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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, NHL revenues, relocation and expansion.

Hard cap/Soft cap - what's the difference?

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01-20-2005, 10:44 AM
  #1
LordHelmet
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Hard cap/Soft cap - what's the difference?

Both would serve to keep salaries within a certain range - i.e. cost certainty. Isn't that what the owners want? Why can't they settle for a meaningful soft cap?

Here's why I think a soft cap is better:
Stevie Y. Still a very good player, but he's not going to contend for the scoring title. At the same time though, he brings a ton of revenue for the Wings. People buy jerseys, tickets, and watch on ESPN because Y is playing. Say that he feels like he can play for another 2 years and will sign a contract for $2.5MM/year.

Scenario #1 - Hard cap: Detroit only has $500k worth of space to work with. "Steve, we'll give you every penny of that $500k, but that's all we can do. Sorry." Yzerman either retires or goes to play somewhere else.

Scenario #2 - Soft cap: Detroit only has $500k worth of space to work with, but since he's only going to play 2 more years, they're willing to pay a tax on the $2MM/year overage. Y gets to play 2 more years, he gets to retire with the Wings, and lots of attention (and revenue) is given to the league - both locally and on national TV.

Which is better for the league?

With a meaningful soft cap, teams have the flexibility to keep a good team together for a few years, but won't be able to pull a NYR and sign every big name UFA that comes up. A meaningful soft cap and hard cap accomplish the same thing - controlling costs. However, only one gives successful, revenue generating teams the flexibility necessary to stay successful and keep generating revenue.

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01-20-2005, 10:47 AM
  #2
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Quote:
Originally Posted by EndBoards
Both would serve to keep salaries within a certain range - i.e. cost certainty. Isn't that what the owners want? Why can't they settle for a meaningful soft cap?

Here's why I think a soft cap is better:
Stevie Y. Still a very good player, but he's not going to contend for the scoring title. At the same time though, he brings a ton of revenue for the Wings. People buy jerseys, tickets, and watch on ESPN because Y is playing. Say that he feels like he can play for another 2 years and will sign a contract for $2.5MM/year.

Scenario #1 - Hard cap: Detroit only has $500k worth of space to work with. "Steve, we'll give you every penny of that $500k, but that's all we can do. Sorry." Yzerman either retires or goes to play somewhere else.

Scenario #2 - Soft cap: Detroit only has $500k worth of space to work with, but since he's only going to play 2 more years, they're willing to pay a tax on the $2MM/year overage. Y gets to play 2 more years, he gets to retire with the Wings, and lots of attention (and revenue) is given to the league - both locally and on national TV.

Which is better for the league?

With a meaningful soft cap, teams have the flexibility to keep a good team together for a few years, but won't be able to pull a NYR and sign every big name UFA that comes up. A meaningful soft cap and hard cap accomplish the same thing - controlling costs. However, only one gives successful, revenue generating teams the flexibility necessary to stay successful and keep generating revenue.
Really good point. I always bring this up when people tell me how great the NFL system is. I point out that there is no reason guys like Jerry Rice, Bruce Smith and Emmitt Smith shouldn't be able to finish their careers at the places where they made their careers. In a few years, the Ravens will probably have to cut Ray Lewis to make room under the cap. IMO, that just shouldn't happen.

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01-20-2005, 10:48 AM
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The NBA has a "soft cap". The NBA also has a triggered Luxury tax, and 10% of player salaries buffer fund (escrow) to be payed to NBA teams should player costs be too high. The NBA system, I believe, hasn't worked perfectly, as the triggered luxury tax is at too high of a threshold, and the 10% escrow fund has been overrun (such that the owners are getting 100% of the fund, putting salaries above the desired %).

The NBA system would need to be modified to make it work, but probably not by much (changing the luxury tax threshold, and or trigger point would quite possibly do it).

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01-20-2005, 10:50 AM
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If a team, under a hard cap, has only 1/2 million left under cap for a revenue producer as your example shows, it is called bad cap management. What is likely under a hard cap, is that "non-descript" players will go to a salary at , or near, the minimum. Better players they will be able to manage what they need. EXAMPLE: in the time I have followed the Philadelphia Eagles (NFL) under a hard cap system, Never have seen them lose a player they wanted to keep. That is good cap management, thanks to capologist, Joe Banner. Other teams may not be as gifted in managing the cap. But it is not necessary a team will lose players it wishes to keep.

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01-20-2005, 10:51 AM
  #5
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Quote:
Originally Posted by Egil
The NBA has a "soft cap". The NBA also has a triggered Luxury tax, and 10% of player salaries buffer fund (escrow) to be payed to NBA teams should player costs be too high. The NBA system, I believe, hasn't worked perfectly, as the triggered luxury tax is at too high of a threshold, and the 10% escrow fund has been overrun (such that the owners are getting 100% of the fund, putting salaries above the desired %).

