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This is why bettman does not want a luxury tax

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Old
12-03-2004, 09:16 PM
  #1
gerbilanium
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This is why bettman does not want a luxury tax

I never understood why the little man was so adverse to the luxury tax idea even if it is punitive.

This program shows that although a 10% rollback can save $133,000,000 right away. The actual savings combined with the luxury tax is only in the ballpark of $33,000,000.

http://www.derzaphonline.com/msgbds/luxurytaxn.xls

Yes there is no accounting for the effect of the deterrent of the tax (how do you calculate that). And yes there is an assumption that all tax money recieved by the teams under the cap will be spent on salary.

But try it out it is very interesting to see the numbers. You can vary the cap level, tax rate and roll back amount.

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12-03-2004, 09:21 PM
  #2
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What program do you need to open it?

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12-03-2004, 09:25 PM
  #3
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Originally Posted by FLYLine4LIFE
What program do you need to open it?
Excel

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12-03-2004, 09:28 PM
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Sorry Excel. I don;t have an opinion one way or another but it is weird that a 35,000,000 cap actually will actually cost the teams more.

They must be able to find some common ground.

Too bad Detroit seems to be the team to take it in the heiny with any solution.

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12-03-2004, 10:15 PM
  #5
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Quote:
Originally Posted by gerbilanium
This program shows that although a 10% rollback can save $133,000,000 right away. The actual savings combined with the luxury tax is only in the ballpark of $33,000,000.
Wait a second, you subtract the tax from the 10% savings, but you don't add it back in on the revenue sharing. Am I missing something here in the point your trying to make? It seems that should be a wash and the teams as a whole are still getting the 133 million savings no matter what way you slice it.

The 100 million in tax getting distributed to other teams under the tax limit shouldn't be subtracted from the savings...

Using your spreadsheet, Detroit is paying 19 million in taxes and missing out in the 5 million in revenue sharing. And you don't think that would be a deterent to them picking up a UFA at 9 or 10 million a year?

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12-03-2004, 10:41 PM
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Quote:
Originally Posted by Oiler_Fan
Wait a second, you subtract the tax from the 10% savings, but you don't add it back in on the revenue sharing. Am I missing something here in the point your trying to make? It seems that should be a wash and the teams as a whole are still getting the 133 million savings no matter what way you slice it.

The 100 million in tax getting distributed to other teams under the tax limit shouldn't be subtracted from the savings...

Using your spreadsheet, Detroit is paying 19 million in taxes and missing out in the 5 million in revenue sharing. And you don't think that would be a deterent to them picking up a UFA at 9 or 10 million a year?
The tax is based on the roll back salaries. The tax paid (which in addition to salary paid) by the 11 teams = $99,761,446. So that with the 133 million is only a 33,000,000 difference. I assumed that tax money only went to teams below the threshold. You can change it any way you like. I would love to see a good solution to this.

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12-03-2004, 11:00 PM
  #7
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Quote:
Originally Posted by gerbilanium
The tax is based on the roll back salaries. The tax paid (which in addition to salary paid) by the 11 teams = $99,761,446. So that with the 133 million is only a 33,000,000 difference. I assumed that tax money only went to teams below the threshold. You can change it any way you like. I would love to see a good solution to this.
But that 99 million gets distributed back to the teams below the threshold. So those teams are getting 99 million in a additional bottom line relief as a result of increased revenue from the tax. The 30 teams as a whole are still saving 133 million in player salaries. I think it's a semantics issue in that your not considering the tax relief as a savings.

Your salary distribution graph shows it simply, the entire monies paid out to the players is the area under the graph. The area under the graph is less with the tax and the rollback (the tax really has no bottom line effect for all 30 teams as a whole, but the tax paid out demonstrates well the teams that would get penalized--though the effects of this might be less objective).

