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

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Have a great evening everyone.

Well That Kinda Sucked

Second Round

Can also mean: chance to try again. Seems I will trend towards the favorites this time:

DET over ANA (in 6)
VAN over CHI (in 6)

BOS over CAR (in 5)
PIT over WAS (in 7)

First round was not kind to me. 3 for 8. Not good.

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Have a great evening everyone.

Simple Things and the Cap

Interesting. The Maple Leafs are increasing their ticket prices.

No question about it. I do get a little snarky every now and then, and I should apologize for it when it happens, but after a re-read I don't actually think my last post was all that bad. Not a great read mind-you but that's par for the course with me so, from where I sit, no harm and no foul.

Now, in a less snarky way, I present to you a simple change to the CBA that, I believe, should have made it into the document from the very start.

Background

Small market (read: small budget) teams are getting hammered because of Cap inflation. As noted before in this blog, once the Cap gets past the $52 million mark the spread between what big budget and small budget teams have to spend reaches, sans significant revenue sharing or an amazing new TV deal, an untenable level.

Right now the Floor ratchets upward in lock-step with the Cap; the maximum spread always being at $16 million:

$b ........ Player %/$b ..... Cap$m .... Flr$m .... %

2.200 ..... 54.0 / 1.19 ..... 39.6 ..... 23.6 ..... 32.2
2.300 ..... 55.5 / 1.28 ..... 42.6 ..... 26.5 ..... 34.6
2.400 ..... 56.0 / 1.34 ..... 44.8 ..... 28.8 ..... 36.0
2.500 ..... 56.3 / 1.41 ..... 46.9 ..... 30.9 ..... 37.1
2.550 ..... 56.5 / 1.44 ..... 48.0 ..... 32.0 ..... 37.6
2.600 ..... 56.7 / 1.47 ..... 49.1 ..... 33.1 ..... 38.2
2.700 ..... 57.0 / 1.54 ..... 51.3 ..... 35.3 ..... 39.2
2.800 ..... 57.0 / 1.60 ..... 53.2 ..... 37.2 ..... 40.0
2.900 ..... 57.0 / 1.65 ..... 55.1 ..... 39.1 ..... 40.4
3.000 ..... 57.0 / 1.71 ..... 57.0 ..... 41.0 ..... 41.0

Notice the inflation effect? (hint: look at the last column) The hard spread of $16 million slightly disconnects Floor from HRR and thus causes Floor Requirement to slowly increase (as a % of the HRR).

By the time we get to $3.0 billion in HRR the % spread between max Players Share and Floor Requirement has shrunk by some 6 percentage points.

i.e. (54.0 - 32.2 = 21.8) - (57.0 - 41.0 = 16.0) = 5.8

That is sizable.

Solution

The easily workable solution is to loosen the strap a tad and tie the Floor Requirement number to Players Share % (not to Cap).

To make it easy on ourselves we will fix the spread at 20 %pts and re-start the CBA at a Floor Requirement of 34% of HRR. If we then increase Floor Requirement in lockstep with Players Share % our chart now changes to look like so:

$b ........ Player %/$b ..... Cap$m .... Flr$m .... %

2.200 ..... 54.0 / 1.19 ..... 39.6 ..... 24.9 ..... 34.0
2.300 ..... 55.5 / 1.28 ..... 42.6 ..... 27.2 ..... 35.5
2.400 ..... 56.0 / 1.34 ..... 44.8 ..... 28.8 ..... 36.0
2.500 ..... 56.3 / 1.41 ..... 46.9 ..... 30.3 ..... 36.3
2.550 ..... 56.5 / 1.44 ..... 48.0 ..... 31.0 ..... 36.5
2.600 ..... 56.7 / 1.47 ..... 49.1 ..... 31.8 ..... 36.7
2.700 ..... 57.0 / 1.54 ..... 51.3 ..... 33.3 ..... 37.0
2.800 ..... 57.0 / 1.60 ..... 53.2 ..... 34.5 ..... 37.0
2.900 ..... 57.0 / 1.65 ..... 55.1 ..... 35.8 ..... 37.0
3.000 ..... 57.0 / 1.71 ..... 57.0 ..... 37.0 ..... 37.0

So now we have a %pt spread that stays constant (at the 20%) and a Salary Budget gap that increases (from $14.7 million at $2.2 billion HRR to $20 million at $3.0 billion HRR).

Who's a Happy Baby?

Small budget teams are happy. As long as most other factors remained unchanged (like revenue sharing) the budget pressure drops by several million dollers.

Large budget teams are happy because no new money is expected of them and they get to increase average player salaries even more (yippee!).

Players are unhappy because they, potentially, leave million of dollars on the table as the small budget teams contract their payrolls.

Except... well... would that actually happen?

No. I don't think it would.

Remember, players get their share regardless so all that would actually happen is that the dollars would be apportioned differently.

Now, given that not all players, and their contracts, are created equally we know some player somewhere would be unhappy - BUT - the veterans have thrown the rooks under the bus before and with early UFA we know there are fewer disadvantaged to complain so it is hard to see where this is a loser.

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Do I think this suggestion is the solution for the NHL. Of course not. Any hard Cap concept that doesn't have significant revenue sharing involved is one that won't work under anything but the slowest inflation effect.

FTR, back in the day, I supported a soft Cap with a luxury tax component that would increase in effect on a plateau basis. I still think that is the best overall way to do it.

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By the way, in regards to the Malkin for Sedins comment. I meant it. Yes, Malkin is a phenomenal talent, but if Pittsburgh could get the Sedins to sign long-term deals (5 yrs+) in the $6.00 - 6.25 million range then the math is simple:

2 Sedins at a $12.00 million Cap hit > 1 Malkin at a $8.70 million Cap hit

The odds of finding the right winger for Malkin at $3.30 million are pretty long and, to be blunt, Pittsburgh needs the depth that the two bodies would provide.

