With Evgeni Malkin and Kris Letang each entering the final year of their contracts, the Penguins will be having extension talks with both players.
In late July, Ron Hextall said that management had "just had more general discussions or mentions of wanting to re-sign the players," and that they would resume discussions with both players in August.
Something that will be a factor in discussion for both players is the NHL's rule surrounding contracts for players aged 35 or older, a rule that was recently amended in the 2020 extension of the league's collective bargaining agreement.
What is a 35+ contract, and why do they matter? Let's break it down.
WHAT IS A 35+ CONTRACT?
A contract is considered a 35+ contract if a player is 35 or older (as of June 30) when the contract takes effect, regardless of when it was signed.
Malkin is 35 now, and Letang turns 35 in April, so both will be on 35+ contracts for their next deals. That's true even if Letang signs an extension while he's still 34, because he'll be 35 before June 30.
If a player's contract takes effect before the player turns 35 but he turns 35 during the contract, it's still not a 35+ contract. So Marc-Andre Fleury, who is 36 years old and in the last year of a three-year contract, is not on a 35+ contract because it began before he was 35 years old.
WHAT HAPPENS IF A PLAYER
ON A 35+ CONTRACT RETIRES?
If a player who is not on a 35+ contract retires, then his cap hit disappears.
Previously, if any player on a multiyear 35+ contract retired, his cap hit remained. The 2020 changes to the CBA added conditions to the rule. Now, if a player who is on a 35+ contract retires, his cap hit will only remain in full if it is a multiyear deal, and:
1. The contract has signing bonuses beyond the first year, OR
2. The salary is front-loaded in the year-to-year breakdown
The cap hit also cannot be reduced via a buyout, and if a player on a 35+ contract is assigned to the minors beyond the first year of the contract it would only reduce his cap hit by $100,000.
An example of this is the five-year extension Alex Ovechkin recently signed with the Capitals. The salary is back-loaded, but there are signing bonuses beyond the first year. If Ovechkin retires before the contract expires, the Capitals will be stuck with the cap hit for the duration of the contract because of the signing bonuses:
CAPFRIENDLY
Alex Ovechkin's contract structure.
An example of a 35+ contract that had no cap hit penalty is the two-year deal Corey Crawford signed with the Devils. He signed it in October 2020, then retired three months later. Because the contract had no signing bonuses after the first year (it didn't have signing bonuses at all) and wasn't front-loaded in terms of base salary, the Devils didn't face any cap penalty when he retired. Crawford's deal came completely off the books:
CAPFRIENDLY
Corey Crawford's contract structure.
WHAT IS A SIGNING BONUS?
A player's cap hit is the total value of his contract divided by the number of years in the contract, and remains constant throughout the contract (unless performance bonuses are added). The actual year-to-year salary a player receives can vary. Salary can also be paid out in one of three ways: The base salary, performance bonuses, or signing bonuses.
Signing bonuses can be written into any year of the player's contract, not just the first year. When a player is scheduled to receive a signing bonus in his contract, he gets the signing bonus in full every offseason (typically on July 1). Signing bonuses are exempt from escrow payments, and guaranteed even in the event that a season is shortened or canceled, or if the player is bought out. Plus, it's much more appealing to a player to receive a portion of his salary for the year in the form of a lump sum in July rather than spread out in weekly paychecks.
HOW DOES THIS AFFECT TALKS
WITH MALKIN AND LETANG?
Assuming both are in line for multiyear extensions, the NHL's rules for 35+ contracts might affect how the Penguins would structure the contract offers.
From the team's standpoint, it would be beneficial to offer a contract with no signing bonuses, and a base salary that is either flat or backloaded. That would eliminate any risk of lingering cap hits if either player retires during the deal.
The league's current financial situation as a result of COVID-19's impact on revenue could be a factor here. The escrow payments players pay to the league from their contracts are supposed to be 18 percent in 2021-22, 10 percent in 2022-23, and then down to 6 percent in the last three seasons of the CBA. So if you're a player, you wouldn't want a front-loaded contract as far as the base salary goes, because escrow payments will be high in these next two years. But the escrow situation would also mean that players are going to be more likely to want more signing bonuses written into contracts, because they don't have to make escrow payments on those. We saw both of these things happen in Ovechkin's contract -- it's backloaded in terms of base salary, and he has signing bonuses in every year. That's the best-case scenario for Ovechkin as it relates to escrow, but the signing bonuses make his contract risky for the Capitals because it's a 35+ contract.
Malkin and Letang would likely be looking for a similar structure, in terms of signing bonuses and the variance of salary throughout the years of the contract, while the Penguins would like to eliminate any risk that comes with 35+ contracts.