Seeing it in the spreadsheet like that actually gives me some optimism that this offer will actually get the NHL to negotiate if it's true. If they could tie the tax level to some kind of arbitrary revenue figure that both sides can agree too, then it could be a done deal if you include the rumor of rookie caps and revisions to arbitration.

If Bettman suggested such a scheme as an acceptable offer to the owners, I only see 6 or 7 teams that would object and I believe it takes 8 to overturn a suggestion he makes.

Careful optimism, we still need to see the players offer and it sounds far too good to be true right now.

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12-03-2004, 11:05 PM
  #8
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Quote:
Originally Posted by Oiler_Fan
But that 99 million gets distributed back to the teams below the threshold. So those teams are getting 99 million in a additional bottom line relief as a result of increased revenue from the tax. The 30 teams as a whole are still saving 133 million in player salaries. I think it's a semantics issue in that your not considering the tax relief as a savings.

Your salary distribution graph shows it simply, the entire monies paid out to the players is the area under the graph. The area under the graph is less with the tax and the rollback (the tax really has no bottom line effect for all 30 teams as a whole, but the tax paid out demonstrates well the teams that would get penalized, though the effects of this might be less objective).

Seeing it in the spreadsheet like that actually gives me some optimism that this offer will actually get the NHL to negotiate if it's true. If they could tie the tax level to some kind of arbitrary revenue figure that both sides can agree too, then it could be a done deal if you include the rumor of rookie caps and revisions to arbitration.

If Bettman suggested such a scheme as an exceptable offer to the owners, I only see 6 or 7 teams that would object and I believe it takes 8 to overturn a suggestion he makes.

Careful optimism, we still need to see the players offer and it sounds far too good to be true right now.

The tax paid is money that would not have been paid before this point, hence additional spending, although it is the offending teams only. that is why it is added to the extra money. It is purely hypothetical not accounting for a lot.

I agree it is a significant offer. The whole thing does not take into effect the fact that Detroit will not want to pay $30,000,000 in tax and will definately reduce payroll because of this.

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12-03-2004, 11:20 PM
  #9
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Quote:
Originally Posted by gerbilanium
The tax paid is money that would not have been paid before this point, hence additional spending, although it is the offending teams only.
Right, agreement there. But the penalties as demonstrated in your spreadsheet only effect 11 teams and only 7 adversely. The 7 it does effect for several millions are less than the 8 that it takes to overturn any offer Betteman presents to the board.

It seems obvious to me that the top seven aren't going to be interested in subsidizing the other 21 to the tune of 5 million or more a team for competitive reasons--if not business reasons. I'd guess it would follow that there would be less upward pressure on the both RFA and UFA salaries if you include some sanity in the arbitration process (i.e. make it two way instead of one way). To get the concession to tie the tax level to an arbitrary revenue figure, the NHL could reduce RFA restrictions and give the players more flexibility on arbitration.

In the end, you still have the market, the guaranteed contract, and the tie to revenue and everyone can say they won. A few teams are not going to be happy of course, but a 30 some million cap has always been a bit delusional unless the objective really is to break the union.

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12-03-2004, 11:44 PM
  #10
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Quote:
Originally Posted by Oiler_Fan
Right, agreement there. But the penalties as demonstrated in your spreadsheet only effect 11 teams and only 7 adversely. The 7 it does effect for several millions are less than the 8 that it takes to overturn any offer Betteman presents to the board.

It seems obvious to me that the top seven aren't going to be interested in subsidizing the other 21 to the tune of 5 million or more a team for competitive reasons--if not business reasons. I'd guess it would follow that there would be less upward pressure on the both RFA and UFA salaries if you include some sanity in the arbitration process (i.e. make it two way instead of one way). To get the concession to tie the tax level to an arbitrary revenue figure, the NHL could reduce RFA restrictions and give the players more flexibility on arbitration.

In the end, you still have the market, the guaranteed contract, and the tie to revenue and everyone can say they won. A few teams are not going to be happy of course, but a 30 some million cap has always been a bit delusional unless the objective really is to break the union.