The NBA system would need to be modified to make it work, but probably not by much (changing the luxury tax threshold, and or trigger point would quite possibly do it).

The thing i hate about the NBA is almost anyone can fall under the rule. The Pistons traded for Rasheed Wallace and we able to re-sign him under the Larry Bird Rule. Thats not fair. If player(s) are to be exempt they need to have years of service with the team, i say drafted by the team or traded players with at least 7 years with his current team.

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01-20-2005, 10:52 AM
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If that was the case, the Detroit has poor managment skills. I'd suggest that if they cap was at 38m for example.... every team should try and have salaries around 35m so they have a 3m buffer for cases like this or if they want to add high priced players at the trade deadline.

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01-20-2005, 11:04 AM
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Quote:
Originally Posted by trahans99
If that was the case, the Detroit has poor managment skills. I'd suggest that if they cap was at 38m for example.... every team should try and have salaries around 35m so they have a 3m buffer for cases like this or if they want to add high priced players at the trade deadline.
Hmmm... that's funny, you're describing a soft cap. If keeping salaries around $35MM so that they have a $3MM buffer is Detroit's plan, then that $35MM is a soft cap that's determined internally by Detroit's management. Why not make that a league-wide standard?

The idea is this - keep salaires around ___, but sometimes it makes sense to exceed it, so there's some flexibility built in..

Implement a soft cap with teeth. Revisit the 'teeth' every 2-3 years to make sure things aren't going out of control. It's a compromise - the owners don't get cost certainty, but they get meaningful cost controls. The players don't get an entirely free-market, but they avoid rigid, artificial limits.


Last edited by LordHelmet: 01-20-2005 at 11:11 AM.
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01-20-2005, 12:01 PM
  #8
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Quote:
Originally Posted by EndBoards

Scenario #1 - Hard cap: Detroit only has $500k worth of space to work with. "Steve, we'll give you every penny of that $500k, but that's all we can do. Sorry." Yzerman either retires or goes to play somewhere else.

How about Hardcap scenario #2 - Detroit trades or releases one or more players in order to dump $2 million in payroll and sign Yzerman to the $2.5 million/yr he wants.

What's wrong with that?

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01-20-2005, 12:08 PM
  #9
trahans99
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Quote:
Originally Posted by EndBoards
Hmmm... that's funny, you're describing a soft cap. If keeping salaries around $35MM so that they have a $3MM buffer is Detroit's plan, then that $35MM is a soft cap that's determined internally by Detroit's management. Why not make that a league-wide standard?

The idea is this - keep salaires around ___, but sometimes it makes sense to exceed it, so there's some flexibility built in..

Implement a soft cap with teeth. Revisit the 'teeth' every 2-3 years to make sure things aren't going out of control. It's a compromise - the owners don't get cost certainty, but they get meaningful cost controls. The players don't get an entirely free-market, but they avoid rigid, artificial limits.

i'm not describing a soft cap... i'm saying if the HARD CAP is at 38 million, i'd want some leeway incase of injury or wanting to pick up players for cup run. So I WOULD try and have my team salary around 35 to be safe.

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01-20-2005, 12:11 PM
  #10
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Why would Detroit want to trade a fresher younger player to keep Yzermand he is almost 40 and he needs to retire hes done. If there is a case like this with a old player above 35 years old and he intends to retire there should be a rule to allow him to get paid at least 1.5 million for no longer then 2 years, and the team can then only then go over the hard cap. But he must retire after the 2 seasons.

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01-20-2005, 12:18 PM
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Quote:
Originally Posted by Makaveli_The_Don
Why would Detroit want to trade a fresher younger player to keep Yzermand he is almost 40 and he needs to retire hes done. If there is a case like this with a old player above 35 years old and he intends to retire there should be a rule to allow him to get paid at least 1.5 million for no longer then 2 years, and the team can then only then go over the hard cap. But he must retire after the 2 seasons.
Even a "done" Steve Yzerman is worth more than 500k. He brings a lot of intangibles.

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01-20-2005, 12:24 PM
  #12
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Quote:
Originally Posted by Wolfpack
How about Hardcap scenario #2 - Detroit trades or releases one or more players in order to dump $2 million in payroll and sign Yzerman to the $2.5 million/yr he wants.

What's wrong with that?
Additional player movement. A less competitive Wings team. It doesn't maximize revenue.

Which scenario produces the most revenue for the Wings - and therefore the league?
1. No Y, but keep everyone else
2. Keep Y, but drop $2MM of salary somewhere else
3. Keep everyone, but pay a reasonable penalty until Y retires..

#3 is the option that creates the most revenue, but wouldn't be possible with a hard cap. Multiply this scenario all over the league and down the road a few years.. Instead of Yzerman put in Modano's name, Sakic, LeClair, Pronger, Brodeur.. Then go even farther down the road.. Sundin, St. Louis, Hossa, Kovalchuk, Nash..

