract, and can be found in the CBA itself, page 244. It spells out the salary a player will be paid, as well as the responsibilities of the player to meet that contract. Most of it is common sense stuff; the player will only play for that team, the player will stay in shape, etc. There are some interesting clauses, but that’s a topic for another day. The part relevant to this discussion is paragraph 1.
Paragraph 1 is there the term and dollars for the deal are laid out. It reads :
1. The Club hereby employs the Player as a skilled hockey Player for the term of __ League Year(s) commencing the later of July 1, 20__ or upon execution of this SPC and agrees, subject to the terms and conditions hereof, to pay the Player a salary of ________________ Dollars ($__________). Payment of such Paragraph 1 Salary shall be in consecutive semi-monthly installments on the 15th and 30th day of each month following the commencement of the NHL Regular Season or following the dates of reporting, whichever is later (provided that the pay period shall not close more than three (3) days prior to payroll dates); provided, however, that if the Player is not in the employ of the Club for the whole period of the Club's NHL Regular Season Games, then he shall receive only part of such Paragraph 1 Salary in the ratio of the number of days of actual employment to the number of days of the NHL Regular Season. And it is further mutually agreed that if the SPC and rights to the services of the Player are Loaned or otherwise transferred to a club in another league, the Player shall only be paid at an annual salary rate of ____________________ Dollars in the ________________ league in the _____ League Year. or __________________ Dollars in the ________________ league in the _____ League Year. or __________________ Dollars in the ________________ league in the _____ League Year.
Every player has something in the first section. If only that part is filled in, it’s a one way contract. It’s specifying a player’s NHL salary. This is by far the most common contract filed in the league. The second section, if competed, it what makes it a two way contract. This part says that if a player is loaned to another league, this is the salary they’ll make there.
Let’s look at an example. Matt Ellis just signed a two year deal. In both years of his deal, he’ll make $525k at the NHL level. However, in2011-2012, if Ellis is loaned elsewhere, he’ll only make $105k. Simple, right?
The important takeaway from this is that a two way contract specifies salary only! It doesn’t have ANY EFFECT on a player’s waiver status.* Many people believe that it does, and we can thank EA Sports for this. In the NHL video game series, they define a player’s waiver eligibility using the one way/two way term, and that leads to the confusion. I doubt EA will ever fix this, since it’s been happening for years, and I’d expect it to continue in future editions.
Why would a club sign a player to such a deal? It’s mostly for cost savings on players that a GM expects will primarily play in the minor leagues. It can also be used as a nice motivational tool. For most players, the goal is to play in the NHL, and that’s drive enough to try and improve. For others, the money factor is paramount. Making $65,000 a year to play hockey is a decent living, but making $625,000 is better.
We’ve also recently seen Darcy Regier use the two way deal to benefit both the team AND the player. Again referencing the Matt Ellis contract, the Sabres benefit by having a lower cap hit ($525,000) for the two years. Ellis benefits by having his 2012-13 salary guaranteed at $525,000, even if he doesn’t factor into the Sabres NHL plans. Everybody wins!
In future articles, we’ll look into other complex or otherwise lesser known parts of the CBA to help you better understand the business side of the game we love.
* One way / two way deals do have SLIGHT relevance when dealing with re-entry waivers. The relevant factor is salary on the AHL side, and every two way deal I checked during research for this article was structured in a way that didn’t affect re-entry waivers at all. I mention this for the sake of completeness, but just know it’s an edge case that will probably never happen. I’ll cover this more in a future article on waivers.