Exactly, I just don't see how the rumoured $35,000,000 cap is feasible especially with existing contracts. How are teams going to shed $244,000,000 in payroll. I agree with the principle. Bettman has to be playing the far side of the bargaining table willing to move a bit over after the union 'breaks'. He can't just expect to win 100%.

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12-04-2004, 12:03 AM
  #11
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Im sure the cap will be eased in over a period of time possibly 1 year. The cap is coming weather the NHLPA likes it not, there will be a cap, and Goodenow will sit at a table with Betman in a joint conference and say we agree to a hard cap, and wear the NHL hat again.

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12-04-2004, 12:21 AM
  #12
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Originally Posted by Go Flames Go
The cap is coming weather the NHLPA likes it not, there will be a cap, and Goodenow will sit at a table with Betman in a joint conference and say we agree to a hard cap, and wear the NHL hat again.
The cap isn't coming whether the NHL likes it or not. There will not be a hard cap.

The owners cannot guarantee a cap. There is no avenue available to them that will force the players to accept a cap.

The players can guarantee there will not be a cap. If the players do not want a cap, they can decertify the PA and any thought of a hard cap becomes history.

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12-04-2004, 12:41 AM
  #13
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man this is great i think it could work!!! but i would drop the "cap" at 40M dollars that would bring in $7M dollars per team under the "cap" I mean that's not nothing. and I garantee that the big spenders would be a little more careful before they start spending like crazy.

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12-04-2004, 03:31 AM
  #14
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Interesting discussion!

I'm not sure if I'm missing something, but I've got 2 comments:
  • Has it been said that the amount raised by a tax will be divided equally among the teams below the threshold - it seems a bit silly to me that the Bruins (in this case) would get just as much as the Preds.
  • Has it not been established that if there is a payroll threshold (ie, a tax or cap) then there will also be a minimum that teams will have to play as well? Eg, if the threshold is $44million as in this example, the might there not be a salary floor of, say, $30million? That would mean that 7 teams would have to increase their salaries up to this point.

A team like Nashville has it payroll where it is (supposedly) because that is all it can sustain given it's market and the revenues it is currently bringing in. Then, combining 1 and 2 above then, would it not make sense that these 7 teams should be getting the bulk of the amount raised by they tax?

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12-04-2004, 07:00 AM
  #15
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The payback on the "tax" has to be distributed on some basis other than those who don't spend. Otherwise, some cheap team is going to be rewarded for cutting costs. The union can't agree to that.

No it has to be on revenues earned. Something that will give the small market teams the money to break even, or turn a profit, even if they are at the, for lack of better term, tax amount.

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12-04-2004, 07:10 AM
  #16
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The tax is also going to force teams to cut payroll as they would have to spend $1.75 for every dollar of value over $44 million. So todays $64 million payroll would cost $79 million.

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12-04-2004, 10:07 AM
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Quote:
Originally Posted by jj@jj.com
So todays $64 million payroll would cost $79 million.

Which is a lot of money for a league where most of its owners cry poverty.

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12-04-2004, 10:28 AM
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Most people seem convinced that Detroit owner Mike Ilitch would be forced, or at least strongly encouraged, to spend less on players with a luxury tax. I don't see it. Same goes for the Ontario Teachers Pension Fund (Leafs primary owners) and Ed Snider (Flyers).

It would probably depend on the players available, but if the UFA age were to move up to oh say 28, these three clubs in particular would not blink an eye regarding the luxury tax, in my humble opinion. If Ilitch is already willing to spend $64 million on payroll, why would he be hesitant to spend $79 million if it means he could land someone like Jarome Iginla (hypothetical example)? Let's not forget about the fact that these three teams are very itchy to win the Stanley Cup again...the Flyers and Leafs because of lengthy droughts, the Wings because they have tasted it fairly recently and Ilitch likes to win and will seemingly do whatever it takes to get his team back to the top of the mountain.

