Not A Cap Range?

Discussion in 'The Business of Hockey' started by RTWAP*, Oct 29, 2005.

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  1. RTWAP*

    RTWAP* Guest

    If I understand the cap correctly, teams will have their money refunded if most teams spend above the median (average of upper and lower limits). But what if most of the teams spend close to the limit?

    Just to throw some numbers around, let's say that the team average budget is somewhere around $35M, and the cap limits are min 24, max 40 (median $32M). The first year of this, teams will on average overspend the median by $3M each. This means they should receive $3M each back from the players through the salary escrow.

    Since they 'underspent' their budgets the first year, they'll probably just roll the money over into the next year. So an average close to $38M per team. Which means an escrow refund of $6M per team for the second year.

    The third year, most teams would be at $40M (and expecting a big refund).

    Growth in league revenues may raise the cap numbers, but it should also raise the budget levels accordingly so that should have little or no effect on this progression.

    If this dynamic develops then the effective cap range for most teams is $37M-$40M (adjusted for revenue changes). With that little difference between teams, the teams willing and able to spend $40M just can't. No matter what they do they should receive a 15% escrow refund ($6M) at the end of the year.

    The only advantage the legitimately big spenders would have is money for player development (scouting, minor leagues, coaching, etc.). If they can create enough inflation in scouting and coaching, they can leverage their financial advantages to benefit their organizations.

    Looks like it could be a good time to be an NHL scout or coach.
     
    Last edited by moderator : Oct 29, 2005
  2. kdb209

    kdb209 Registered User

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    But the big spending teams do not get an accross the board salary refund.

    Instead, the excess funds in escrow (after the players get their 54%) is first used to fund league revenue sharing. Any left over funds after revenue sharing are split 30 ways and returned equally to all teams, big spenders and small senders alike.

    And most teams will not necessarily spend to the limit. Any team that spends over the salary midpoint is not eligible for revenue sharing.

    And there is expected growth in the cap number over time. Each year the cap midpoint is set by 54% of the previous years actual revenue (plus a 5% inflation factor), and the cap and floor set at +/- $8M.

    Based on what Betmann and Daly have been saying, it seems lielly that league revenies this season will exceed their pre season estimates (which this seasons cap were based on). And it is very likely that '06-'07 revenues will exceed this years as teams reinstate the ~10% average ticket price reduction they instituted after the lockout.
     
  3. RTWAP*

    RTWAP* Guest

    OK, that makes sense. Thanks.

    I hereby withdraw my analysis due to the fact it was completely full crap :dunce: :D
     
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