Can a luxury tax system work with escrow?

[sawchuk1971]

do you guys think that if the NHL had a luxury tax system, can it work with escrow?

or do you guys think a hard cap is the best system for escrow?

i know the revenues are split up 50/50 between the players and owners..

when revenue goes up, so does the cap....

when revenue falls short, some of the money goes back to the owners...

if revenue reach record levels, the players get some money back...

but in a luxury tax world, would it be similar or different?

just asking questions..

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[awfulwaffle]

I think it'd be pretty simple. You could have a cap as you would now, just allow a luxury tax over the cap. That overage spending would not apply to the 50/50 amount. Just treat it as a bonus.

Example : Cap ceiling is $100 Million. Anything over $100 million is a 10% penalty. Say Toronto spends $110 million, they'd be taxed 10% on the $10 million overage.

Now, the question is what to do with that 10%? I'd say classify that as HRR. So players get 50%, and owners get 50%. It would be a small amount in this instance, but that is how I would approach it. You could also say it could be put in the escrow pool. This would essentially lessen the amount of $$ players would pay into the pool. I'm not sure if there could be a 3rd option(no, spreading that money out to the other owners/teams is NOT the answer). We've seen in baseball how some teams will get the money but not spend it.

That's my $.02, I could be way off though.

 

[samiam]

A very slippery slope indeed.
I have no faith in the owners protecting them from themselves.

 

[Roadrage]

I think it'd be pretty simple. You could have a cap as you would now, just allow a luxury tax over the cap. That overage spending would not apply to the 50/50 amount. Just treat it as a bonus.

Example : Cap ceiling is $100 Million. Anything over $100 million is a 10% penalty. Say Toronto spends $110 million, they'd be taxed 10% on the $10 million overage.

Now, the question is what to do with that 10%? I'd say classify that as HRR. So players get 50%, and owners get 50%. It would be a small amount in this instance, but that is how I would approach it. You could also say it could be put in the escrow pool. This would essentially lessen the amount of $$ players would pay into the pool. I'm not sure if there could be a 3rd option(no, spreading that money out to the other owners/teams is NOT the answer). We've seen in baseball how some teams will get the money but not spend it.

That's my $.02, I could be way off though.

It would need to be more punishment/deterrent then a 10% penalty on anything over the cap ceiling. Using your example, 10% of $10 million is only $1 million...cost of doing business for probably the top 10-12 revenue earning franchises in the league. I'm not saying it wouldn't work with say draft pick forfeiting, a much higher financial penalty, or combination of both.

Personally, I would prefer stay with the hard cap so the league wouldn't be like the NBA where there are all these exceptions, and MLB with the luxury tax that doesn't seem to deter the top 7-8 markets and the disbursed money is barely spent and go straight into the pockets of the owners.

 

[KevFu]

IMO, the reason the NHL shouldn't/wouldn't deviate from a hard cap is because of the vast disparity in franchises they have.

A 10% penalty for going over is nothing..

In what universe would the ownership group with about a $30 billion valuation be willing to spend an extra $10m but not if it costs them $11m? You're basically just eliminating the cap by doing that.

The MLB upper threshold carries an 80% tax (110% for repeat offenders). The Mets owner said something along the lines of "there's certainly no point in only going a little bit over the line, now is there?"

The other thing that makes a Hard Cap just WAAAAAAY better than a soft cap is you don't need an MBA to follow what free agents or trade targets your team could get.

I really think the NBA and NFL are totally ignoring that and should embrace a hard cap.

 

[awfulwaffle]

It would need to be more punishment/deterrent then a 10% penalty on anything over the cap ceiling. Using your example, 10% of $10 million is only $1 million...cost of doing business for probably the top 10-12 revenue earning franchises in the league. I'm not saying it wouldn't work with say draft pick forfeiting, a much higher financial penalty, or combination of both.

Personally, I would prefer stay with the hard cap so the league wouldn't be like the NBA where there are all these exceptions, and MLB with the luxury tax that doesn't seem to deter the top 7-8 markets and the disbursed money is barely spent and go straight into the pockets of the owners.