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Have a great evening everyone.

New CBA Needed (or) It Is To Laugh

Be interesting to see if the small/medium budget teams look to close the three, now obvious, negotiated advantages the big budget teams enjoy:

1. the 'send-him-to-the-minors' addition by subtraction method;
2. the LTIR Cap bumps;
3. the 'he wasn't playing earlier' pro-rating

When the Cap was lower, with budgets and the Cap more in balance, these strategies weren't worth eliminating (or perhaps noticeable) because NO team would be so far ahead in spending ability that use of any of these strategies would upset the playing field any.

Not the case now.

If a team has a budget of $45 million then a Cap of $54 million means little (with one possible exception **) because any player sent to the minors, lost to LTIR or brought out of retirement STILL counts against the Cap that matters for your team - your budget of $45 million. Mistakes cannot be made because they cannot be recovered from.

For a team that can easily spend $60+ million on player salaries the ability to send a player to the minors or bring one out of retirement is only a matter of math. And the math isn't that hard. Even losing a player to LTIR isn't THAT big a deal because the money to pay for another guy is easily found (even if the player isn't).

Only three ways to fix it:

a) fix #1 and #3 (#2 has some merit), or
b) increase revenue sharing, or
c) use a combo of 'a' and 'b'

Be interesting to see what happens.

It was borderline inevitable really - once the divide between big money and small/medium money teams got large enough to swallow several salaries in it was only a matter of time. I like to think that it was simply a matter of the Cap rising faster than anyone thought it would.

** If more and more contracts go the route of big money early then we might see where teams with lots of Cap space begin to benefit in a meaningful way. Take a lot more contracts built that way for it make a difference however. imo anyways.

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Have a great evening everyone.

NHL CBA - RFA Offer Sheets

This is an archive post to create a quick-reference on RFA (in this case: Group 2 Free Agents) Offer Sheet compensation requirements as negotiated in the CBA. This is not a comprehensive guide.

Used when a team (A) offers a contract to a player, who is a RFA with another team (B), and the player has accepted the contract. Team B has one of two options - they can match the contract and retain the player or they can accept draft pick compensation (per below).

RFA Offer Sheet* .......... Req. Compensation**

2005

_,660,000 or less ......... none
_,660,000 - 1,000,000 ..... 3rd round pick
1,000,000 - 2,000,000 ..... 2nd round pick
2,000,000 - 3,000,000 ..... 1st and 3rd etc.
3,000,000 - 4,000,000 ..... 1st, 2nd and 3rd
4,000,000 - 5,000,000 ..... 1st x2, 2nd & 3rd
5,000,000 or more ......... 1st x4

2007

_,773,442 or less ......... none
_,773,443 - 1,171,882 ..... 3rd round pick
1,171,882 - 2,343,764 ..... 2nd round pick
2,343,764 - 3,515,645 ..... 1st and 3rd etc.
3,515,645 - 4,687,527 ..... 1st, 2nd and 3rd
4,687,527 - 5,859,412 ..... 1st x2, 2nd & 3rd
5,859,412 or more ......... 1st x4

2008 (from NHLSCAP)

_,863,156 or less ......... none
_,863,157 - 1,307,811 ..... 3rd round pick
1,307,812 - 2,615,623 ..... 2nd round pick
2,615,624 - 3,923,434 ..... 1st and 3rd etc.
3,923,435 - 5,231,246 ..... 1st, 2nd and 3rd
5,231,247 - 6,539,061 ..... 1st x2, 2nd & 3rd
6,539,062 or more ......... 1st x4

* Amounts increase in lock-step with Average League salary
** Picks acquired from other teams cannot be used as compensation

In the 2006 off-season, Philadelphia (Team A) offered Ryan Kesler (the RFA) a one-year contract of $1.9 million. Vancouver (Team B) then had 7 days to match the offer. If Vancouver did not match the offer then they would have recieved a 2nd round pick from Philadelphia as compensation.

Note: Vancouver matched the offer and retained Kesler.

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I hope this has been of assistance.

NHL CBA - Negotiated Pay Levels

This is an archive post to create a quick-reference on certain pay-levels for NHL prospects and players as negotiated in the CBA. This is not a comprehensive guide.

All in U.S. $ except where noted.

Draft or .... Max Pay .... Max Pay*.... Min Pay

Year ........ Rookie's ... Minor Lge .. Roster Player

2005(06) .... 850,000 .... 62,500 ..... 450,000

2006(07) .... 850,000 .... 62,500 ..... 450,000

2007(08) .... 875,000 .... 65,000 ..... 475,000

2008(09) .... 875,000 .... 65,000 ..... 475,000

2009(10) .... 900,000 .... 67,500 ..... 500,000

2010(11) .... 900,000 .... 67,500 ..... 500,000

2011(12) .... 925,000 .... 70,000 ..... 525,000

2012** ...... 925,000 .... 70,000

* Minor league (AHL) pay is in native currency

** NHLPA retains right to extend agreement to 2012

The Rookie pay numbers are inclusive of signing bonus and most other types of bonus. Not included is exceptional play performance bonus - this amount is set in the CBA and can substantially increase the overall compensation earned by players on entry level contracts.

Minimum Minor League pay is equal to the greater of $35,000 and that which the respective Minor League itself sets in place. i.e. if AHL minimum is $40,000 then minimum pay in that league is $40,000. All subject, of course, to the Max pay level noted above.

Maximum pay for a roster player is set at 20% of the agreed upon Salary Cap figure for the year in which the contract is negotiated. i.e. if the Cap for the year is $39 million then the most that player can make in any year of that contract is $7.8 million.

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I hope this has been of assistance.