The NHL salary cap continues to climb every year! Average players are handed out exorbitant amounts of money on the free agent market. Players coming out of their Entry Level contracts are banking excessive amounts and long term contracts. One General Manager, Dale Tallon, spent and guaranteed in excess of $100 million dollars in one day in his attempt to rebuild his team, the Florida Panthers.
Many hockey fans are bewildered and confused. With unemployment hovering at around 10% in the US, home values deflated up to 45% in many areas and the many other issues facing the economy, it’s hard to understand the amounts of money that NHL teams are willing to pay their players.
I can’t say that I understand all of the reasoning or agree with all of those contracts but I can offer some plausible explanations:
The 2004 NHL lockout gave the owners what they wanted most: COST CERTAINTY. They wanted to control the high spenders and have the ability to project player cost by establishing a salary cap.
The NHL salary cap is formally titled the “Upper Limit of the Payroll Range” (the ceiling) in the new CBA. Following the NHL lockout, for the 2005–06 season, the salary cap was set at $39 million dollars per team, with a maximum of $7.8 million (20% of the team’s cap) for one player. The CBA also contains a “Lower Limit of the Payroll Range”, (the floor) which is the minimum that each team must pay in player salaries. The lower limit was originally set at 55% of the cap, but is now defined to be $16 million below the upper cap.
The NHL salary cap in 2011-12 will be $64.3 million per team, with the “floor cap” set at $48.3 million dollars. That is $8.7 million more than the “upper cap” was in 2005 after the lockout.
How did all this happen? Is our game so good that hockey fans and corporate sponsors will spend money to watch hockey regardless of a poor economy? The NHL has done an excellent job in increasing the visibility and exposure of our sports and developing a new fan base by promoting our great stars. Is that enough to justify the increase in revenue and spending? I don’t think so.
One of the reasons for the continued increase in revenues that the league has enjoyed in the past few years is the “Canadian Dollar”.
Revenues for the six (now seven) Canadian teams have all increased significantly since the lockout due to the fact the Canadian dollar has risen in value, reaching parity with the U.S. dollar. As a result, league-wide revenues measured in U.S. dollars have been inflated accordingly. Most Canadian teams play to near capacity; ticket prices are generally higher in Canada to reflect the supply and demand and the difference in monetary exchange. All six Canadian teams pay into the current revenue sharing plan which was designed in the new CBA to provide some protection to small market teams.
Consequently, the cap has been raised each year to its current figure of $64.3 million for the 2011–12 season, with a cap of $12.86 million for one player.
The league as a whole is happy regardless of the increase in salary as long as the fixed percentage of total league revenues doesn’t go over the 57% stipulated in the CBA.
To ensure compliance with this provision, a percentage of each player’s salary is withheld in escrow until the season is over, at which time the funds are divided between the players and owners to reach the agreed percentage. In the first season of the current CBA, revenues exceeded expectations to such a margin that players received the entire escrow back plus additional funds from the owners, however in subsequent seasons this has not been the case.
While Canadian teams are enjoying this increase in revenues, the percentage paid to the players (57%) is a figure calculated league wide. Some U.S. teams are far below the league average in revenues and are struggling with the unexpected increase in salaries. Not all teams benefit from the revenue sharing and the money THEY spend on players’ salaries far exceed the league wide 57% of THEIR revenue.
It will be interesting to watch the posturing from both sides in preparation for the next bargaining agreement which expires at the end of the 2011-12 season. My guess is that the players would like to have “status quo” but don’t like the “escrow”. I believe that the owners have some issues that will surface at the negotiation table. The NBA and the NFL will be first at modifying their CBA. Although specific issues are totally different, some fundamental principles may pave the way to solving some of the NHL issues.
HAVE A GREAT HOCKE DAY!
PHIL MYRE (www.philmyretalkshockey.com)