The collective bargaining agreementHow high will the cap go?

by James Mirtle on Jul 6, 2007 5:33 AM CDT Comment 0 comments

That first year postlockout, with the Canadian dollar up to about 84 cents (U.S.), the cap was set at $39-million (U.S.). Then two things happened: the Canadian teams rode a wave of pent-up demand for their product, filling their buildings, maxing out their revenues, and the Canadian dollar began to climb toward parity.

That swing was enough to push overall league revenues up, even as American television money dipped, and many U.S.-based franchises were struggling to reclaim even the modest fan bases they had maintained before the lockout.

This year, with the Canadian dollar closing in on 95 cents — up more than 27 per cent over the spring of 2004 — the new cap number is $50.3-million.
— Stephen Brunt, The Globe and Mail

It's true: The steadily rising Canadian dollar has helped push NHL revenues higher, along with the salary cap's floor and ceiling. What we don't know, precisely anyway, is just how much of a factor that boost has played.

Given the details regarding what the players' percentage of total revenues will be this season (a figure that has risen from 54 per cent to 55.5 for 2007-08), we do know that league revenues have topped $2.3-billion. It will take an additional $200-million boost for that percentage to escalate further to the next tier outlined in the agreement: 56.3333 per cent.

A brief look at the relevant section of the CBA, 50.4, which is entitled 'League-wide Player Compensation, Players' Share, Escrow Account':

For the 2005-06 League Year, the Players' Share shall be fifty-four (54) percent of Actual HRR.

Actual HRR for a League Year is $2.3 billion; the Players' Share for such League Year will be 55.5 percent of Actual HRR.

Actual HRR for a League Year is $2.5 billion; the Players' Share for such League Year will be 56.33333 percent of Actual HRR.

Actual HRR for a League Year is $2.6 billion; the Players' Share for such League Year will be 56.66667 percent of Actual HRR.

For any League Year (other than the 2005-06 League Year) for which Actual HRR is equal to or exceeds $2.7 billion, the Players' Share shall be fifty-seven (57) percent of Actual HRR.

How close we get to that $2.7-billion, 57-per-cent high-watermark, however, is still anyone's guess.

The six Canadian NHL clubs are said to generate one-third of league revenues, meaning that even a 10-per-cent boost in the strength of the dollar would augment that $2.3-billion figure to some point in the neighbourhood of an additional $80-million. Another favourable bump from a rebound in key American markets such as Los Angeles, Chicago and Boston could push that increase up further, as could things such as inflation and, hey, how about that elusive U.S. network television contract?

I'm kidding.

Let's be kind, and for argument's sake imagine a wondrous, $200-million jump for league revenues this coming season. Where would a $2.5-billion NHL put the league's salary cap?

The CBA's cap calculation works by determining a midpoint for what's termed a salary range, which is essentially a $16-million span from the floor to ceiling. This coming season, for instance, with a cap of $50.3-million, the midpoint falls at $42.3-million and the floor another $8-million lower at $34.3-million.

That $16-million figure is a constant, regardless of how high the cap goes.

To find that midpoint takes some minor arithmetic: Multiply the players' percentage of revenues (56.333%) by league revenues ($2.5-billion), minus what are termed "preliminary benefits" (which we'll assume remain the same as in 2006-07 at around $90-million). Divide that figure by the number of clubs in the NHL, and we have our midpoint.

(56.333 x $2.5-billion) - $90-million
30 NHL teams

The $2.5-billion NHL's salary cap
Cap midpoint: $43.9-million
Floor: $35.9-million
Ceiling: $51.9-million

That doesn't seem all that bad: After all, the ceiling has risen just $1.6-million from where it will sit this season. But what's not taken into account is the 5-per-cent bump which comes at the discretion of the NHLPA, something likely to come into play (as it did this year) and that would put the $2.5-billion NHL's cap at roughly $54.5-million.

All that said, I think $2.5-billion is a generous estimate — but I'm no economist (surprising, I know). It's certainly reasonable — downright guaranteed, really — that the league will hit this target by the following year, and that revenues will continue to rise and push the cap further north.

Using a little bit of algebra, the salary-cap ceiling would reach $60-million at roughly $3.17-billion in revenue, or $865-million (38 per cent) higher than last season. It's taken roughly seven years for the league to grow to that extent, at least based on a crude apples-to-oranges comparison using NHLPA-provided revenue data from the last 12 seasons.

In other words, we should have a ways to go before a $44-million salary floor is the norm.

My apologies if this was either too complicated and/or elementary an approach at this business; I plan on coming back to it again as more revenue-related information becomes available.