Cap vs Luxury Tax, both work

Discussion in 'The Business of Hockey' started by EricBowser, Jan 29, 2005.

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  1. EricBowser

    EricBowser Registered User

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    Gary Bettman was all for a luxury tax ten years ago, now he's completely against it. The NHLPA is against a hard salary cap but they are against a luxury tax system that would address the problems.

    Since the salary cap is a non-starter for the NHLPA, let's first look at a luxury tax system that I've designed to address both parties.

    My Luxury Tax System

    * Reduce roster size to 22 players

    * Accept NHLPA's 24% rollback offer on all existing contracts

    Year 1
    Team A Payroll $40,000,000 - $35,000,000 threshold = $5,000,000 x .25 rate = $1,250,000 tax
    Team B Payroll $50,000,000 - $35,000,000 threshold = $15,000,000 x .50 rate = $7,500,000 tax
    Team C Payroll $60,000,000 - $35,000,000 threshold = $25,000,000 x .75 rate = $18,750,000 tax
    Team D Payroll $70,000,000 - $35,000,000 threshold = $35,000,000 x .85 rate = $29,750,000 tax
    Team E Payroll $80,000,000 - $35,000,000 threshold = $45,000,000 x 1.00 rate = $45,000,000 tax

    2nd Consecutive Year
    Team A Payroll $40,000,000 - $35,000,000 threshold = $5,000,000 x .25 rate = $1,250,000 tax + 5th Round Pick
    Team B Payroll $50,000,000 - $35,000,000 threshold = $15,000,000 x .50 rate = $7,500,000 tax + 3rd Round Pick
    Team C Payroll $60,000,000 - $35,000,000 threshold = $25,000,000 x .75 rate = $18,750,000 tax + 2nd Round Pick
    Team D Payroll $70,000,000 - $35,000,000 threshold = $35,000,000 x .85 rate = $29,750,000 tax + 1st Round Pick
    Team E Payroll $80,000,000 - $35,000,000 threshold = $45,000,000 x 1.00 rate = $45,000,000 tax + 1st and 2nd Round Pick

    3rd Consecutive Year or more
    Team A Payroll $40,000,000 - $35,000,000 threshold = $5,000,000 x .25 rate = $1,250,000 tax + 4th Round Pick
    Team B Payroll $50,000,000 - $35,000,000 threshold = $15,000,000 x .50 rate = $7,500,000 tax + 2nd Round Pick
    Team C Payroll $60,000,000 - $35,000,000 threshold = $25,000,000 x .75 rate = $18,750,000 tax + 1st Round Pick
    Team D Payroll $70,000,000 - $35,000,000 threshold = $35,000,000 x .85 rate = $29,750,000 tax + 1st and 2nd Round Pick
    Team E Payroll $80,000,000 - $35,000,000 threshold = $45,000,000 x 1.00 rate = $45,000,000 tax + 1st, 2nd, and 3rd Round Pick

    Teams must spend $30,000,000 as a salary floor requirement to receive revenue-sharing


    Revenue-Sharing
    * Luxury Tax

    * Teams will share the following
    1. 30 percent of regular-season gate revenue
    2. 10 percent of regular-season broadcast revenue (local, cable, radio, and new media)
    3. 10 percent of in-arena revenue (luxury suites, concessions, etc.)

    * 100 percent of the league's national television revenue
    * 100 percent of the league's national sponsorship revenue
    * 100 percent of the league's special games revenue (All-Star game, skills competition, Heritage Classic, etc.)

    * League will subtract their operating costs and remaining will be divided evenly among the 30 teams

    * Qualifying Offers
    - Team must offer 85% to retain fifth and sixth year rights of an unsigned player

    * Arbitration
    - Team must offer 85% to retain fifth and sixth year rights of an unsigned player
    - Players looking for their 5th or 6th year contract can file or be taken to arbitration
    - Players can file for two-year contract and the team only file for one-year contract
    - Teams can walk-away from two-year contract awards
    - Players can file for arbitration both years and teams only once per player
    - Teams have no limit for per season arbitration filing
    - Players can file for any annual base salary, teams can not go below $400,000
    - Judge can only select the player or team salary filing, not his own arbitrary award

