With the Nashville Predators matching the offer sheet that the Philadelphia Flyers signed Shea Weber to, we figured it would be beneficial to explain what an offer sheet is.

In the National Hockey League, an offer sheet is a contract offered to a restricted free agent by a team other than the one for which he played during the prior season. If the player signs the offer sheet, his current team has seven days to match the contract offer and keep the player or else he goes to the team that gave the offer sheet, with compensation going to his first team.

When a player accepts an offer sheet and his team declines to match the value of the contract, his former team is entitled to draft pick compensation in the next upcoming draft or drafts based on the averaged yearly salary of the contract. This averaged annual salary is determined by dividing the total compensation by the lesser of the number of years of the Offer Sheet or five years (the latter clause has potentially come into play with one offer sheet offered to Shea Weber in the 2012 offseason). These values were originally set for the 2005 offseason to coincide with the new NHL Collective Bargaining Agreement, with percentage increases annually equal to the same percentage increase in the average salaries of all NHL players.

2005 Averaged Salary Current Averaged Salary Draft Pick Compensation
$660,000 and below $1,034,249 and below No compensation
$660,001 to $1,000,000 $1,034,250 to $1,567,043 Third-round pick
$1,000,001 to $2,000,000 $1,567,044 to $3,134,088 Second-round pick
$2,000,001 to $3,000,000 $3,134,089 to $4,701,131 First- and third-round pick
$3,000,001 to $4,000,000 $4,701,132 to $6,268,175 First-, second-, and third-round pick
$4,000,001 to $5,000,000 $6,268,176 to $7,835,219 Two first-round picks and a second- and third-round pick
$5,000,001 and above $7,835,220 and above Four first-round picks

A team may not have two different players sign offer sheets at the same time if the value of the offered contracts would involve any of the same draft picks as compensation.

For example, if a restricted free agent accepts a contract with a yearly salary of at least $7,835,220, the team can only offer to other restricted free agents contracts less than $3,134,089 per year, since those would not require any first round pick as compensation. In addition, if a team does not have a pick in the next upcoming draft available for compensation, they may not make a contract offer in the certain range where that pick is needed for compensation. Teams may not use draft picks acquired in trades with other teams, but extra acquired draft picks can influence a team’s decision to submit an offer sheet.

Information from wikipedia

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