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01-20-2005, 12:27 PM
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Everyone assumes that every team will have no cap space left. Have you ever heard of the term BUDGET!!??? It's like a CAP if you follow it. Look at the Edmonton Oilers. They follow a budget. Boo Hoo if your budget is up at 70 million or over. Too bad your organization is pushing for a cap anyways. They are one of the main supporters.

 
Old
01-20-2005, 12:27 PM
  #14
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Quote:
Originally Posted by Smail
Even a "done" Steve Yzerman is worth more than 500k. He brings a lot of intangibles.
Thus the 2 year 3 million dollar rule for legend like Stevie Yzerman.

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01-20-2005, 12:29 PM
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Quote:
Originally Posted by Smail
Even a "done" Steve Yzerman is worth more than 500k. He brings a lot of intangibles.
And from a business perspective, those intangibles are even more valuable off the ice.

He is the face of your franchise. Millions of people call him their favorite player. People will tune in on TV and/or buy a ticket if he's playing. They attend team functions if he's going to be there. Advertisers clamor for his endorsements. TV stations want him to promote their shows.

Regardless of what he does on the ice, his name, face, likeness, and association with Detroit & the Redwings generates revenue.

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01-20-2005, 12:31 PM
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Quote:
Originally Posted by Makaveli_The_Don
Why would Detroit want to trade a fresher younger player to keep Yzermand he is almost 40 and he needs to retire hes done. If there is a case like this with a old player above 35 years old and he intends to retire there should be a rule to allow him to get paid at least 1.5 million for no longer then 2 years, and the team can then only then go over the hard cap. But he must retire after the 2 seasons.

That is my point exactly. Under the old system Ken Holland wouldn't think twice about paying Yzerman whatever he wanted and increasing Detroit's payroll. With cost certainty of some kind, he's actually got to use his head and do some thinking - who is worth more to my team? Yzerman at $2.5 million a year or Darren McCarty (for example) at $2.5 million/yr? In the scenario introduced in this thread he would either have to trade McCarty (or someone else) - or convince Yzerman to take less money. If the system would have been working that way the past decade, Detroit wouldn't have a $78 million payroll built primarily on overpaying free agents.

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01-20-2005, 12:34 PM
  #17
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Quote:
Originally Posted by Hockey_Nut99
Have you ever heard of the term BUDGET!!??? It's like a CAP if you follow it.
Hmmmm... that would be a great thing to bring up to the owners, don't you think?

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01-20-2005, 05:11 PM
  #18
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Quote:
Originally Posted by Wolfpack
With cost certainty of some kind, he's actually got to use his head and do some thinking - who is worth more to my team? Yzerman at $2.5 million a year or Darren McCarty (for example) at $2.5 million/yr?
Yup. Ultimately, all the complaints about the cap come down to "But Detroit would have to make personnel decisions by considering how best to use limited funds!"

Welcome to the modern NHL, I say. That's what most teams in the league have been forced to deal with for years.

It's all about an even playing field.

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01-20-2005, 07:04 PM
  #19
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The only way this season can be salvaged is if there is a Hard luxury tax. That's right in the middle of the players soft soft luxury tax and the owners hard cap stance. They can disguise a luxury tax as a cap but the players would'nt agree to it most likely.

 
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01-20-2005, 09:27 PM
  #20
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Assuming this scenario of Stevie Y could happen, I still wonder.

How stupid do you think the managament of Detroit is? Do you really think they could forget about Stevie Y being a freeagent and he needs to be resigned. And they would be going out to max out their team with the cap, before having him signed. If the team really wanted him, the would make sure they had him signed first. And then find out how much money that left for them to negotiate with the rest of the free agents.

Besides if he is so loved in Detroit and he gets endorsements like someone said. Try to sign him earlier before you sign the other free agents to a modest deal for about 1.5 mill, and then remind him of all the endorsements that will continue to pay him when he is Detroit. Even remind him that staying on the team will give him a great chance to move into management when he is done, likely he would sign ( Even though he could leave, and still come back after retiring and get a job there ). Tell him how much the fans love him there. Who cares, if he really wanted to retire a Wing he would do it.

I will add that there are some teams that would like the cap because it would give them the chance to "have to" let an old free agent go. One where they feel they are still loved by the fans, but they have lost a step. A veteran has value, but sometimes there is a young guy that needs to get moved up.

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01-20-2005, 10:17 PM
  #21
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Quote:
Originally Posted by PecaFan
Yup. Ultimately, all the complaints about the cap come down to "But Detroit would have to make personnel decisions by considering how best to use limited funds!"

Welcome to the modern NHL, I say. That's what most teams in the league have been forced to deal with for years.

It's all about an even playing field.

And with that lightning bolt of logic, the big market fan falls predictably silent.

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