Cutting Salaries Won’t Cure NHL Woes.

It’s rumored the NHL could once again seek to reduce the players’ share of revenue, but that won’t be enough to help struggling franchises over the long term.

The NHL’s current collective bargaining agreement is set to expire in September, 2012, and speculation over the possibility of a lockout has been bandied about by more than a few pundits and bloggers, including yours truly, in recent months.

It’s expected the spark for another potential NHL work stoppage would be any attempt by the league to reduce the salary cap by cutting the players’ share of revenue from its current maximum of 57 percent down to between 48-52 percent.

To achieve this, salaries would probably have to be rolled back. The NHLPA accepted a 24 percent salary rollback as part of the current CBA, and it would probably take something around that number to achieve the lowered cap and reduced revenue share which might be sought by the league.

It’s also suggested that, in addition to reducing the players share, either a harder cap ceiling (which wouldn’t rise with revenues) or one less flexible (which would slow its increase) might also be pursued by the league.

Of course, this is just speculation, and currently we have no idea what the league will seek, let alone what the PA will agree to, between now and next September. The two sides are expected to open negotiations at some point in the upcoming season, but those talks probably won’t intensify until after the Stanley Cup playoffs.

The reason the league might seek these changes is because the current cap system hasn’t helped struggling U.S.-based clubs (once “struggling” Canadian teams were saved by the increased value of the Canadian dollar) as originally intended.

In the first season under the current cap system, the cap ceiling was an affordable $39.5 million, while the cap floor was $23.5 million. That made it very easy for supposed “small market” teams to bid competitively for free agent talent or trade for expensive stars, as well as retain most of their own key players.

But the cap was tied to revenue, and as the latter rose each season, so did the cap limits, to the point where, for 2011-12, the ceiling of $64.3 million and floor of $48.3 million is now considered too expensive for struggling teams to maintain competitive rosters.

Assuming the league pursues, and ultimately achieves, a reduction in the players share of revenue, and is able to prevent or slow the increase in the cap, it  still won’t be enough to save the struggling franchises, many of which are located in the southern United States.

The main reason for those teams’ woes is almost always  years of mismanagement, resulting in mediocre rosters, which drove away many fans, making it more difficult to raise the revenue needed to keep pace with a rising cap.

That in turn made it difficult for teams to qualify for sufficient revenue under the league’s complex revenue sharing system, which failed to improve those clubs as promised when this CBA was implemented back in 2005.

The Phoenix Coyotes were a prime example of a mismanaged team,  until Don Maloney took over as general manager in 2007. Under his guidance, they’ve rebuilt into a playoff team, and slowly but surely, it appears fans are starting to return.

Their problem now however is finding an owner willing to keep the club in Arizona, and it’s possible they could be playing in a new city following the 2011-12 season.

The sale and relocation to Winnipeg earlier this year of the Atlanta Thrashers has given rise to concern over the future of clubs like the Columbus Blue Jackets and the NY Islanders.

But even for teams which seem to have stable ownership, like the Minnesota Wild, Carolina Hurricanes and Nashville Predators, there’s concern over their ability to carry on under the current system.

Slashing payrolls however only works for so long, and ultimately fails to address the problems affecting those teams.

A better system of revenue sharing, or a luxury tax system (one which works better than that of Major League Baseball), would be a better way to go, allowing the big market spenders to invest (or squander) as much as they like over an established limit, whilst sending back substantial revenue to aid struggling teams in rebuilding their rosters into playoff competitors.

Even then, it’ll only work if struggling clubs have management competent enough to invest such money wisely.

If the league seeks another reduction in the players revenue share next year, it’ll be the last time they’ll be able to go to that well.

The players might be grudgingly willing to accept another reduction in their share next year. Things turned out much better for them under this salary cap system than their critics expected, so it stands to reason it could work out for them again in the long run as long as the cap remains tied to revenue.

Perhaps the NHLPA will accept another reduction in revenue and another rollback, provided it doesn’t bite too deeply, keeps the cap tied to revenue, allows them to retain guaranteed contracts, arbitration rights, trade clauses, and eligibility for unrestricted free agency while in their mid-twenties, while capping or eliminating escrow payment, and instituting a better revenue sharing system.

