How trading Erik Karlsson impacts the Sharks’ cap

There have been a lot of articles out there that look at the Erik Karlsson trade and say the Sharks lost. Most of the writers look at the pieces that the Pittsburgh Penguins gave up to get Karlsson, what the Montreal Canadiens gave up/received and what the Sharks received in return and say that San Jose got fleeced. These writers look at the first-round draft pick and a bunch of role players on their way out of the NHL and say San Jose received virtually nothing in return.

As Lakshya Jain pointed out when he broke down the trade, Karlsson’s age, injury history and “albatross” of a contract made this trade difficult to pull off. General Manager Mike Grier did not start from a position of power and we don’t even know what stipulations team owner, i.e., the money man, Hasso Plattner put on Grier’s budget.

So I think some writers missed the mark when they looked at the Karlsson deal because they presupposed that the Sharks had the same goal in mind as the Penguins. They assume that the Sharks wanted to find players that would slot into the lineup and make the team better. But moving Karlsson was, first and foremost a money move. This was about how much money the Sharks spend now, in the near future and further down the road when it becomes time to compete for a Stanley Cup again.

As such, it only makes sense that we look at the Karlsson trade from a financial standpoint.

Erik Karlsson trade: The money

In this deal, the Sharks retained $1.5 million of Karlsson’s $11.5 million AAV salary. Karlsson was signed through 2026-27. So San Jose has netted $10 million in cap savings every year for the next four years by taking Karlsson’s salary off the books.

However, in order to get the deal done, the Sharks had to take back money as well.

San Jose received three pieces with NHL contracts attached.

• Mikael Granlund is signed to a contract with a $5 million AAV. The contract expires in 2024-25.
• Mike Hoffman is signed to a contract with a $4.5 million AAV. That contract expires at the end of this season (2023-24).
• Jan Rutta’s cap hit is $2.75 million. His contract runs through 2024-25.

That’s $12.25 million back in contracts for the 2023-24 season. When you take all the deals together, you find that this trade, in the immediate future is going to cost the Sharks $2.25 million more than what it would have paid to keep Karlsson in teal for another season.

San Jose’s cap situation in 2023-24

That extra $2.25 million is okay in 2023-24. According to CapFriendly, even with Karlsson’s retained salary, the Sharks are $3.99 million under the cap. That’s taking into account a full 23-man roster that includes William Eklund as one of the forwards.

The only person on injured reserve is Luke Kunin and his $2.75 million cap hit.

The cap calculations include San Jose’s two retained salaries. The aforementioned Karlsson contract retention and $2.72 million retained on Brent Burns’ contract through 2024-25.

There are also two buyouts included in the cap numbers. There’s $2.917 million owed to Martin Jones this year. It drops down to $1.667 million next season and runs through 2026-27. And then there’s the Rudolfs Balcers buyout at $308 thousand for this season.

While that’s not a ton of breathing room, it gives the Sharks plenty of room to add something at the deadline, or better yet, take on dead cap space at the deadline to help another team out and add a few new picks in the process.

San Jose’s cap situation at the start of the 2024-25

After this current season, the true financial impacts of this trade will start to make an impact on the team. More than half a dozen contracts expire after the 2023-24 season, leaving San Jose with a much easier cap situation to manage.

As you can see, the Sharks will lose more than $23 million in contracts before the start of the 2024-25 season. (Note: This does not include Kunin’s $2.75 million that’s currently included in the injured reserve and not counting toward the cap. His contract also expires at the end of the 2023-24 season.)

The numbers include the Hoffman contract the Sharks took on in the Karlsson trade. In one year, the trade has gone from losing San Jose $2.25 million in cap space to netting San Jose $2.25 million in cap space. And all that is assuming that the Sharks aren’t able to flip Hoffman at the 2023-24 trade deadline for draft picks.

San Jose will also lose $1.558 million in dead money. Balcers’ buyout will be off the books and Jones’ buyout drops down to $1.667 million in 2024-25.

Admittedly, some of these players might be re-signed. It would not be a surprise if Anthony Duclair or Alexander Barabanov returned, potentially at higher contracts. Kaapo Kahkonen’s return will likely depend on his performance in the 2023-24 season. However, a lot of those other contracts are gone, giving San Jose the cap space necessary for extensions that need to be signed in the near future, such as William Eklund, Henry Thrun, Jacob Peterson and Fabian Zetterlund.

Even better, San Jose now has the cap space to add impact players that can put the team into a position to compete and, possibly, make the playoffs.

By playing a waiting game with short contracts, San Jose now has the breathing room to add as it sees fit.

San Jose’s cap situation in 2025-26

This is where predictions get dicey. There are too many variables that can happen between now and the start of the 2025-26 season to know what the Sharks’ roster will look like. That means we can’t say for sure how much money San Jose will have committed to players by then.

Here’s what we can say for sure. First, that the salary cap will have gone up. It’s expected to go up in 2024-25; barring a disaster it will definitely go up in 2025-26. That’s even more room for Grier to maneuver.

We also know that the last two pieces added in the Karlsson trade will be off the books. Granlund’s $5 million and Rutta’s $2.75 million contracts expire at the end of the 2024-25 season. San Jose has finally netted the full $10 million in savings, assuming there are no trades that make this happen sooner. Meanwhile, Erik Karlsson is now 35 years old and has two more years left on his $11.5 million contract.

In 2025-26, the retained salary for Burns also goes away. That’s another $2.72 million in savings.

Grier now has the option to use this cap space to help extend more of the team’s future core or to add new pieces to help the team.

Evaluating the Erik Karlsson trade

The Erik Karlsson trade does not help San Jose in the first year post-trade, but it does not hinder the team either. 2023-24 will be more of the same, but at least there’s some cap breathing room. No one expected San Jose to make the playoffs this upcoming season, so no one will be disappointed when the team misses out again.

However, the true benefit seems to come as the Sharks approach 2024-25. That’s when some of the team’s bad contracts have expired, including one of the pieces of the Karlsson trade. San Jose is now in a position to add around its now younger core. What’s more, players like Eklund and Thrun have full NHL seasons under their belts. Guys like Filip Bystedt, Thomas Bordeleau, Daniil Gushchin, Shakhir Mukhamadullin and Brandon Coe have had another season to refine their games.

In the 2024 NHL Draft, San Jose has two first-round draft picks (admittedly the Pittsburgh one is top 10 protected). With the Sharks likely failing to make the playoffs in 2023-24, San Jose’s pick should again be in the top 10. That means that in addition to alleviating some of the cap pressure, Grier has again strengthened the team’s prospect pool.

By 2025-26, there’s plenty of cap space and plenty of strong young prospects itching to make the jump to the NHL. Some of them will need new entry-level contracts or bridge contracts and the money is now there to make it happen.

While on the outset, the Karlsson deal looks like a flop for San Jose. For Sharks fans, it’s the right fiscal move to put the team in a position to compete potentially as early as 2024-25. By 2025-26, San Jose should have rebuilt its prospect pool and have young players ready to become NHL staples.