Yeah.....I was just tossing out an example of how it might work if they did implement it with random out of the air numbers.........

IMO, the reason the NHL shouldn't/wouldn't deviate from a hard cap is because of the vast disparity in franchises they have.

A 10% penalty for going over is nothing..

In what universe would the ownership group with about a $30 billion valuation be willing to spend an extra $10m but not if it costs them $11m? You're basically just eliminating the cap by doing that.

The MLB upper threshold carries an 80% tax (110% for repeat offenders). The Mets owner said something along the lines of "there's certainly no point in only going a little bit over the line, now is there?"

The other thing that makes a Hard Cap just WAAAAAAY better than a soft cap is you don't need an MBA to follow what free agents or trade targets your team could get.

I really think the NBA and NFL are totally ignoring that and should embrace a hard cap.

Geesus....... I was just randomly taking it out of the air as an example of how it would possibly work.

 

[Golden_Jet]

If a team goes 5 million over, then the tax has to 5 million, to be revenue neutral.

It doesn’t work in MLB, you have some teams spending about 35 million, and some over 200 million.

 

[Roadrage]

Yeah.....I was just tossing out an example of how it might work if they did implement it with random out of the air numbers.........



Geesus....... I was just randomly taking it out of the air as an example of how it would possibly work.

Yeah, sorry, I totally understood that you just used random numbers and not indicative of what numbers should really be used. It's much easier to calculate with nice round numbers unlike the real world. Could probably stretch it and say teams that receive disbursement money, must use a certain percentage of it on salary the following season and not just pocketing it.

 

[mouser]

If a team goes 5 million over, then the tax has to 5 million, to be revenue neutral.

It doesn’t work in MLB, you have some teams spending about 35 million, and some over 200 million.

That would not be revenue neutral. Taxing a team $5m isn’t increasing HRR.

 

[Golden_Jet]

That would not be revenue neutral. Taxing a team $5m isn’t increasing HRR.

Ignore the neutral part then.
I’m putting the full 5 million into HRR, and what any other teams spend into HRR

 

[mouser]

Ignore the neutral part then.
I’m putting the full 5 million into HRR, and what any other teams spend into HRR

Even if that were true you’d need to charge $10m in luxury taxes to cover $5m in additional player spending over the cap to maintain the players receiving 50% of HRR.

But that still overlooks the fact that charging Teams a luxury tax isn’t increasing collective league revenue (HRR). It’s just another variation of Revenue Sharing transferring money between different teams.

Any luxury tax system requires one or more of the following to happen:

a) Players receive more than 50% of HRR, or
b) Salary cap ceiling is decreased to offset the additional Player spending, or
c) Escrow is increased to clawback money from the Players to maintain a 50% share of HRR.

All of these options will have negative pushback from either the Teams or Players.

Theoretically there could be an option (d) where the cap floor is severely decreased, but I’m skeptical enough teams would decrease spending to offset the new increased spending. And both the NHL and NHLPA would be against this sort of change to turn into the MLB.

 

[Golden_Jet]

Even if that were true you’d need to charge $10m in luxury taxes to cover $5m in additional player spending over the cap to maintain the players receiving 50% of HRR.

But that still overlooks the fact that charging Teams a luxury tax isn’t increasing collective league revenue (HRR). It’s just another variation of Revenue Sharing transferring money between different teams.

Any luxury tax system requires one or more of the following to happen:

a) Players receive more than 50% of HRR, or
b) Salary cap ceiling is decreased to offset the additional Player spending, or
c) Escrow is increased to clawback money from the Players to maintain a 50% share of HRR.

All of these options will have negative pushback from either the Teams or Players.

Theoretically there could be an option (d) where the cap floor is severely decreased, but I’m skeptical enough teams would decrease spending to offset the new increased spending. And both the NHL and NHLPA would be against this sort of change to turn into the MLB.

