Saturday, December 17, 2005

A Fool and His Money (NHL Edition)

At this week's Board of Governors meetings, Gary Bettman announced that if league revenue projections remain on target, the salary cap could rise to anywhere between $40 and $45 million. It looks like not all is doom and gloom as I anticipated in August.

So what does the increased salary cap mean?

Locally, an increased cap gives the Canucks more flexibility. After this season, Ed Jovanovski (unrestricted) and the Sedins (restricted) will likely command big pay increases, and while the Canucks may not have been able to fit their new contracts under a $39 million cap, they may be able to do so if the cap increases.

In the short-term, it may also affect how Dave Nonis tinkers with his roster closer to the playoffs. Rather than limiting himself to players whose contracts expire this year (and thus won't take room under next year's cap), an increased cap may now allow him to acquire a player who is already signed for next year and not worry about having to clear cap space in the off-season.

Want to load up on defense? Sergei Gonchar and the 4 years/$5 million per year he would have left in his contract may now also fit even under next year's cap. Up front, Glen Murray and his remaining 3 years/$4 million per year may also fit. In goal, they can afford to acquire Roberto Luongo and re-sign him at a potential $5 million per season salary without worrying too much about Dan Cloutier and his 2006/2007 salary of $2.5 million. This is of course providing that they don't expect revenues to take a dip in following seasons.

League-wide, the impact may be more interesting. For one thing, the cap on individual salaries is equal to 20% of the team-by-team cap, and thus, an increased team-by-team cap also mean an increased cap on individual salaries. If the team cap increases from $39 million to $45 million, the individual cap also increases from $7.8 million to $9 million - I wonder if Lecavalier, Iginla and Thornton, young, upper level free agents last year, would have signed their long-term deals if they knew the individual cap would increase by more than $1 million. You can bet this year's free agents - including stud defensemen Wade Redden, Zdeno Chara and Ed Jovanovski - can't wait to start negotiating under this increased cap limit. (For what it's worth, I don't think there is a player out there who is worth $7.8 million/season, and I certainly don't think there is one worth $9 million.)

Some things that I am unclear about with regards to the new CBA. If league revenues rise and the salary cap increases to $45 million, this also means the salary floor rises to $29 million. We already know that some lower revenue teams operate with a payroll budget lower than $29 million. Florida ($25 million) and Carolina ($24 million) are examples. If these two teams, both of which are suffering from weak attendance, are losing money with a lower payroll, how will the league mandate them to increase it? Is the revenue sharing component of the CBA strong enough to support what would presumably be higher losses for these teams? Will these teams willingly overpay a player or two simply to achieve the payroll floor, even if it doesn't make good sense for the team or their business?

Of course these numbers are subject to change. As Eric McErlain and Tom Benjamin have previously noted, we don't have the actual revenue figures. We can't even attribute the rise in the cap to a real rise in revenues or the revised method of calculating them. For example, under the new method outlined in the CBA, 2003/2004 revenues went from $2.1 billion to $2.2 billion. If the cap only increases to $40 million, that means revenues went from $1.7 billion to $1.8 billion. In this case, it may be safe to assume that the change in revenues may be due to the new method if calculating them.

And even if the cap increases to $45 million, Gary Bettman and the league may not want to get too excited yet. Remember that a $45 million cap still signifies a decrease in revenues from the lockout (from $2.2 billion to approximately $2 billion). When league revenues return to pre-lockout levels, the players' share of revenues will also rise to 55% and the cap will be upwards of $48 million.
posted by J.J. Guerrero, 2:31 PM


At December 18, 2005 10:46 AM, Blogger d-lee said...

In the case of my Carolina Hurricanes, we have the benefit of being at the top of our division. If we can maintain that as the season progresses, more people will develop casual interest in the team, and we'll start to sell games out. By the time the playoffs roll around, we'll be doing just fine in terms of attendance.

Assuming we finish as strongly as we've started and we make a decent run in the playoffs, interest (and ticket sales) will be very high next season, just as they were in 2002-03, following our run to the Cup. That's when they can nudge ticket prices up a bit.

As it is, even with extremely low ticket prices, it's really difficult for us to compete for sports fans' dollars when we have so much college basketball in the area.

In terms of how much money we're spending, it'll go way up next season. One huge expenditure will be #12. Eric Staal is currently in the final year of his rookie contract, and he's making slightly less than one million USD. As one of the league's premiere players, he will surely be paid more than Brind'Amour next season. We have other players who are in the final year of underpaid contracts as well.


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