I just don't see a luxury tax system that does not somehow link revenues to salaries being viable for the NHL. In the end, it'll turn into a situation similar to MLB, where you can subsititute the Yankees and Red Sox with the Red Wings, Maple Leafs and Flyers.

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12-04-2004, 10:53 AM
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Quote:
Originally Posted by Jag68Vlady27
Most people seem convinced that Detroit owner Mike Ilitch would be forced, or at least strongly encouraged, to spend less on players with a luxury tax. I don't see it. Same goes for the Ontario Teachers Pension Fund (Leafs primary owners) and Ed Snider (Flyers).

It would probably depend on the players available, but if the UFA age were to move up to oh say 28, these three clubs in particular would not blink an eye regarding the luxury tax, in my humble opinion. If Ilitch is already willing to spend $64 million on payroll, why would he be hesitant to spend $79 million if it means he could land someone like Jarome Iginla (hypothetical example)? Let's not forget about the fact that these three teams are very itchy to win the Stanley Cup again...the Flyers and Leafs because of lengthy droughts, the Wings because they have tasted it fairly recently and Ilitch likes to win and will seemingly do whatever it takes to get his team back to the top of the mountain.

I just don't see a luxury tax system that does not somehow link revenues to salaries being viable for the NHL. In the end, it'll turn into a situation similar to MLB, where you can subsititute the Yankees and Red Sox with the Red Wings, Maple Leafs and Flyers.
You make some very good points... but hockey does not generate the revenue that the Yanks or Bosox do, therfore I think the hockey owners will become fiscally more responsible than in MLB... I think, as it has been stated on these boards in the last couple of days that the arbitration process seems to have driven the salaries up, maybe more than unrestricted free agency has... No matter what, at least they have agreed to meet and discuss a new proposal, and Bettman and co. better take a close look at this offer and if it doesn't cut it, then maybe NEGOTIATE something that both can live with! Hockey fans have become debate teams on the CBA, and it just sucks!

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12-04-2004, 11:32 AM
  #20
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Well,
obviously the revenues are not even close, but relatively speaking the situation could turn similar. I'm not saying Ilitch would spend $180+ million to 'build' a winning team, but even if he is willing to spend $80 million he would not be joined by too many owners.

Also, the arbitration process is a HUGE problem in the NHL, no question about it. However, there seems to be more talk of two-way arbitration as a basis for solution, instead of eliminating the process altogether. Personally, the whole process stinks because it breeds the acrimony that we now see in the league between owners and players. All two-way arbitration does is add MORE acrimony and distrust between the two sides, and quite frankly NOBODY wants that.

Lastly, I don't think starting the season in January is a good idea. Sure, we all miss hockey and are itching to see a game in real time that means something, but at this point the two sides are so far apart that the only way they'll come together is if the owners once again cave in...and that would be disastrous for the NHL in the long run, IMHO.

Besides, the '95 season sucked anyway. It was easily one of the worst in the last several decades. AND, teams would have far more incentive to lose (lottery pick, possibly a shot at Sidney Crosby) than to win this time around.

We've made it to the end of the calendar year without hockey, we should suck it up and go until September. After all, once they actually agree on a CBA, the two sides have to start coming up with solutions to how to fix the game ON the ice.

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12-04-2004, 11:36 AM
  #21
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Quote:
Originally Posted by Jag68Vlady27
Most people seem convinced that Detroit owner Mike Ilitch would be forced, or at least strongly encouraged, to spend less on players with a luxury tax. I don't see it. Same goes for the Ontario Teachers Pension Fund (Leafs primary owners) and Ed Snider (Flyers).

It would probably depend on the players available, but if the UFA age were to move up to oh say 28, these three clubs in particular would not blink an eye regarding the luxury tax, in my humble opinion. If Ilitch is already willing to spend $64 million on payroll, why would he be hesitant to spend $79 million if it means he could land someone like Jarome Iginla (hypothetical example)? Let's not forget about the fact that these three teams are very itchy to win the Stanley Cup again...the Flyers and Leafs because of lengthy droughts, the Wings because they have tasted it fairly recently and Ilitch likes to win and will seemingly do whatever it takes to get his team back to the top of the mountain.

