Tuesday, June 12, 2007

How high can it go?

Indeed, one PA official told Slap Shots on Friday that Gary Bettman's recent proclamation that 2006-07 revenues would be close to $2.4 billion "is disconnected" from 2007-08 cap reality. Fact is, even if the PA does, as expected, assert its right to build a 5-percent bump into next year's cap (according to a union source, the 5-percent bump is a default number unless waived by both parties) it now appears that next year's upper limit will be no higher than $48.5 million.
A $52 million cap would've provided teams an extra $8 million in cap space, significantly more than last season's $44 million, and giving those currently with limited cap space the opportunity to bid competitively for some of the league's top free agents. ... However, a $48.5 million cap substantially restricts that space, thus teams with payrolls presently over $35 million for next season with roughly half a roster to sign won't be bidding for this summer's marquee free agents.
And around and around we go.

I'm dizzy. A bit of nausea. Call it salary-cap sickness.

In any event, colour me unsurprised that Bettman's revenue figure was pulled from the ether and that it has absolutely no affect on what sort of cap number we'll see next season. Why would it?

The curious thing about all of this is that, presumably, the league's GMs are as clueless as the rest of us as to how big the honey pot is next season and don't know, precisely, how much they have to spend.

Great system, Gary.

Not that planning and rational thought has been a big part of cap budgeting in the past, not when it's come to NHL GMs. Even still, all of this mess had better be sorted out well before July 1 so that teams stepping up to the UFA trough (or, from the sounds of it, the RFA one) know how much is left in the kitty to blow on a six-year, kagillion dollar deal on Craig Rivet.

Or maybe it's better if they're betting blind.

13 Comments:

At 7:45 AM, June 12, 2007, Anonymous Lyle Richardson said...

As I said during the lockout, James, you can't legislate against stupidity.

In a related story, a recent report in the Windsor Star quoted Wings asst. GM Jim Nill claiming the salary cap should eventually settled in the "low 50s" since the biggest reason for the cap's climb has been the dramatic rise of the Cdn dollar. He believes ticket prices are pretty much maxed out or getting there and since the NHL is a gate-driven venue there should be a levelling off of the cap in the near future as revenues start to level off.

Unless, of course, the league expands to 32 teams within the next three-four years, or the NHL's other revenue streams - particularly US television - show significant improvement. I'm not betting on the latter.

Of course, the NHL did irreparable harm to its visibility in the US sports market with a season-killing lockout because some hardline owners (including some from Cdn teams) insisted it needed cost certainty to level the playing surface amongst all 30 teams, even rejecting PA offers of a $49 million cap as unworkable.

Two years later, we're already there, and teams like the Oilers and Senators, which pled poverty a few short years ago, now because of a stronger loonie have no problem spending upwards of $49 million, and I'm betting when the cap climbs to $51-$52 million for 2008-09, they'll have no problem keeping pace with that.

 
At 8:45 AM, June 12, 2007, Blogger gwyshynski said...

Unless, of course, the league expands to 32 teams within the next three-four years

That's what I found hilarious abut Brooks's column about expansion from a few days earlier: He predicted "moderate" revenues from two completely new franchises. Have we ever seen a team come into this league (and into a new facility) and produce "moderate" revenues?

As for this cap issue, the solution is simple: Spend all you want, and if you happen to go over the salary cap, just trade Malakhov to San Jose...

 
At 10:56 AM, June 12, 2007, Blogger Stan the Caddy said...

...teams like the Oilers and Senators, which pled poverty a few short years ago, now because of a stronger loonie have no problem spending upwards of $49 million

I would be very (pleasantly) surprised to see the Oil right up next to the cap. If they were operating under a self-imposed cap of $40 M last year, I don't see how a stronger loonie could bump that up $8 or $9 Mil. I guess only time will tell.

 
At 11:03 AM, June 12, 2007, Blogger FAUXRUMORS said...

1) Such a waste of time reading and believing what is said about league economics. One day the league is hemorrhaging cash with an income of 2.3 billion and average player salary at 1.6. mil Now everything is hunky dory with an average player salary of 1.6 and league revenue 'close to' 2.4 bil?
2) So when is the new Levitt report gonna be published? LOL

 
At 11:19 AM, June 12, 2007, Blogger McLea said...