    * Entry Level Contracts
    - Four years in length
    - Contract is two-way assignment, waiver rules do not apply
    - $850,000 maximum base salary per season
    - $850,000 maximum performance bonus per season
    - $250,000 maximum signing bonus per season

    * Minimum Salary Requirements
    - $300,000 for players in 1-4 contract year
    - $400,000 for players in 5-7 contract year
    - $500,000 for players in 8+ contract year

    * Unrestricted Free Agency
    - After 2005-2006 season, any unsigned player with 8 NHL contract seasons can file for UFA
    - After 2006-2007 and beyond, any unsigned player with 6 NHL contract seasons can file for UFA

    * Franchise Tag
    - Team can designate one player after he's fulfilled his ELC and can only be a player the team drafted
    - Tag is only for one season unless both parties can agree to contract
    - Player must receive the average salary of those in the top five at his position for one year contract
    - Franchise tag contract for three or more seasons will only count 60% per season towards team payroll so a team isn't penalized with a tax by resigning a franchise player.

    * Contracts are guaranteed, any signed player holding out after missing one regular season game must pay $1 million fine to re-enter the league and serve out his contract.

    My Cap System

    * Phase-in the Salary Cap System
    Year 1 2004-2005 Season
    Team A Payroll $40,000,000 - $38,000,000 threshold = $2,000,000 x .10 rate = $200,000 tax
    Team B Payroll $50,000,000 - $38,000,000 threshold = $12,000,000 x .25 rate = $3,000,000 tax
    Team C Payroll $60,000,000 - $38,000,000 threshold = $22,000,000 x .50 rate = $11,000,000 tax
    Team D Payroll $70,000,000 - $38,000,000 threshold = $32,000,000 x .75 rate = $24,000,000 tax
    Team E Payroll $80,000,000+ - $38,000,000 threshold = $42,000,000 x 1.00 rate = $42,000,000 tax

    Year 2 2005-2006 Season
    Team A Payroll $40,000,000 - $38,000,000 threshold = $2,000,000 x .10 rate = $200,000 tax
    Team B Payroll $50,000,000 - $38,000,000 threshold = $12,000,000 x .25 rate = $3,000,000 tax
    Team C Payroll $60,000,000 - $38,000,000 threshold = $22,000,000 x .50 rate = $11,000,000 tax
    Team D Payroll $70,000,000 - $38,000,000 threshold = $32,000,000 x .75 rate = $24,000,000 tax
    Team E Payroll $80,000,000+ - $38,000,000 threshold = $42,000,000 x 1.00 rate = $42,000,000 tax

    Year 3 2006-2007
    Minimum Salary Cap = $32 million x 30 teams = $960 million, average player salary $1.45 million
    Maximum Salary Cap = $38 million x 30 teams = $1.14 billion, average player salary $1.73 million

    Year 4 2007-2008
    Minimum Salary Cap = $32 million x 30 teams = $960 million, average player salary $1.45 million
    Maximum Salary Cap = $38 million x 30 teams = $1.14 billion, average player salary $1.73 million

    Year 5 2008-2009 (cap will adjust based on formula below)

    Year 6 2009-2010 (cap will adjust based on formula below)

    Year 7 2010-2011 (cap will adjust based on formula below)

    Cap Adjustment Formula
    For Year 5 The average league designated hockey revenue from Year 2 to Year 4 x 55% = new maximum cap
    For Year 6 The average league designated hockey revenue from Year 3 to Year 5 x 57% = new maximum cap
    For Year 7 The average league designated hockey revenue from Year 4 to Year 6 x 59% = new maximum cap
     
  2. There is some interesting work there. As well where do these tax reveues go? Putting them right back into the salary pool is inflationary and would just guarantee the players more money. I see very few actual cost control mechanisms and nothing but reveune generators for the salary pool. Frankly I think you set the league up for a massive failure in three to four years. The players would be all over this deal, and hump your leg while signing it, but the owners would never consider this. It doesn't fix problems, it exacerbates them.
     