I just don't see a luxury tax system that does not somehow link revenues to salaries being viable for the NHL. In the end, it'll turn into a situation similar to MLB, where you can subsititute the Yankees and Red Sox with the Red Wings, Maple Leafs and Flyers.

the Red Wings are not ever going to spend more than $65 million again, and they'd like to have it closer to $60. If theres a $40 million threshold with 100% tax, that means their actual payroll probably won't exceed $50 million.

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12-04-2004, 11:44 AM
  #22
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I think that the union is willing to make a big concessions on arbitration to not have a "hard cap" don't you? When you hear Brian Burke speaking on the cba he always talk about abitration raising players salary. So I think the players will propose drastic changes in salary abitration....

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12-04-2004, 01:54 PM
  #23
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I wish I could open the spreadsheet (how about posting it saved in an earlier version of Excel?) but I don't think it matters that much. A salary cap and a luxury tax do entirely different things. I think the assumptions underlying this discussion are flawed.

A salary cap sets a maximum budget for each team. I know the Bettman Poodles find his hard to believe, but every team already has a budget. The General Manager submits a budget proposal to his boss based on his talent, the free agency signings he wants to make and the market price of players. The owner reviews the revenues and sets the budget. The GM works towards it. If he has to cut, he cuts. If he has to pass on a prized free agent, he passes.

It is easy to see what a cap would do. For teams well under the cap, it doesn't change the process much at all. For the rest, the cap - not revenues - sets the maximum budget.

A luxury tax won't change the process much. The difference is that the tax becomes a factor. If the Toronto Maple Leafs decide $65 million is an appropriate amount to budget for players, they will still spend $65 million. The difference is that only about $57 million will go to players. The other $8 million is shared.

It is very difficult to sort out the actual impact because so many teams are in the process of changing direction. Washington has already cut payroll dramatically. The Rangers are cutting. The Stars, Blues and Wings are cutting. I think all these teams will continue to cut no matter what the CBA. Revenues are falling (or have fallen) for these teams. Other teams - Ottawa, Vancouver, Tampa - are increasing payroll because revenues are climbing.

But suppose every team last year spent to their budget and suppose nobody is changing direction. Everybody plans to spend what they spent last year except the big spenders spend less on payroll and more on taxes. The ALS falls.

How much tax is generated? That money is taken directly from the players, but it does not stay in the pockets of the rich teams. It goes to the lower revenue teams. That changes their revenue projections. That changes their player budgets. The lower revenue teams could turn around and give 100% of the new revenue to the players. If they do, the luxury tax will have zero impact on league player costs.

The tax proceeds represents an opportunity to save money on player costs, but no guarantee. That's why the players like it. They think the owners are telling less than the truth about industry profits. If they are right, the owners will spend the money. If they are wrong, the owners will pocket the savings to cover losses.

Either way, the proposal addresses the phoney issue of payroll disparity and competitive balance. After the tax, the Leaf payroll is down by $8 million. The Oiler payroll is up by $X million and the payroll gap closes.

The owners probably won't go for it because they don't care about payroll disparity or competitive balance. They care about a guaranteed profit. The only way to guarantee profits is with a cap.

Tom

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12-04-2004, 02:19 PM
  #24
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Boy Id really like to see of real world examples of this luxury tax working.

The luxury tax in baseball is actually helping the Yankees outspend everyone else.

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12-04-2004, 02:20 PM
  #25
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Quote:
Originally Posted by iagreewithidiots
Boy Id really like to see of real world examples of this luxury tax working.

The luxury tax in baseball is actually helping the Yankees outspend everyone else.
Yet they haven't won since it was instituted. hmmmm?

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