Quoting: rangersandislesfan
Teams are permitted to buyout a players contract to obtain a reduced salary cap hit over a period of twice the remaining length of the contract. The buyout amount is a function of the players age at the time of the buyout, and are as follows:
1/3 of the remaining contract value, if the player is younger than 26 at the time of the buyout
2/3 of the remaining contract value, if the player is 26 or older at the time of the buyout
As explained above, the buyout is spread out over a period of twice the remaining length of the contract. The team still takes a caphit, and the caphit by year is calculated as follows:
Multiply the remaining salary (excluding signing bonuses) by the buyout amount (as determined by age) to obtain the total buyout cost
Spread the total buyout cost evenly over twice the remaining contract years
Determine the savings by subtracting the annual buyout cost from Step 2. by the players salary (excluding signing bonuses)
Determine the remaining caphit by subtracting the savings from Step 3. by the players Annual Average Salary (AAV) (including signing bonuses)
The above calculation is performed for each year of the buyout, meaning the buyout caphit is not necessarily the same for each year. It is also possible that the buyout caphit can be negative, meaning the team receives a credit.
Buyout Period
The buyout period begins the later of June 15 or 48 hours after the Stanley Cup Final ends. It concludes on June 30 at 5 pm EST.
Compliance Buyout
During the buyout periods in 2013 and 2014, teams were permitted two compliance buyouts (also known as amnesty buyouts). The formula above is applied to determine the monetary amount paid to the player; however, they do not count against the cap.
Compliance buyouts were only permitted to be executed on a contract that was entered into on or before Sept. 15, 2012. They were also permitted to be performed on a 35-plus contract.
For one season following a compliance buyout, players were not permitted to rejoin the team which performed the buyout (this restriction does not exist for normal buyouts).
Waivers
A player can only be bought out after clearing unconditional waivers. A waiver-claim by another team pre-empts the buyout process. If a player has a no-movement clause, the player can reject the option of waivers and proceed to the buyout process.
35-plus Contracts
There is a significant amount of confusion on whether 35-plus contracts do or do not receive a cap benefit from being bought-out. It was originally believed that there is no cap-benefit; however, later in 2013 it became widely thought that there is a benefit.
The most recent understanding is that bought out 35-plus contracts do not receive a cap hit benefit, as is explained by Michael Russo. All other details of the buyout remain the same as any other buyout; therefore, what buying a 35-plus contract does do is decrease the teams salary expenses.
For example, Chris Phillips was signed to a 2-year 35-plus contract which began in 2014-15 and expires in 2015-16. His salary is $2.5M and his cap hit is $2.5M for both season. If Chris were to be bought out during the summer of 2015, the buyout would last twice the length of his remaining contract - 2 years, and the buyout cost each year would be $833,333. His cap hit would be $2.5M in 2015-16, and $0 in 2016-17. However, the salary expenses in 2015-16 would decrease by $1.67M from $2.5M to $833k.
Signing Bonus
Signing bonuses are paid to the player regardless of a buyout. Therefore, as explained in the buyout caphit formula above, signing bonuses are excluded in the equation when determining the total buyout cost, and are included in the AAV value when determining the remaining caphit.
Signing bonuses therefore decrease the buyout caphit savings. In the case of players with significant signing bonuses, such as David Clarkson, the remaining caphit decreases minimally. Due to this, Clarkson's contract has been referred to as a buyout-proof contract.
Buyouts Outside of the Regular Period
Clubs whom have 1 or more arbitration filings may be permitted to perform a buyout outside of the regular window. This gives teams another opportunity to become cap compliant following an arbitration case.
As explained in Section 13(c)ii of the Standard Player Contract (SPC) [Exhibit 1 of the CBA], clubs are permitted to perform a buyout outside the regular period during the 48 hour period beginning on the third day after the final of a) settlement of the Club's final arbitration case. b) receipt of the Club's last arbitration award.
There is an exception to this buyout period (CBA Reference: Section 11.18; 12.3) if the arbitation was Club-elected (as opposed to player-elected) and the player did not receive a qualifying offer. In this case, a minimum of two arbitration cases are necessary to trigger the buy-out period outside the regular window.
The number of arbitration filings required to open the buy-out window outside the regular period are as follows:
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