But they won’t be willing to do it again beyond next year, and rightfully so.

The league tried to get its financial house in order during CBA negotiations in 1994-94 and 2004-05 by placing the blame on the players, rather than upon the questionable motives of big market teams, which gleefully exploited loopholes to their own advantage, and years of mismanagement of struggling clubs.

“Blame the greedy players” meme played well amongst many pundits and  fans in the past, but it won’t wash next year. The league and the team owners touted this current CBA, with its cap on payrolls, individual salaries and rookie contracts, as the cure-all they needed to “level the playing surface” and allow all their teams to be competitive. It’s their fault it’s not working out as well as promised.

And while the players might be willing, once again, to shoulder more of the burden of saving team owners and their management from themselves  in the next CBA, they won’t be so willing to do so down the road.

At some point, the league won’t be able to slash salaries any further, forcing team owners to re-examine  how they’ve conducted business, and to find more sensible alternatives to address the problems of assisting so-called “small markets”.

They could save themselves a lot of future worries if they do so in the next round of labor talks. Sadly, the league and the team owners have shown a stunning capacity for short-sightedness. Yes, the names may change, but not the way they conduct their business and their labor negotiations.

It’s possible they could be more proactive in coming up with better ways to address the disparity between the big and not-as-big market teams, or to improve struggling markets which have made a genuine effort to improve themselves but still find themselves struggling to keep up.

Given the history of NHL labor negotiations, however, that appears unlikely. It’s easier to demonize the players, or force them to accept even less with threats of another lengthy work stoppage which could again cost them another season and force many to play in inferior leagues, than in seeking realistic solutions to their problems.

Cutting the players salaries to make it easier for floundering franchises to reach the salary cap floor, however,  is only kicking the can down the road, especially if many of the teams fail to make any significant improvement when the next CBA is due to expire.

7 Comments

  1. The cap system is here to stay,it needs to changed.I would bring it down to 48 million with the floor at 32, it would be raised after 3 years,based on the average revenue for those years.It would make financial planning much easier.The cap hits would be based on the actual salary and not the average on the lenght of the contract.

    Could work, But I doubt the PA would go for it.

  2. One huge problem is the cap floor is a fixed dollar amount below the ceiling. That makes no sense. The floor needs to be a percentage of the ceiling, somewhere between 50% and 60%. Comparing the original floor and ceiling to the new floor and ceiling shows why a percentage works while fixed dollars do not. That will not fix the issue of poor management, but at least Tallon and other general managers scrambling to make the floor and/or cap midpoint won’t need to overpay players to do so. It’s teams overpaying to make the high floor that hurt player value more than anything else. I’d be surprised if changing the floor from a fixed dollar amount to a percentage of the ceiling did not also help more teams stay comfortably below the ceiling as opposed to the large number of teams since the cap was introduced consistently scrambling to get under the cap ceiling (though a number of those teams were also poorly manged).

    As for revenue sharing, every team should have to pay its own 57% (if player revenue remains he same, and it should because lowering it is not a fix to the poor management problem) into a pool (for cap responsible contracts). That pool should then be where the players get their checks from instead of from individual teams. At the end of the NHL fiscal season (when they calculate revenues to determine the new cap) if any money is left in the pool teams should get that money back based on the percentage they put into it (some teams will put in and use all of their 57%, but the richer teams will put in more than their actual payrolls; whatever percentage they put in, they get the same percentage of the surplus back- if that makes sense, it’s basically escrow for teams). I don’t know if current revenue sharing is better or worse than this idea, but it’s one that’s been kicked around by some of us at The Malik Report. Of course, players should still have escrow of their own so that if they do exceed their share they will still be able to pay back what they owe, but escrow needs to be capped, and whatever the cap is probably should be automatically taken be withheld from the players all season, to be paid back in part or entirety, if at all at the end of the season (whatever that date is).

    The CBA should also look into a franchise player exception, something that would allow a team to sign a labeled franchise player and only have something like half his salary count against the cap. That would help keep the big name players with the teams that draft them (or trade for or somehow acquire them) which helps marketing and team identity. Imagine if Stamkos could be franchised in TB, Crosby in Pittsburgh, Ovechkin in Washington, etc. We think these players will spend their careers with those teams, but this could help ensure it (barring unforeseen issues like injury or drop in play or character issues, there are no true guarantees).

