It was announced on Saturday that the upper limit of the National Hockey League Salary Cap was set at $81.5M.
Courtesy of capfriendly.com, we can see below where each team stands.
As you can see, this projection puts a few teams in quite a predicament. The Vegas Golden Knights could have to part ways with a talented player, as they are currently over the projection and have William Karlson yet to be signed. The Lightning, Penguins, Capitals and Leafs could also look to make moves to accommodate salaries and retool the organizations.
Why So Low?
But we kept hearing that the Cap was going to be $83M, what happened to the extra money? So the projections in February was that the cap would be higher, however the finality of the Hockey Related Revenue (HRR) cannot be calculated until the Stanley Cup Finals are complete.
Now that the figure has been released, we can speculate as to why the numbers have come in much lower. I will outline what I believe to be the primary reasons the projections were so wrong.
- The year of the Wild Card. Sure, we were all excited by the history of each of the Division Champs losing in the first round. While it made for great TV, it knocked a lot of the bigger markets out and probably dropped the playoff revenue down a bit.
- Escrow. Even with the lower than expected cap, the players had the option to activate an escalator that could have increased the Cap closer to the $83M that was originally projected. They chose not to activate the escalator based solely on one, single word; ESCROW. While this is complicated to explain, I will do my best, as you are going to be hearing this term a lot in the near future. Escrow is money that is deducted from a player’s check and held by a third party, until the HRR is calculated to ensure there is a 50-50 split of the funds, as was agreed to in the 2012-13 CBA. While the Escrow refund data has not yet been released for the 2016-17 or 2017-18 season, the calculations in recent years have been quite inflated and the players have lost almost 10% of the money they have put into the escrow. As it stands, the cap is $81.5M across 31 teams. If we calculate that out with each team spending to the max 81.5 x 31, we get $2.526B. Therefore, the total amount of HRR would have to exceed $5B for the players to receive all of their escrow back. With these figures, you can see why players are hesitant to activate the escalator.
How this projects going forward?
So now we see a few causes of the lower projections, we can look forward to what this will do for the cap in the future. First, we have to get through September. The NHL can exercise an option on September 1st, or the NHLPA can exercise the same option on September 19th, that would terminate the current CBA on September 1, 2020. I will cover that in future articles.
I think the NHL is starting to reach a peak, and by that I mean we are likely to see the upper ceiling flatten out a bit. The NHL has experienced unprecedented growth over the past eight years, and the addition of Vegas and Seattle shows the interest of the league across the continent. One could envision a scenario where the influx of retail and ticket sales from the Seattle inaugural season spikes the cap number again, but I remain pessimistic in this regard. Part of my reasoning for this is the close proximity to Vancouver and pre-established allegiance to that market, where that did not quite exist for Vegas. The franchise will certainly succeed, as evidenced by their season ticket drive, but I don’t envision them having the financial success that the Golden Knights had in their opening season.
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The only other major influx of revenue over the next few years is the TV deals, as the current U.S. broadcast deal expires at the end of the 2020-21 season. If the NHL can start a bidding war, hopefully excluding bids from non-major networks, the contract could rival the Canadian TV deal that generates $700M annually. I suspect a deal ends up somewhere in the $350M area, which is a significant increase over the current $200M contract carried by NBCSN. Factor in any local broadcast deals, this could be the wild-card toward an increase in player salaries.
If I had to settle on a number, factoring for a 32-team league and a long term TV deal, I would believe that $90M annually will be the highest salary cap that we will see over the next 8-10 years. Mitigating factors to consider, as to why the cap will flatten out, is the secondary ticket market competes with team sales and tend to cause tickets to go unsold. Another factor is streaming services do not count toward general ratings, and this is something that broadcast companies can use to lessen an offer for a new contract deal, as well as piracy.
Of course, this whole idea takes a dive if the NHL has another work stoppage that results in lost games.
Statistics provided by capfriendly.com
Featured Image Photo Credit: Nikos Michals