If it’s 200%, I’m fine with that, but I don’t like the system to begin with. Like I mentioned the discrepancy in MLB, from 35-200+ plus million, makes it a no go for me.

 

[Ted Hoffman]

Example : Cap ceiling is $100 Million. Anything over $100 million is a 10% penalty. Say Toronto spends $110 million, they'd be taxed 10% on the $10 million overage.

Now, the question is what to do with that 10%? I'd say classify that as HRR. So players get 50%, and owners get 50%.

There is no sane world in which the owners let luxury tax monies get counted as HRR [which ... they're "revenue" in the sense that and let the players get paid more than 50% of true HRR. [The NHLPA would be all over this for obvious reasons.]

That means we're left with a luxury tax system where teams further overspend the cap, which means they further overspend the 50/50 split point, which further aggravates escrow on the players. And, with escrow caps in place, it guarantees an escrow debt that accrues over time unless there's some [probably unwieldy] mechanism to make sure that gets paid down without accumulating over time to the point it requires a flat cap to force things back in line or requires some other type of sudden adjustment that puts a financial burden on the players.

The only possible way the two ideas would work together would be to have a "floating" split point where owners bear some of the burden of overspending the 50/50 split point. I'm not sure the owners would bite on that idea, though, without the players giving up something notable in return.

 

[Ciao]

I would be happy with no salary cap, no luxury tax and no revenue sharing.

Survival of the fittest.

If the Leafs want to spend $250-million on salaries and play with the big boys in an eight-team or so league with the likes of New York, Montreal, Boston, Chicago, LA, Detroit and Philadelphia that would be fine by me.

I'm tired of Leafs' revenues generated in the GTA being used to keep loser franchises on life support and grow the sport south of the border.

Leafs fans pay too much for what we get under the salary-cap system. Ditto for New York and other big, robust markets.

 

[KevFu]

I would be happy with no salary cap, no luxury tax and no revenue sharing.

Survival of the fittest.

If the Leafs want to spend $250-million on salaries and play with the big boys in an eight-team or so league with the likes of New York, Montreal, Boston, Chicago, LA, Detroit and Philadelphia that would be fine by me.

I'm tired of Leafs' revenues generated in the GTA being used to keep loser franchises on life support and grow the sport south of the border.

Leafs fans pay too much for what we get under the salary-cap system. Ditto for New York and other big, robust markets.

That model would kill the relevancy of the sport outside those eight or so cities -- which you're seemingly okay with. Totally valid opinion to have.


But the irony is that the NHL has by far the least amount of revenue sharing of any major league.

The NHL just has a Robin Hood system that creates animosity, while the rest have a pool system which doesn't create that kind of thing.

Every league knows they make their money selling tickets and TV rights and all the other revenue streams BECAUSE THEY HAVE AN OPPONENT TO PLAY. Without the opponent, there's no business. If I owned a team in a league with a structure like yours, I'd just not go to Toronto.

 

[Golden_Jet]

I would be happy with no salary cap, no luxury tax and no revenue sharing.

Survival of the fittest.

If the Leafs want to spend $250-million on salaries and play with the big boys in an eight-team or so league with the likes of New York, Montreal, Boston, Chicago, LA, Detroit and Philadelphia that would be fine by me.

I'm tired of Leafs' revenues generated in the GTA being used to keep loser franchises on life support and grow the sport south of the border.

Leafs fans pay too much for what we get under the salary-cap system. Ditto for New York and other big, robust markets.

35% of revenue sharing comes from playoff revenues.

If leaf fans pay to much, blame MLSE for price gouging you on tickets , not the salary cap,

 

[StreetHawk]

NBA has a luxury tax system. But, a lot of exemptions, plus incentives to convince guys to remain with their team. But, with shoe deals and social media, players can make a lot outside of the NBA, so switching to a team that they prefer is something that is worth it since they can make up some of the extra money that they forfeit changing teams.

Can start with that as the template. Not as familiar with the NBA workings of it. Don't hear complaints like the NHLers regarding escrow.

 

[Ciao]

35% of revenue sharing comes from playoff revenues.

