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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.

Luxury Tax?

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Old
11-15-2012, 02:22 PM
  #1
echlfreak
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Luxury Tax?

Why has there been no luxury tax system introduced yet on top of the salary cap and revenue sharing?

How it works in LMB:

MLB's current collective bargaining agreement sets a 'payroll threshold' each season that is somewhat similar to a salary cap. For the 2007 season, this threshold has been set at $148 million ($155 million in 2008). Should the average annual value of a team's total salary contracts surpass this threshold in any year, they pay a 'tax' on the amount over the threshold. The tax is graduated such that a team pays a progressively higher percentage every year it exceeds the threshold, to a maximum of 40%. As an example, when Roger Clemens signed with the Yankees this season, his salary was reported at $18.5 million. But since the Yankees have already exceeded the payroll threshold several times, they were forced to pay the maximum luxury tax on his salary of 40%. Applied to Clemens' salary, the tax comes to $7.4 million. So in actuality, Clemens is costing the Yankees $25.9 million this season.
The Luxury Tax is also called the 'Competitive Balance Tax'. Ironically, the money from the tax isn't distributed to smaller market teams to promote competitive balance. Instead, it goes into an 'Industry Growth Fund' that MLB uses for player benefits and to promote the growth of baseball around the world. Money is distributed to smaller revenue teams, but that money comes from MLB's revenue sharing program, which is entirely separate and independent of the luxury tax



The NHL could adopt a similar system yet cap how much over the cap a team could spend. As an example if the cap were $70M a team like NYR could spend up to $10M above the cap yet pay a tax of 25%. The money could either be used the same way that MLB does or all the money could go towards struggling franchises. A wealthy team could benefit from its wealth competitively but not at the financial expense of the less wealthy teams.

What other ways could the NHL get creative with a luxury tax which would help be a part of the solution to its financial problems?

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11-15-2012, 02:30 PM
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Originally Posted by echlfreak View Post
Why has there been no luxury tax system introduced yet on top of the salary cap and revenue sharing?
Because the owners lost a year to get a hard cap...

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Old
11-15-2012, 03:20 PM
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It doesn't work in the MLB. Google Miami Marlins and see what you find out...

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11-15-2012, 03:34 PM
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It's working very well in the NBA which is the sports league I find most similar to the NHL.

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11-15-2012, 03:38 PM
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Do not want this kind of system and I am glad the Owners don't either.

If you want a luxury tax a better example is the new NBA guidelines that really get after teams. I would be fine if for every million over the team gets taxed five million or ten million per each million dollars. I mean I want it to be super damaging not even the way the NBA has it which is an improvement from their old system. That is the only way I would green light that.

If being 5 million over meant a 25-50 million penalty than I am fine with that. The higher the better really I lean more towards the for every million dollars X 10. You could basically think of the penalty as almost the whole cap being pumped back into the system, nobody would really do it.

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11-15-2012, 03:41 PM
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Quote:
Originally Posted by CJV123 View Post
It's working very well in the NBA which is the sports league I find most similar to the NHL.
We will see theirs is relatively young. It didn't sit well with a lot of people that the Lakers just did what they did this summer. Of course the huge penalties don't really hit until next year when the full financial weight comes down on teams that are not in compliance.

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11-15-2012, 03:56 PM
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Originally Posted by CJV123 View Post
It's working very well in the NBA which is the sports league I find most similar to the NHL.
It is working well if you are a Lakers or Heat fan.

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11-15-2012, 04:13 PM
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To me a luxury tax would only be a benefit if the money the league gathered from this tax was :

1- Given to those teams that require the financial help

2- The money received via the luxury tax MUST be used for player salaries.

Lets say the NHL adopted a luxury tax instead of a cap system. Teams that are doing poorly financially would receive the money, but without a minimal cap in place, they don't have to spend the money to try and become more competitive... they could just pocket it if they want. Keep their payrolls down and pocket the luxury tax each year.

There would have to be a system in place that would force this money given to the poorer teams to be spent on the players.

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11-15-2012, 04:23 PM
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Originally Posted by CJV123 View Post
It's working very well in the NBA which is the sports league I find most similar to the NHL.
well, the NBAPA members seem to be happy with their $5.15m average salary

NHLPA members are NOT that happy with their $2.3m average salary. (currently it's at $0)

The NBA is everywhere in America and on several TV networks for maximum exposure, the NHL is.... well, let's just say it's not.

