Thursday, September 8, 2011

The war over the NHL?s salary cap floor

In the final weeks of the NHL lockout of 2005, Jeremy Roenick famously said that the NHLPA got their "asses kicked" in the negotiation. In the short-term, he was correct: The NHLPA conceded more than it gained in the lockout, thanks in no small part to veteran stars like Roenick throwing their arms around the salary cap and undermining their union's negotiating stance.

But in the long-term, it's become apparent that the players did quite well under the salary cap system, thanks to surging revenues linked to the rising cap and the owners' crack-like addiction to circumventing their own rules.

Which is why Gary Bettman and the owners are cracking their knuckles for the next Collective Bargaining Agreement battle with Donald Fehr and the NHLPA next year, ready to rectify their missteps from six years ago and overturn the small number of the NHLPA's victories.

One target in particular will be the salary floor, which sets the minimum team payroll in the NHL each season. From Tony Gallagher of The Province this week:

It's clear that one of the league's biggest problems within the present agreement is the obligation to enforce a floor on the genuinely pathetic franchises around the league.

The teams that have been losing money and crying wolf for the past 10 years are now being forced to pay out in the $45 million neighborhood which is forcing them into a position of losing money in some cases and the league will be looking towards either lowering the floor or eliminating it altogether. That is something the players will likely vigorously defend.

The salary cap floor was a win for the union in 2005. Since then, it's managed to become a boon for veteran free agents and bust for teams with low revenues struggling to keep pace with its growth. Which leads us to an essential question:

Is the salary floor good for hockey?

The salary floor is set at $48.3 million for the 2011-12 season, and every team in the League is currently over that lower limit. Excluding bonuses, 10 NHL teams are within $3 million of the floor according to Cap Geek. Of the 10, only two ? the Nashville Predators and Phoenix Coyotes ? made the playoffs last season.

Kevin from Crease Crashers sees the escalation of the floor since the lockout as a terrible development for low-revenue teams:

As the upper limit rises, so must the cap floor.� Originally, the floor was set to be 55% of the salary cap.� In 2005, it was just 21.5 million dollars.� The floor has since been amended to be 16 million dollars below the upper limit.� That means that the current floor in the NHL is 48.3 million dollars.� That is an astounding 125% increase over 7 years.

I understand that the cap is based completely off NHL revenues, but due to the floor increasing at a non-percentage rate, it is now raising at an unfair amount.� If the rate was still based off the original 55%, the floor would be 13 million dollars lower at 35.4 million.� For reference, the 2005 salary bridge was 18 million dollars. I'm all for parody, but not if it runs small market teams out of business.

The NHL won't allow teams to play under the floor. When you ask them what the consequences are, the League responds with "it just can't happen."

The NHLPA, at one point during the negotiation back in 2005, suggested a two-time allowance during the six-year term in which teams could fall below the floor without penalty. It wasn't adopted when the floor, which the NHLPA fought for once it conceded on the salary cap system, was agreed upon at the lockout's end.

The salary floor, in theory, isn't a bad idea. It expands the options for players in the free market. It becomes a fail-safe against owners of low-revenue teams taking welfare from the Original Six and then not reinvesting back into the franchise. And above all, it encourages competition on the ice, so that we don't have one team spending to the cap humiliating a collection of minimum wage plugs whose owner just wants to cut his losses before selling.

The problem with the floor was how it worked within the NHL CBA. It inflates the salaries of mid-range talent, as teams overspend just slightly to make sure they're over the minimum.

It also became a one-size-fits-all benchmark when the reality is that certain teams have different revenue hauls than others. As Kevin Greenstein of Inside Hockey wrote last July:

The salary cap is based upon aggregate league revenues, but there isn't close to enough revenue sharing to make that number meaningful. The New York Rangers' economy is vastly different from the Florida Panthers' economy, yet the two teams are expected to adhere to payroll restrictions that are based upon an aggregate of all 30 teams' revenues. In other words, there's no meaningful connection whatsoever.

There was talk of a team-by-team salary cap based on the individual teams' revenues, but that was rejected by the NHL in 2005. While it could have resolved the disparity between big spenders and spend-thrifters under the cap, it also would have been a cesspool of trickery, as teams hide revenues to adjust their cap lower and keep more profit ? you know, like they do for revenue sharing.

What about just opting out of revenue sharing altogether? Ken Campbell of The Hockey News in 2008 on the salary floor:

Instead of giving teams the option of opting out of revenue sharing if they didn't spend to the floor, the owners instead decided to force unnecessary spending on their colleagues. Even deposed NHL Players' Association czar Bob Goodenow told them not to do it before the mutiny, but they did it anyway.

And today we're in quite a fine mess, aren't we? The large-market teams are now spending more money in salaries and revenue-sharing payments than they were prior to the lockout and the small-market teams are spending more in salaries than they were four years ago.

The fear for Fehr and the NHLPA is that the NHL will attack the percentage of revenue paid to players through the salary cap maximum and minimum, seeking to lower the current level of 57-percent; or that the NHL will seek another salary rollback like the 24-percent one it achieved in the lockout. (Hence, the number of short-term contracts being signed all over the league out of concern for the new CBA.)

In an attempt to avoid drastic measures, how might the players help the teams struggling to hit the floor? Sean Fitz-Gerald of the National Post writes:

They would implore the league to improve its revenue sharing program between teams , with more money going from the rich clubs (Toronto, New York Rangers, Philadelphia) to the poor teams (Florida, Nashville, Phoenix). It is also worth remembering the NHLPA proposed adopting a luxury tax during the last round of bargaining. Allowing the bigger clubs to spend beyond the ceiling would obviously soften the league's hard salary cap, but the penalties those rich teams pay would help fund the poorer teams toward the salary floor.

One shudders to think we went through all that just to revisit a luxury tax in 2012.

But maybe that's what needs to be done. Clearly, the rich are getting richer with the talent they can afford: Brad Richards is a New York Ranger, Marian Hossa became a Chicago Blackhawk, Christian Ehrhoff became a Buffalo Sabre thanks to their new deep-pocketed owner, Ilya Kovalchuk became a New Jersey Devil, a team that's always defied its second-tier status in New York with a large payroll.

In each case, some creative accounting was involved in their contracts. Perhaps you kill two birds here: Get rid of cap circumvention in long-term contracts and allow salary cap overages for well-financed teams, a tax whose penalties benefit low-revenue teams. The NHL could also maintain a salary floor, but perhaps at a greater distance financially from the cap.

Again, the cap floor is a good idea. No one wants to see the Kansas City Royals on ice, and a mandatory amount of money spent on players will prevent that.

If the CBA eases the burden on lower-revenue teams and they still can't compete ? well, if the NHLPA hates the idea of the salary cap floor being removed, wait until the contraction talk starts! (For the record, the NHL will relocate 20 times before they contract, but still ?)


Mark Spitz Martina Navratilova Maurice Richard Michael Jordan

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