If leaf fans pay to much, blame MLSE for price gouging you on tickets , not the salary cap,

Supply and demand.

If the Leafs gave the tickets away scalpers would just make up the difference on the secondary market.

The price of tickets is what the market will bear.

 

[Ciao]

That model would kill the relevancy of the sport outside those eight or so cities -- which you're seemingly okay with. Totally valid opinion to have.


But the irony is that the NHL has by far the least amount of revenue sharing of any major league.

The NHL just has a Robin Hood system that creates animosity, while the rest have a pool system which doesn't create that kind of thing.

Every league knows they make their money selling tickets and TV rights and all the other revenue streams BECAUSE THEY HAVE AN OPPONENT TO PLAY. Without the opponent, there's no business. If I owned a team in a league with a structure like yours, I'd just not go to Toronto.

Theres lots of demand for hockey.

Franchises that aren't strong enough to compete financially in the first tier could always form their own leagues with lower player salaries and lower operating costs.

I would expect that the top teams that pay the most would attract the best players for the fans who are willing and able to pay for that.

I doubt that ticket prices in Toronto, New York and the other big-league markets would go up at all, and they might come down in the other markets that can't afford that.

 

[sh724]

I always find these threads interesting, its like people think the wealthier teams dont want a cap. It was the wealthier teams pushing for a cap bc they wanted some level of cost certainty.

Could a luxury tax system work? Sure it could but its not going to happen

 

[Golden_Jet]

I always find these threads interesting, its like people think the wealthier teams dont want a cap. It was the wealthier teams pushing for a cap bc they wanted some level of cost certainty.

Could a luxury tax system work? Sure it could but its not going to happen

They don’t understand the business side it seems like.

 

[Ciao]

A luxury tax isn't going to happen, and neither would the elimination of the salary cap happen either. Both ideas are in the realm of pure fantasy.

The big market teams do like the cap very much, just as long as they don't have to share too much revenue. It's fool-proof.

 

[KevFu]

I always find these threads interesting, its like people think the wealthier teams dont want a cap. It was the wealthier teams pushing for a cap bc they wanted some level of cost certainty.

Could a luxury tax system work? Sure it could but its not going to happen

Yeah, big rich teams being "forced" to pocket millions of dollars instead of giving it to players with contracts that usually turn out either bad or at best just not cost-efficient... and laying the blame for not winning championships on the cap/poor/southern teams!

It's amusing because teams with the same cap and LESS REVENUE have won Cups!

I get it, I'm a Mets fan: baseball has no cap and can spend $300m on payroll (and finish 4th, so everyone can see our incompetence!). I like flexing our financial muscle because it gives me the hope that we won't suck.

Really rich teams in a cap system (or non-cap system) should be spending their money on the smartest people and technology that helps you win: Scouting. Coaching. Analytics. Etc. There's no cap ON THAT, and it's where you can use your financial might for an advantage. Always have cheap options coming up through the minors and never have BAD contracts putting you in cap hell, and you'll be in contention a lot.

The big market teams do like the cap very much, just as long as they don't have to share too much revenue. It's fool-proof.

Yes, the big clubs pushed for it because it's the "sweet spot" where they limit spending.

Revenue Sharing and Payroll are both "an expense." It really only matters to teams who are less than capacity, where having additional roster expenses COULD raise revenues via ticket sales.

But by diverting it to teams with less revenue than yours, you're really boosting those teams off-ice budgets (which they'd have to cut to maintain a competitive team), which in theory, helps their popularity, which helps TV negotiations, so you get that money back indirectly when ESPN wants you back instead of banishing you to OLN.

 

[tucker3434]

Anything can work, in theory. Just depends on how you negotiate it. In some alternate universe where the cap never existed and the players "won" the 2004 CBA negotiation, they could have worked it however they wanted to. If the players really bent the owners over, maybe they could have even excluded all salaries over the tax limit from the revenue split calculation.

Fun to think about the hypotheticals, but never going to happen at this point.

 

[edog37]

There would be no NHL without a cap