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The Business of Hockey Discuss the financial and business aspects of the NHL. Topics may include the CBA, work stoppages, broadcast contracts, franchise sales, and NHL revenues.

Hard Cap + Linkage

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Old
01-23-2005, 10:19 PM
  #1
Gromit
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Hard Cap + Linkage

The owners' official position is that Linkage (Cost Certainty) and a Hard Cap are necessary to save the league. Some here agree, so I put this question out to them:

I understand how linkage could be a good thing. I understand the arguments for a hard cap over a soft cap (I'm not saying I agree, but I understand). But when you put both together, how do the mechanics of the whole thing work?

Let my write out my thinking. Please read it before you reply.

Let's assume that the NHL and NHLPA can agree on what constitutes revenue and a means of auditing and verifying it. That would be a huge accomplishment, but let's say it exists.

The NHL's December offer says that each team must spend at least 51% but no more than 57% of their 1/30th share of league revenue. So using that $2B number commonly put out there, that translates to $34M to $38M.

But this is where everyone seems to stop.

Problem 1: Contracts are offered at the start of the season, but league revenues are not known until the end. How is this "certainty"? How can you guarantee you will be in the target range when you don't know what it is for several months?

Let's go further. I'd say that a 5% change in revenue is quite possible. So if it drops 5%, the range is $32.3M to $36.1M. If it rises 5%, the range is $35.7M to $39.9M. The high end of one range is almost the same as the low end of the other. Again, how is this certainty?

Problem 2: Say an unlucky team gets into injury trouble and loses 5 or more players, and they are already near maximum salary. What happens then? Does the salary of minor-league callups count? Do they have to trade a higher-salaried player away to make room for a few scrubs?

I think also trading would be very, very difficult under this system. Is that really what owners want?

Problem 3: A team's player salary budget is dependent on how 29 other teams run their business. I personally have no problem with this, but I can't imagine the owners actually wanting it.

I welcome any explanations that address these problems.

...

I feel that a soft cap with a heavy-duty luxury tax fixes problems 1 and 2. It provides flexibility and would still discourage high payrolls. Weaker franchises get financial help from chronic spenders. I know some point to the Yankees as a reason a luxury tax won't work, but no team in the NHL currently has that much money to throw around. No team can justify a $70M payroll if it means they are giving $40M+ to their competition.

And if players don't like it because it is too close to a hard cap, well tough! That's the whole point!

As for problem 3, that just comes down to trust - or rather lack of it. The players don't trust they owners when it comes to accounting, and I highly doubt the owners trust each other. But that's something they have to get over to make linkage work.

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Old
01-23-2005, 10:38 PM
  #2
Balk
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I would assume the linkage would come from the previous year's revenue.

As for the injury situation. In football, teams only have to meet the cap for one day a year. Lets say in hockey it would be the first day of the season. Any salary you take on after would be okay. But, you would have to find a way to shed the salary before the begining of the next season (buyouts, trades, etc.).

That could work but the league would need to find a way to prevent players holding out till after the first day and then asking for rediculous amounts of money.

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