  3. wazee

    wazee Registered User

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    Maybe Bettman and the NHL owners have noticed the way the luxury tax system is working in baseball and they realize it will work the same for the NHL. In which case, it is no wonder they are rejecting it in favor of a hard cap. Baseball's competitive balance is non-existant which has most definitely lowered my interest in that sport. Hockey owners would be wise to learn from baseball's mistake.
     
  4. Jobu

    Jobu Registered User

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    You do realize that MLB average salaries DECREASED last year, right?

    And besides, MLB and NHL are too different to compare - we're talking a league with a huge TV deal nationally and regionally. Steinbrenner can spend $200+ million and still make money; if NHL owners could do that, there wouldn't be a problem.

    There is nothing wrong with a luxury tax properly instituted and coupled with revenue sharing. It's all about degree and magnitude.
     
  5. barnburner

    barnburner Registered User

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    A luxury tax system will work - but only if the penalties are outrageously severe in order to stop the deep pocket owners from exceeding the limits. The players won't buy that because it in effect becomes a cap. The players want a low ceiling luxury tax system that will keep the salaries up - but that won't fix the problem.
     
  6. wazee

    wazee Registered User

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    And what is happening with baseball salaries this off-season? It seems to me they are on the rise again...and at an insane pace. For a luxury tax system to work, it would have to be punitive enough to deter ALL teams from spending over the limit. Making it a hard cap in fact, though not in name. Anything less will be a joke, as is the MLB luxury tax.
     
  7. PeterSidorkiewicz

    PeterSidorkiewicz Registered User

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    Who says a luxury tax has to be exactly like baseballs? We would have a season right now if the owners would accept trying out a luxury tax. It's ludicrous to go from complete open market to complete hard cap in ONE CBA negotiation. If you want a hard cap you work your way over. If the NHL put a good luxury tax system in place and that ended up failing as well, then you have a legit argument to have a hard cap. Although theres a pretty damn good chance if the luxury tax was set up good that everyone would be happy, and there would be an NHL right now.
     
  8. txomisc

    txomisc Registered User

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    Unfortunately, the NHL doesnt have the luxury of 'trying out' a luxury tax. If the NHL implemented a luxury tax and it failed, the NHL would probably collapse. That is largely what this is about. It has passed a point where the NHL is willing to take the gamble of a luxury tax not working. Rewind it a few years and the owners are probably alot more receptive to the luxury tax.
     
  9. PeterSidorkiewicz

    PeterSidorkiewicz Registered User

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    Didn't the owners EXTEND the last CBA? And I am not buying the NHL collapsing if the luxury tax failed to work because I see the NHL having a higher potential to collapse from having no season at all. I personally believe a luxury tax with some teeth to it wouldn't fail anyway.
     
  10. Hunter74

    Hunter74 Registered User

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    Its funny how some people on this board completly disregard this little fact.

    NHLPA ont accept a Luxury tax that would stop teams form overspending.
     
  11. txomisc

    txomisc Registered User

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    The NHL can't continue to bleed. If the luxury tax didnt stop the bleeding the NHL would likely die. You know I actually agree with you, a luxury tax with some teeth could work. The problem is neither side is willing to sign off on it.
     
  12. PeterSidorkiewicz

    PeterSidorkiewicz Registered User

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    I bet it would be easier to find common ground with the luxury tax with teeth idea than just a hard cap. It im not 100% opposed to a cap either, Im actually
    in favour of a soft cap system. But I still cant help to find it ludicrous to jump from "free market" to hard cap in one negotiations without trying a medium first. And obviously I think im right so far as its almost Feb and we have no NHL.
     
  13. Hemsky4PM

    Hemsky4PM Registered User

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    Just one thing to add. Draft pick penalties might work in football, but for the NHL, with a low draft age and the relative unpredictability of the draft I don't see any GM being deterred by losing picks. It reduces their assets, but not by much.
     
  14. kerrly

    kerrly Registered User

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    Its also pretty rediculous for the NHLPA to totally disregard the NHL's attempts to renegotiate the prior CBA and let the downward spiral to continue as well. The NHLPA have brought this upon themselves, in regards to what the NHL is asking for.
     
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