Unless, of course, the league expands to 32 teams within the next three-four years

Somebody correct me if I'm wrong, but I'm pretty sure that expansion money is exempt from any cap calculation. In other words, the owners get all the expansion money and the players get none. I remember this being one of the major issues when they were throwing together the new CBA.

 
At 11:28 AM, June 12, 2007, Anonymous PJ said...

I really have no clue how the cap system works, so maybe one of you capologists can correct my mistakes, but wouldn't it be better to set the cap based on more than 1 year of revenue? Lets say, reset the cap every 3 years based on the previous 3 years worth of revenue. In my opinion, this would this would alleviate any problems where the GMs don't know how much they have to spend in a given summer, it would make budgeting for the future easier (since by the beginning of year 3 we already have 2/3 of the data from which to calculate the next year's limit), and it would help smooth over the peaks and valleys of the good/bad revenue years.

I don't know, maybe this is just totally unacceptable to the PA or something, but in my opinion it would work for the benefit of everyone in the end.

 
At 11:38 AM, June 12, 2007, Blogger FAUXRUMORS said...

1) PJ, your idea makes sense. Therefore it won't be considered

 
At 11:52 AM, June 12, 2007, Blogger McLea said...

The curious thing about all of this is that, presumably, the league's GMs are as clueless as the rest of us as to how big the honey pot is next season and don't know, precisely, how much they have to spend.

Great system, Gary.


I think the uncertainty acts as another break on spending because, when faced with an uncertain budget, the tendency would be to under spend and make sure you're under the cap, whatever it might be, rather than play with fire and run the risk of being offside.

Now I don't know if this was done by design or what, but if Bettman's principle aim is to restrict wage growth as much as possible, then this strikes me as a rather effective way to achieve that goal. If you come out and flat out say that the cap is $52M, then you're likely to have a few teams spend right up to the limit (probably $50M with some room left for flexibility), which of course raises labour costs for everyone else accordingly. But if you say you think the cap will be in the $48-$53 range, then you're likely to see teams max out at $46M because no team would want to run the risk of being left with no room for maneuverability, or being stuck a couple million dollars over the cap.

So Gary can essentially create a system where teams are entitled to spend up to $52M a year, but instead only spend up to $46M because of the uncertainty of the cap.

Great system indeed.

 
At 12:23 PM, June 12, 2007, Anonymous Lyle Richardson said...

Mclea: I'm not referring to expansion fees, but rather the extra revenue those two new franchises generate.

Expansion fees don't count as HRR and thus go directly into the pockets of the 30 NHL owners.

 
At 1:17 PM, June 12, 2007, Anonymous Tom Benjamin said...

Now I don't know if this was done by design or what, but if Bettman's principle aim is to restrict wage growth as much as possible, then this strikes me as a rather effective way to achieve that goal.

This is not the principle aim. Wage growth is set by the CBA. If the cap is set at $46 MM and it should be set at $52 MM, the owners have to make up the difference at the end of the year.

We don't know what is going on yet, but my best guess is that Bettman is bullshitting us about revenue - it's in the tank - but he can't bullshit the PA or the owners have to pay more.

 
At 2:38 PM, June 12, 2007, Anonymous Lyle Richardson said...

Tom's right, that's why the players got back all their escrow money with interest last summer. Now that the players are projected to owe 2-3% for this season, that's a tip-off of sluggish revenues.

 
At 4:24 PM, June 12, 2007, Blogger Doogie said...

Unless, of course, the league expands to 32 teams within the next three-four years

Except that, while the revenues will increase overall, the average may actually decrease because there's, you know, two more teams to spread the wealth to. Expansion is no way to up the cap, unless you put the teams in markets where you're guaranteed to get a lot of asses in seats.

 
At 5:16 PM, June 12, 2007, Anonymous Lyle Richardson said...

Good point, Doogie. And since they're talking about Kansas City and Las Vegas over, say, Winnipeg and Hamilton, the possibility of more revenue coming from expansion seems remote.

 

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