Salary Cap Update

Feb 6, 2023 - 1:00 PM
Photo by DANIEL MUNOZ/AFP via Getty Images

As Gary Bettman met the press in Florida for the ASG, he gave some interim figures on the salary cap:

Both of those numbers are vague for good reasons. The NHL fiscal year ends on June 30, and the process by which teams report their Hockey Related Revenue (HRR), as detailed in the CBA, before the the NHLPA gets a chance to contest it until they ultimately agree on a number takes time. It’s not a con job either.

I have no patience at all for people who believe the time involved, the complexity,or that the Players Association disagrees with some calculations means the entire thing is one big fraud. This is conspiracy theory thinking. NHL teams are complex businesses. There are no standardized ways their ownership is structured, and teams own assets like their arenas, their AHL teams, real estate, and who knows what else under the auspices of related and interlinked corporations. If you don’t expect that to be difficult to sort out, you’re kidding yourself.

Usually, the final official number on a given year is known sometime well after the next season is underway, sometimes as much as a full season later. For the 2022-2023 season, Bettman has to guess about the playoff revenue which can fluctuate pretty widely depending on which teams go deep. An all-Canada final isn’t better because US ratings would be non-existent, enough to offset the high ticket prices Canadian teams charge. Remember, when the talk turns to NHL revenue, the really big driver is ticket prices, but you can’t entirely ignore television.

So let’s look at these guesses and figure out what they mean. if last year was $5.4 billion, than the 50/50 share of HRR would make the players’ portion $2.7 billion or $84.4 million per team. Now, we know last year’s cap was actually $81.5 million, so what gives?

What gives is the MOU that extended the current CBA and its restricted cap increases that are set to last as long as the Escrow pool has a negative balance. That’s a hell of a sentence, so what that means in plain language is that during the pandemic the real revenue was so far below the amount already paid to players that they owed a whole bunch of it back. Instead of dinging those players personally, the process stretched the repayments out over years, and until it’s paid back, the cap doesn’t go up by more than $1 million.

When will this debt be paid off? That depends. This was how it stood at the turn of this year:

Gary Bettman has made two announcements about next year’s cap ceiling. The first was a claim that Hockey Related Revenue (HRR) was projected to be at the borderline of enough to trigger an approximate $4.5 million increase in the cap. It the HRR failed to meet that projection, the cap would go up by $1 million instead. This was a curious announcement in that it ignored the provision in the Memo of Understanding, aka the new CBA, that the NHL and the NHLPA could negotiate an interim rise in the cap to move from the $1 million increases to a formula based on real revenues in a more appropriate way.

The second mention concluded that HRR was not going to rise enough, and that was the point at which media actually asked about this negotiation process. No real answer was given.

This looked to me like the actual start of those negotiations via public announcement and it put the NHLPA on notice — as they are slowly, oh, so slowly hiring a new head — that they need to be ready with a position on raising the cap.

Where that leaves teams making decisions about new contracts is in the dark until the summer.

So, now let’s look at Bettman’s more recent guess about the current year. Six billion means the players’ share is $3 billion or $93.75 million per year using the very crude method of just dividing by 32. Yes, the actual cap is calculated in a slightly different path that arrives near the same endpoint. This is close enough.

That’s a lot.

One thing to consider is that, when the MOU was created with its formula for moving from a flat cap to one directly tied to real revenues, the idea of inflation was an odd thing from decades past. Now, there’s enough inflation in the American and Canadian economies to expect the HRR to rise simply due to that effect, irrespective of other causes.

So when you consider that the cap is already depressed by about $3 million and that inflation could be expected to add another 3-4 million depending on how it impacts the entertainment sector, this potential leap by over $10 million isn’t really all that hard to believe.

Be cautious in your optimism though. This bright and shiny world where the Leafs’ contracts all look like bargains might not come until 2024-2025. There is no guarantee that the Escrow debt will be paid off this year, or that if it isn’t, the NHLPA and the NHL will agree to some kind of interim cap increase.

This is what’s making it hard for teams to sign new deals because no one really knows what next year’s cap will be. This uncertainty is going to cause some extra caution with trades right now as well.

In January, I gave you my guess for the cap in a roundabout way:

So, okay, I’ll play along. I don’t think the Matthews issue is an issue. He’ll be re-signed for 17% of whatever the salary cap is projected to be in 2024-2025, and it won’t be for longer than five years. That will be an AAV north of $15 million, and my rough guess is 15.5. He’s not doing that deal until there’s a hard number on next year’s cap, though.

To have an AAV of what I was guessing, the cap would be somewhere approaching $91 million the year after next. I was being conservative since I had no idea if this season was showing an increase or not. But it seems now like I was too conservative, and the cap might well be a few million higher by then.

If that is the genuine outlook come this summer, the NHL would be well advised to negotiate a step-up for next year — which is what I expect them to do.

So what does this mean? The deeply held desire to have every player make league minimum on the Leafs might finally give way to some acceptance that Alexander Kerfoot is not overpaid! I don’t really expect that, but I can dream.

One caveat on optimism for the future is that the new formula for using real HRR from prior years can mean that increases in the cap will lag inflationary pressures and real growth. That’s a more fiscally conservative approach and puts the league in a position to more easily deal with sudden changes. But for this early changeover period, it might cause teams to chafe against the restrictive structure that will keep the cap too low.

If I had to guess hard numbers, though, I’d say the cap will be $85 million next year and $90-something the year after. It’s the something that’s hard to pin down.

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