Why, they're not that similar at all...

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11-15-2012, 04:30 PM
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I wouldn't object to the NHL's current offer 50-50 + make whole, and closing the cap loopholes. Having a qualified 5% lux cap added. A team would have to qualify to go over the cap. Qualification would be: team having been in the black the previous season. And the max a qualified team could go over would be 5%. This would incur a dollar for dollar tax. But only if the cap escalator is done away with.

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11-15-2012, 04:31 PM
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Because the luxury tax doesn't GUARANTEE the revenues going to the players (in payroll) or into revenue sharing.

And MLB shares 31.0% of local revenues, instead of the NHL's 4.5%

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11-15-2012, 04:34 PM
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Originally Posted by KevFu View Post
Because the luxury tax doesn't GUARANTEE the revenues going to the players (in payroll) or into revenue sharing.

And MLB shares 31.0% of local revenues, instead of the NHL's 4.5%
But let's be clear, "sharing" is not the same as "redistributing." If even the poorest teams put something into the pot, and even the richest teams take something out, those figures for MLB and the NFL appear artificially high. The NHL doesn't "share" in that sense, it makes a straight transfer from rich to poor.

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11-15-2012, 04:41 PM
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Quote:
Originally Posted by Butch 19 View Post
well, the NBAPA members seem to be happy with their $5.15m average salary

NHLPA members are NOT that happy with their $2.3m average salary. (currently it's at $0)


The NBA is everywhere in America and on several TV networks for maximum exposure, the NHL is.... well, let's just say it's not.

Why, they're not that similar at all...
Why would you compare salaries like that in sports that have such a disparity in players per team: 10 players with court time in the nba vs 20 in the nhl.

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11-15-2012, 05:03 PM
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I would just like to say the most recent MLB CBA made several changes to how their system works, so the example in the OP is not a description of how the MLB currently works. The new system is much stricter on teams that go over the limit, that is why teams other than the Yankees are trying to stay under the limit.

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Old
11-15-2012, 05:08 PM
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KevFu
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Quote:
Originally Posted by haseoke39 View Post
But let's be clear, "sharing" is not the same as "redistributing." If even the poorest teams put something into the pot, and even the richest teams take something out, those figures for MLB and the NFL appear artificially high. The NHL doesn't "share" in that sense, it makes a straight transfer from rich to poor.
Very valid. Every team puts 31% of local into the pot in MLB and gets about $40 million back.


I think the NHL should do that with the player cut:
57% of HRR goes into the payroll fund and is evenly distributed to teams for payroll. Everyone can afford the midpoint, and anyone going to the cap is spending to win, everyone spending under the midpoint is a cheap jerk.

Think Toronto would vote for that? Spending $110 mil on players instead of $80 mil on Players+Revenue Sharing?

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11-15-2012, 05:41 PM
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Originally Posted by CJV123 View Post
It's working very well in the NBA which is the sports league I find most similar to the NHL.
In logistics yes. In parity no. Would not want the NBA/MLB model of promoting the glitzy teams. Prefer the NFL model personally.

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11-15-2012, 05:48 PM
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I think it's telling that the majority of NBA owners would have preferred to have a hard cap like the NHL does rather than their soft cap and luxury tax.

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11-15-2012, 05:49 PM
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Originally Posted by ottawah View Post
In logistics yes. In parity no. Would not want the NBA/MLB model of promoting the glitzy teams. Prefer the NFL model personally.
the NHL is heavily reliant on local revenues with miniscule national TV deals, whereas the NFL is funded in large part by shareable national TV deals

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11-15-2012, 06:01 PM
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One reason I can see for there being no luxary tax to allow teams to go over the cap is teams that did so would have lower profits and so have to contribute less in revenue sharing. If I have to choose between paying 10 Mil or whatever to the low revenue teams or being 6 or 7 mil over the cap I may as well go over the cap.

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11-15-2012, 08:09 PM
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Quote:
Originally Posted by BlueBaron View Post
One reason I can see for there being no luxary tax to allow teams to go over the cap is teams that did so would have lower profits and so have to contribute less in revenue sharing. If I have to choose between paying 10 Mil or whatever to the low revenue teams or being 6 or 7 mil over the cap I may as well go over the cap.
Revenue sharing contributions aren't based on profits, only revenue.

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