Cap is realistically ~70% !!!

Discussion in 'The Business of Hockey' started by rockon83, Aug 7, 2005.

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  1. rockon83

    rockon83 Registered User

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    Line 10 shows the numbers projected for this season. (bold numbers were manually entered, non bold numbers are calculated)

    From what I've read, the cap-floor gap is $17,500,000 for this season, and $16,000,000 after this season. This gap is causing the cap to be a much higher percentage of revenues. I thought the players were getting 75% of revenues before the lockout, and that it was necessary for them to get no more than 54% for the league to survive.

    The numbers for this season show the cap ($39,350,000) being 69.4% of revenues. If a team spends to the cap this season, and revenues come out to be 1.3b, they will need to keep 18.3% of salaries from escrow, and still have paid 74.2% of revenue to the players!

    It doesn't seem to me that teams will be able to survive like this. After all the assurances that the salary cap would bring revenue streams to all the teams, this doesn't seem to be the case. The cap has definitely leveled the playing field, not allowing NYR, TOR, DET, etc to spend tons more than others, but unless this cap-floor gap number comes way down, "54%" is pretty much an irrelevant number.
     
  2. GSC2k2*

    GSC2k2* Guest

    Sorry, but your concepts are way off. Without getting into details, your calcs do not produce anything meaningful. To refer to only one example, your calcs assume each team's revenues are equal; they are not.

    The 54% is league wide. It not only IS meaningful, it is the only number that matters. To the extent the league as a whole spends more than 54%, the salaries are rolled back by way of the escrow.

    Incidentally, to use a $1.3 billion number for revenues, you might as well figure it out if it is zero. Both numbers have a similar chance of happening.
     
  3. Resolute

    Resolute Registered User

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    What he said

    Where did you get $1.3 billion from?

    If you are just making numbers up, why not use $2 billion and assume that the NHL actually does better than predicted?
     
  4. rockon83

    rockon83 Registered User

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    i did use 2.2 billion. and 2.4 and 2.7. even in those cases the cap is ~67%.
     
  5. rockon83

    rockon83 Registered User

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    the 1.3 was an example.

    i was under the impression that the cap is based on league revenues, as i calculated. i realize all teams revenues arent the same. what are you trying to say?

    fact is with projected revenues of $1.7b, the cap is $39m, and that is almost 70%
     
  6. Epsilon

    Epsilon #TeamHolland

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    You are assuming that every team is going to spend to the cap.
     
  7. kdb209

    kdb209 Global Moderator

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    And if every team does spend to the cap, the teams get a hefty rebate from the players escrow accounts, and the players take a ~15% automatic pay cut.

    The escrow mechanism guarantees that the league pays out 54% of revenues for total player costs, no more, no less.
     
  8. rockon83

    rockon83 Registered User

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    this doesnt make sense. then why would the cap be ~$8.75m higher than 54% to begin with? if a team spends the $39m cap, and the revenues are indeed $1.7b, they would need to get back 22% in escrow just to reach back down to the 54% level!
     
  9. Lard_Lad

    Lard_Lad Registered User

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    The place where your calculations are going wrong is your 'Cap' column. I'm not sure what that's supposed to be. What you have under 'Team Salary' is actually the cap that would be set at the revenue level estimated for the upcoming year. If they were estimating $1.7 billion in revenues, the cap would be $30.6 million per team. And, as people are saying, if the estimate proved to be off the owners can claw back the overpayment from the escrow account at the end of the year to get total salary expenses back to 54%.
     
  10. Lard_Lad

    Lard_Lad Registered User

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    It isn't. They're estimating revenues between 2.1 and 2.2. billion. 54% of that, divided by 30 teams, is $39 million - the cap.
     
  11. kdb209

    kdb209 Global Moderator

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    Because there is an implicit assumption that all teams do not spend to the cap - some will be close to the cap, others the floor.

    If you set the cap at 54% level, the only way the players would actually get their 54% would be if the floor was also set ay 54% - ie every team were forced to have exactly the same 54% level payroll. Instead, the league allows a team range above and below the 54% target ($21.5M - $39M). If too many teams pay above the target, the teams get money back through escrow. If too many teams pay below the target, the league writes a big check to the NHLPA to make up the difference.
     
  12. GSC2k2*

    GSC2k2* Guest


    Nope. You are as far off as the original poster.

    Estimated revenues are $1.7 billion.

    The cap is higher in order to allow a spending range.

    The original post and this entire thread is so screwed I am not sure I can beign to recount the ways it is off the mark.

    The 54% is a league number. Each team is not restricted to 54% of their own revenue. The $1.7 bil works out to an average payroll of about $30.4 mil. This number includes benefits of $2.2 mil per team, meaning that the average salary expenditure is about $28.2 mil per team.

    The range was created to allow some higher revenue teams to spend more, but it is subject to the 54% league revenue cap. As a league, the teams cannot spend more than 54%. It was/is expected that some teams will be over the average, and some will be below. Averaged out, it cannot exceed 54% of league wide revenues.

    Got it now?
     
  13. kdb209

    kdb209 Global Moderator

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    Uhh. No they're not. They are assuming $1.7B revenues by most reports. This corresponds to $30.6M in player costs per team - $28.4M payroll after benefits costs.

    The cap amount is not simply 54% of league revenues divided by 30.

    The salary range (floor and cap) is designed to straddle some midpoint target so that some teams spend more than the 54% target, others less, but for the league as a whole to pay 54%. If their estimates are off for the floor, the cap, league revenues, or the spending profiles of the teams, the system has a self correcting mechanism (escrow) to adjust league spending up or down to hit the 54% mark
     
  14. KlingonHockey

    KlingonHockey Registered User

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    I don't even know why you'd go into this with such a simplistic analysis and boldly proclaim that the league has been duped into accepting an effective salary cap of " ~ 70% !!!". I think it's pretty safe to assume that high-priced accountants working their tails off for a month aren't going to be surpassed by a 5th grade spreadsheet.
     