    Thanks for the update and analysis, Lyle!

  3. very good article lyle

  4. The real solution for the players is to work out the logistics of starting their own league (or a number of leagues in different geographic locations) in the case of a lock-out. Play for a fraction of the existing salaries and split the plofits. The only leverage the NHL has is that it’s the only game in town.

  5. Cap having a lower floor isn’t really going to fix the problems of struggling teams; they can’t ice a competitive team three out of five years and will trade their players as soon as they get good. Case in point, Nashville. If they’re losing Rinne, Suter, and Weber, they’re back in lala land in the margins, waiting for draft picks, but then what’s the point? They’re just going to lose those picks when they get good again.

    The parity worked; the only teams I think that has made the playoffs every season since the lockout is Detroit, San Jose, and Vancouver I believe. (this is just off the top of my head; correct me if I’m wrong).

    But maybe it’s time for a hard player pay cap at 7-8M, and raise it from the five teams turning in the most profit (ie. Toronto, NY Rangers, Montreal, Detroit, Boston). OR, make it a three tier league, giving a hard cap to players in the lower divisions (teams #15-30) (6-7M), Middle tier (teams #8-14) (7-8M), and High Tier (top 7 teams) (10M/y), and then lowering the salary caps once again, but also accommodating tiers (45-50-55 just an example) so that the bigger spenders can put more money to the league (and the PA), but the league can still get its parity and generate revenue. After all, a team with 5 million more to spend will definitely not see that much of a shift in its competitiveness… what, one and a half players?)

    I hate that about soccer, that only a handful of teams are ever in competition for the Champion’s League and the BPL/La ligua/etc. But they’re going to have to do something that “illusions” this system while keeping competitive parity.

    The RFA situation this summer was a complete nightmare. Do we want to see this every season? The fear of the Luxury Tax system is the New York Yankees. Parity is essential for the league to remain competitive. And you can’t do that if Toronto and New York are out spending 80 million dollars on their rosters while Phoenix, Nashville, and Tampa Bay can only spend up to 45 million. (35) million dollars is a lot more than one and a half players.

    Great article, Lyle.

  6. Awesome article. They need to lower the floor, get rid of escrow as it’s clearly not needed, institute a “franchise player” provision to the cap, and take two teams out of the league. Thats some hard decisions, but I think that’s how you fix this system. Too many teams are trying to lure fans to the seats soley for getting their mits into revenue sharing. It’s not fair to the fans of those teams because they obviously don’t care about creating a winning club.

  7. Personally, I am more in favor of a upper/lower cap with a luxury tax.

    Have a floor of approximately 25 million. The upper cap should be around 55 million…The caps should be re-evaluated every 2-3 seasons to determine the new upper/lower cap.

    Allow teams to spend over the 55 million cap(could be lower, doesn’t really matter as much until the real logistics and figures are there which I don’t have on hand). They would pay a luxury tax of say, 20% of the salaries over the upper cap. Use this money to divide two ways between the revenue sharing AND a percentage to the NHLPA for retirement funds for the players.

    With this, yes, the great teams will be able to still spend a ton, but…probably won’t go as aggressive, teams won’t have to over spend to get the minimum cap as much….and with luck, player salaries won’t get over inflated….

    Salaries should still be an average of the length of the contract BUT have a term limit…say…5 years or institute a franchise player tag for ONE player per team to have a unlimited contract length. That player can not be traded or sent to the minors(except conditioning stints or if they do, contract still counts against cap but still don’t allow trade) until their contract reaches the max contract length(maybe 5 years left on deal)

    Allow teams to renegotiate contracts with players and players with the teams…but both sides must abide by the active contract no matter what..no hold outs. Maybe renegotiated contracts should always have an additional year tacked on…..

    Salaries of players from one year to the next can not be any lower than say….60% maybe 80% of the total average of the contract….so…say the contract is average of 5 million per year….on the 60% side, the lowest the contract could be in any one year is 2 million. Even the 80% isn’t too bad…This should limit the number of contracts with the last 4 years at 1 mill with the rest around 8 million per.