One-Way vs Two-Way Contracts, Cap Relief, & Curtis McKenzie

When you go to CapFriendly.com and look at the Vegas Golden Knights salary situation, you’ll notice a name that you didn’t see on the roster last year: Curtis McKenzie. McKenzie is a left wing playing for the Vegas Golden Knights AHL affiliate, the Chicago Wolves. He has a one-way contract with the Knights and many people assume that this means his contract counts against the cap* even if he’s playing in the AHL, but fortunately for the Knights that assumption is incorrect.

*We’ve included a glossary of terms at the bottom of this post for your convenience. If needed, scroll down to read that first, and then read the full article.

Here’s why:

Yes, when a player with a one-way contract is sent down to the AHL, their contract still must be paid at its normal price, however there IS cap relief given to players while they’re in the AHL. If the player’s AAV (average annual value) is less than the minimum NHL salary + $375,000 ($1,025,000 in 2018/2019), then their salary doesn’t count against the cap while they are playing in the AHL. If a player who makes more than that is sent down to the AHL, then that amount ($1,025,000) is deducted from their cap hit. Both their salary and their cap hit are prorated throughout the season though, so if they spend any time in the NHL, that prorated amount would count toward the cap.

Example #1:

In 2018/2019 the NHL minimum salary was $650,000, so the amount of cap relief a player could receive while playing in the AHL on a one-way contract was $1,025,000. Curtis McKenzie’s salary was $750,000. He spent the entire season in the AHL. Because his salary was less than $1,025,000 and he didn’t spend any days in the NHL, his effective cap hit was $0. If he would have been called up to the NHL at all, his cap hit would have been prorated based on the amount of time he spent there.

Example #2 (Hypothetical):

If a player like Jon Merrill were to be sent down to the AHL (assuming he cleared waivers), we would have a different story. Let’s look at the 2019-2020 season:

Cap Relief Amount for 2019/20 season: $1,075,000 ($700,000 (min. NHL salary) + $375,000). Merrill’s AAV: $1,375,000.

If Merrill were to spend the entire season in the AHL, his cap hit would be $300,000 ($1,375,000 – $1,075,000). If he were to spend part time in both, his salary would be prorated, and only the time spent in the AHL would be taken off his cap hit (-$300,000 prorated as well).

One-way vs Two-way Contracts

*One-way contracts pay the same amount regardless of what league the player is in (AHL or NHL)

*Two-way contracts pay a significantly lower salary while the player is playing in the AHL than they do while they’re playing in the NHL. Ex: $650,000 in NHL, but only $70,000 in AHL.

*Two-way salaries don’t count toward the salary cap total while the player is in the AHL. They do count when the player is in the NHL.

*One-way salaries count toward the cap total no matter what league the player is in, but allow for around $1,075,000 in cap relief (prorated) while the player is in the AHL.

*Neither type of contract is exempt from waivers.

Example:

In 2018/2019 Brandon Pirri was on a two-way deal earning him $650,000 in the NHL. When Pirri was playing in the AHL last season, he would have only earned between 15-50% of what he was earning in the NHL (minimum of $70,000). He spent 104 days in the NHL and 82 days in the AHL (186 total in a season), so while he was in the NHL he made $363,441 (($650,000/186) x 104), which all counted toward the VGK salary cap total. The 82 days he spent in the AHL would have brought in much less. We don’t know what his AHL salary is, but let’s assume it’s $100,000/year. At that rate, he would have made $44,086 (($100,000/186) x 82), which did not count toward the cap total. In all, he would have made roughly $407,527 ($363,441 + $44,086) in 2018/2019.

Curtis McKenzie had a one-way contract and so he earned his NHL salary of $750,000 even though he played the entire season in the AHL.

Glossary

*Salary Cap: “The Upper Limit of the Payroll Range”. The total amount of money a team can spend on player salaries in a season. Read a full explanation here.

*AAV: Average Annual Value. It is the average dollar amount per year of a players salary. EX: 5M salary over 5 years has an AAV of $1M.

*Waivers: Waivers are when an NHL team makes a player’s contract available to the other NHL teams. Teams can then choose to “waive” any claim to those players, or pick up that player and add them to their roster. This happens when a player is called up to the NHL or sent down to the AHL from the NHL. Read more about waivers here.

*Cap Hit: The total amount of Salary Cap room taken up by a players contract. Determined by the Average Annual Value of the contract.

*Cap Relief: The amount of money deducted from a player’s cap hit.

*One-way and Two-way contracts: Types of contracts offered to NHL players. Differences are described above. All entry-level contracts are two-way and therefore new NHL players and most players in the AHL have two-way contracts. All contracts are prorated (divided over the season).

*AHL: American Hockey League (minors). NHL teams have an AHL affiliate team where they sent their rookies to learn and grow as players until they are ready to be in the NHL full time. The Chicago Wolves are the affiliate to the Vegas Golden Knights.