  15. Resolute

    Resolute Registered User

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    Your reasoning becomes flawed when you try to look at one individual team instead of the collective in terms of payroll, while using the collective in terms of revenue.

    It seems you took $1.7 billion in revenues and simply divided by 30 for $56.666 million in revenues per team. In that instance, then yes, one team spending to $39 million would total 68% of that 1/30th share of the total revenues.

    I'm amazed that you do not see how deeply flawed that is.

    The Leafs had something like $100 million in revenues in 2003-04. Their "cap" is actually 39% of revenues. The Flames were at $70 million. Their "cap" is 56%. The Oilers - $55 million? (guessing) would have a "cap" of 71%

    Etc. The point is, the linked cap is calcualted league wide. It is based on total payroll vs total revenue.

    The cap itself is set above 54% to ensure that the players are more likely to get to 54% since it is obvious that not every team will spend to the cap. However, the escrow is built in to counteract the league going over 54%.

    At $1.7 billion in revenues, 54% is $918 million in payroll designated for the players. If every team were to spend to the cap, the total payroll would be $1.17 billion, 69% of revenues. However, the maximum escrow of 15% would kick in, the players end up returning $175 million to the owners, bringing their real salaries back to 58.5% of total revenues.

    That would be the maximum theoretical percentage the players could get at $1.7 billion in revenues. If the NHL makes more than $1.7 billion, then the players percentage share for this year would go down. If it falls below $1.7 billion, then the players percentage share would go up, but their total salary cap would fall the next year.
     
    Last edited: Aug 7, 2005
  16. nyr7andcounting

    nyr7andcounting Registered User

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    yea, the cap is 70%. So what? The cap and floor are seperated simply so that teams that make more money can spend it on player salaries during that season.

    That doesn't mean that the players will ever get 70% of revenues, even if that's where the cap is. The cap could be at 287% of revenues, but the players would have to pay back via escrow accounts the amount that their salaries surpass 54%, or 57% if revenues rise.

    Bottom line is the cap is simply there to allow teams with money to spend it...and if too many teams with money spend it than the players give back after the season. The cap could be anything you want, the players are still getting 54%-57%.
     
  17. rockon83

    rockon83 Registered User

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    perfect explanation. thanks. very simple, so simple i saw right through it. :shakehead

    so basically, with the 1.7b revenues, once $918m (54% of 1.7b) of contracts are signed for the upcoming season, any additional contracts signed will cause a small % of everyone's salary to be taken from their escrow account at the end of the year. is that correct?

    also, the way people write that the players are guaranteed 54% of revenues makes me wonder: if total contracts for the season ended up being $850m, and revenue was indeed $1.7b, would the additional $68m be split amongst all the players?
     
    Last edited: Aug 7, 2005
  18. Captain Ron

    Captain Ron Registered User

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    Only problem is that this does not guarantee a 54% distribution. I have already addressed this in a few other threads.

    If the league does hit the $1.7 billion in projections then the highest team average could be (including costs) is $36 million. If the average team salary does exceed $36 million then the escrow would be used up entirely. Then the 54% goal would not be reached.
     
  19. GSC2k2*

    GSC2k2* Guest

    I am sorry. I followed your post not at all.

    Can you explain?
     
  20. Captain Ron

    Captain Ron Registered User

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    Sorry I tried to make it brief and instead made it confusing.


    If the leagues average payroll were $36 million then the 15% escrow would be $5,400,000 per team. This would only bring the team average down to $30.6 million.

    $30.6 million is the highest salary average allowable to ensure 54% linkage.

    Therefore is the average salary exceeded $36 million there would not be sufficient escrow money to insure a 54% linkage.

    I hope that is clearer. :)
     
  21. kdb209

    kdb209 Global Moderator

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    I'm sure this unlikely corner case is covered in the 600 page CBA.

    Possible solutions:

    - Adjustments in escrow percentages during the season based on aggregate signed contract $'s (most likely)

    - No adjustment and allow player costs to exceed 54% (very unlikely)

    - Send the PA (or each player) a bill to return some percentage of salary above and beyond what they lost through escrow (possible, and it would be fun to watch the players reactions)
     
  22. Captain Ron

    Captain Ron Registered User

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    I hope so because the way teams are spending right now it can out of control quick.

    Another sidenote to the escrow situation. Buffaloed said he heard from a source that players making under a certain amount would not have to pay into the 15% escrow account. If this is true the escrow account would be alot smaller than previously thought.
     
  23. GSC2k2*

    GSC2k2* Guest

    Actually, there is nothing to say the escrow cannot be greater than 15% to my knowledge.

    We really need to differentiate between the rampant speculation going on before the CBA and the slightly more informed speculation going on now and what may actually be in the CBA.

    The 15% came about during the pre-signing speculaiton. It was reported that the escrow WOULD BE 15%. That has been refuted.

    I have heard nothing to suggest that the escrow is limited to 15%. THe post press conference remarks that I heard during the media scrums indicated to me that the escrow would be set at whatever it needed to be set at. No one said 15% was the max.
     
  24. GSC2k2*

    GSC2k2* Guest

    I think it is clear that minimum salary players do not contribute to the escrow.

    As said, I doubt it has an impact because I doubt the escrow would be limited to 15%.
     
  25. Captain Ron

    Captain Ron Registered User

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    You are 100% correct. It seems like everytime I read the CBA FAQ I find something new. I either missed this before or they changed it on me.

    The way the spending is going on right now players will be taking alot bigger paycut than expected.
     
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