Wednesday, 10 June 2009

NHL CBA - Revenue Sharing and Salary Cap

Some items in this post are cribbed from this post at Hockeys Future; which cribs from an August 2005 article in the Sports Business Journal. I'm just filling in holes, organizing a bit, supplying extra context/info and then whacking in some thoughts/observations. Irish Blues at NHLSCAP is much closer to pro when it comes to the cba so please feel free to go to his site for more/differently said information.

This post deals with the Cap calculations and revenue sharing. I am writing so as to archive and provide myself reference material for future posts.

Basic Cap Calculation

Hockey Related Revenues = HRR
Negotiated Player % of HRR = A
Maximum Player Share of Revenues = HRR*A = MPS

Club Average Revenue = HRR/30 = CAR
Team Salary Cap = CAR*A or MPS/30 = Cap

Salary Budget Target = CAP - $ 8 million = SBT

So if HRR = $ 2.586 billion then:

A = 56.5% and MPS = $ 1.461 billion

CAR = $ 86.2 million
Cap = $ 56.7 million
SBT = $ 48.7 million

There is a lot of play in the calculations (inflation escalator, a player benefits number, etc) but, for the most part, that is how it works.

Basic Escrow Math

As many clubs will spend beyond SBT the odds are good the players will get paid more than their overall share, hence there is an escrow holdback system in place.

Actual Salary Expenditures = ASE
Escrow Holding Account = ASE - MPS = EHA

So if every team spent full Cap then:

ASE = $ 1.701 billion and
EHA = $ 240.0 million

Interestingly enough, the EHA will never total more than $ 240 million. Escrow funds are first paid out per the two revenue sharing plans and then split evenly among the clubs.

As there are two identified revenue sharing plans this creates a situation where there are actually three possible revenue sharing payouts that any one team can receive.

i.e. remaining escrow dollars are "split evenly among the clubs".

Basic Revenue Sharing Rules

1. Clubs start with 54% of their own revenues (presumably HRR) for payroll calculation and revenue sharing purposes.

2. Clubs in markets with more than 2.5 million TV households are ineligible for revenue sharing.

3. By the third year of the deal, clubs have to grow revenues faster than the league average and have attendance of 75% of capacity to be eligible for their full revenue-sharing allotment.

4. By the fourth year, the required attendance capacity increases to 80%. That number then holds at 80%.

Revenue Sharing Pool 'A' (RSPA)

Comprised of league media revenue, play-off gate receipts, escrow funds and funds from top-grossing teams this pool of funds totals ~ 4.5% of HRR. The purpose of the RSPA distribution is to bring clubs to within $ 4 million of SBT.

Any club in the bottom half of league revenues, regardless of payroll, is eligible to receive funds from RSPA.

To continue the example, Team TRY:

RSPA = 4.5% * HRR = $ 116.4 million

TRY HRR = $ 70.0 million
TRY MPS = $ 39.5 million

$ 48.7 million - $ 39.5 million = $ 9.2 million

$ 9.2 million - $ 4.0 million = $ 5.2 million

Team TRY would, presumably, be able to draw as much as $ 5.2 million from RSPA.

One interesting thing to note here - if escrow is high enough then, presumably, the entire RSPA pot could be funded from escrow dollars. Which would mean that this revenue sharing pot would then be entirely player funded.

Which isn't exactly what one might call 'in the spirit' of revenue sharing. Dollar sharing: 'yes'; revenue sharing: 'no'.

The critical factor here would be: how much of RSPA is comprised of escrow dollars? To be honest, I haven't dug deep enough into the CBA to get that info.

Revenue Sharing Pool 'B' (RSPB)

Comprised entirely of escrow funds, if available, not used up by RSPA. The purpose of the RSPB distribution is to bring clubs to, but not over, the SBT. Any club spending over the midpoint on player salaries is not eligible for the second batch (obviously).

Team TRY would, presumably, be able to draw as much as $ 4.0 million from RSPB.

Again, it is interesting to note that, if escrow is high enough, player salary holdbacks have paid for all of the revenue sharing efforts of the NHL teams.

Using 2008-09

Cap = $ 56.7 million
SBT = $ 48.7 million

Teams spending over SBT = 24 (25*)
(* Toronto was under SBT but, probably, doesn't qualify for Revenue Sharing)

Total Salaries (including LTIR) = $ 1.613 billion
Average = $ 53.77 million
Teams above average = 19
Teams below average = 11
EHA (estimated) = $ 152.23 million

Total Salaries (without LTIR) = $ 1.580 billion
Average = $ 52.67 million
Teams above average = 20
Teams below average = 10
EHA (estimated) = $ 119.05 million

RSPA = $ 116.4 million

RSPB (inc LTIR) = $ 2.65 million
RSPB (w/o LTIR) = $ 35.83 million

Depending on how much of the escrow is used up in RSPA (as mentioned) it looks like the revenue sharing could have been entirely escrow funded in 2008-09; regardless of scenario.

A Chart

According to the CBA the players are guaranteed a % of leaguewide Hockey Related Revenues (HRR). That % changes as HRR shrinks or grows but can never fall below 54% (at $ 2.2 billion in HRR) and never go above 57% (at $ 2.7 billion in HRR).

Salary Cap # per team based on the estimated leaguewide HRR.

$b ........ Player%

2.200 ....... 54.0
2.300 ....... 55.5
2.400 ....... 56.0
2.500 ....... 56.3
2.550 ....... 56.5
2.600 ....... 56.7
2.700 ....... 57.0
2.800 ....... 57.0
2.900 ....... 57.0
3.000 ....... 57.0


Have a great evening everyone.


RyanB said...

Wow. I've read that post before on Hockey's Future but your summary is excellent, current numbers help. I'll have to make sure I bookmark this post.

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