# \$42.5MM vs. \$49MM cap - analysis

Discussion in 'The Business of Hockey' started by regehr, Feb 16, 2005.

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1. ### regehrRegistered User

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The NHLâ€™s \$42.5MM cap is more reasonable -- here's why:

Hereâ€™s a sensitivity analysis â€“ it compares the relationship between the cap and the player share % of revenues for 4 different scenarios (reduction in league revenues of 10%, 15%, 20% and 25%). For the most likely scenario (15-20% reduction in league revenues), the \$42.5MM cap produces a player share range of 55.6% to 59.0%, which is about right, while the \$49MM cap produces a range of 64.3% to 68.3%, which is too high.

If league revenues are down 25% (to 1.524 billion):
cap = \$49MM, avg payroll = \$37MM, player costs = 72.8% of revenues.
cap = \$42.5MM, avg payroll = \$32MM, player costs = 63.0% of revenues.

If league revenues are down 20% (to 1.626 billion):
cap = \$49MM, avg payroll = \$37MM, player costs = 68.3% of revenues.
cap = \$42.5MM, avg payroll = \$32MM, player costs = 59.0% of revenues.

If league revenues are down 15% (to 1.727 billion):
cap = \$49MM, avg payroll = \$37MM, player costs = 64.3% of revenues.
cap = \$42.5MM, avg payroll = \$32MM, player costs = 55.6% of revenues.

If league revenues are down 10% (to 1.829 billion):
cap = \$49MM, avg payroll = \$37MM, player costs = 60.7% of revenues.
cap = \$42.5MM, avg payroll = \$32MM, player costs = 52.5% of revenues.

2. ### Lexicon DevilRegistered User

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So did you just pull the numbers \$37 & \$32 out of a hat?

3. ### not quite yodaRegistered User

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I am too exhausted to pay attention to what he just wrote. But imagine if Goodenow and Saskin were in their hotel rooms right now studying this table to figure out what offer to make next.

That would be funny.

4. ### Balej20*Guest

i always thought about the head guys checking out this board for some ideas. Hey, why not, they're people too. lol, how funny would that be...Hi Gary!!

5. ### SENSible1*Guest

Not to mention that the 49 figure is a soft cap with teams able to go 10% higher.

6. ### richardnRegistered User

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I would have a few more choice words for Gary other then Hi Gary. But unfotunatly those choice words would probably get me banned on here.

7. ### richardnRegistered User

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My stance is firm. I beleive they will settle at 45 to 46 million and we will all be watching NHL hockey come March 1st. If I am wrong then Both Bettman and Goodnow should both be fired for coming this close on not getting it done.

8. ### not quite yodaRegistered User

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good one. touchÃ©!

9. ### nyr7andcountingRegistered User

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The 49 is fine...it gives the owners even more incentive to raise revenue as much as possible, because after a certain amount it's all theirs.

Will the % of net going to the players be a little high in 05-06? Sure, but the owners new that when they started this lockout and they had to know that was going to happen. After the first full season is played revenues should be back to normal, % of net to the players will be reasonable and from there on out it's up to the owners to get the revenues up to support a \$30-something payroll or to make as much money on a \$45 million payroll as they can.

10. ### MLHRegistered User

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49 is fine? Oh wait, you're a Ranger fan. Thanks for stopping by.

11. ### nyr7andcountingRegistered User

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Yea because my team's ability to spend more than most has brought me so much joy and my team so much success over the last 7 years. Not one person on here looks at this situation based on who their favorite team is. I have been anti-NHL from day 1 and I still think they have a little more to go until they've negotiated a fair deal.

Anyway, the point I was making was that the posters numbers showed to me that a \$49 million cap is not bad at all, and if the owners build the game and their revenues grow they will not only break even, but will make a good amount of money. Sure % of net rev. going to the players in the first year might be a little high, but as I said the owners knew that would be the case the day they started the lockout. Not to mention their franchise values go up a ton as soon as any type of hard cap is imposed.

12. ### regehrRegistered User

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Actually, no What I did is base it on the simulation that I did (see my other active post "Hard Cap at \$46m") - here, I ran a simulation based on a \$46 million payroll. The \$37m and \$32m are reflect what the simulation produced for a cap of \$49m and \$42.5m, respectively.

13. ### SuperUnknownRegistered User

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I think your numbers are too low. Teams will spend all they can unless there is a cap or luxury tax on their way. Imo, a cap of \$49m will produce an average of about \$42m and a cap of \$42.5m one of about \$35m.

14. ### me2Calling out the crap

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The reason Goodenow wants \$49m is primarily salary equalisation (and arbitration). Even if only 6 teams can actually afford to go over smart agents under NHLPA directions can use the bigger cap to get the NHLPA more leverage to force up the prices of players across the league. A \$30m team could be pushed to \$33m. Across 30 teams those extra few million add up to way more than the amounts above \$42.5 might add up to.

15. ### regehrRegistered User

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In my model, I assume there will be luxury tax payments above \$36 million and a hard cap at \$46m --> produces an average payroll of \$34.7 million.

16. ### BLONG7Registered User

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The cap will be the cap, and there are teams that will max it out whether it's 42.5 or 49...but there will be half of the teams that do not go into the 40's so why not just sign the deal and get going. Gary bases the cap on the fact that everyone will go to the max...and they won't. The big boys are going to have to spend their \$\$\$ much more wisely, and hopefully the days of the Blues and the Rags stealing star players from Edm or Calgary are over...

17. ### rwilson99Registered User

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I think regher teaches at MIT.

18. ### A Good Flying Bird*Guest

A couple explanations might be nice.
1. WHy is 54 percent right and 64 percent wrong?
2. Where are your revenue figures coming from?
3. How do arrive at 15-20 percent for a revenue decrease?
4. If revenues are down because of the lockout, who should pay for it?

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