Why a Luxury Tax will never work

Discussion in 'The Business of Hockey' started by Jaded-Fan, Jan 11, 2005.

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  1. Jaded-Fan

    Jaded-Fan Registered User

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    Look at the Pirates in baseball for an example why this will not work in hockey:

    Over the past four years the Pirates have been well supported by the fans despite not having a winning record in a decade and a half, averaging almost 2 million fans a year (1.86 million a year) . . . http://www.baseball-almanac.com/teams/pitatte.shtml

    They have had among the lowest payrolls the past four years as well, about $40 million a year (4th from last the past year) . . . http://sports.espn.go.com/mlb/teams/salaries?team=pit

    They recieved $13.3 million in revenue sharing/luxury tax payments last year.

    They got a free stadium, which most think is the nicest in baseball, paid for by the fans and non-fans through increased sales taxes, and we will be paying for it for the next generation.

    They increased the number of luxury boxes which gets them almost as much revenue as ticket sales have.

    They get the local cable rights which nets them millions.

    They get money from PNC for the naming rights to the stadium, also millions.

    They get more I am sure that I have not thought of.

    And they refuse to spend money on players.

    And you all want me to sign on to the same system for hockey? Not in a billion years.
     
  2. nyr7andcounting

    nyr7andcounting Registered User

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    What does this have to do with a luxury tax system in hockey. And how is the problem you have with the Pirates a result of their luxury tax system. All but one of the revenues you mentioned are not related to a luxury tax. The fact that some owners pocket as much as they can and don't spend any on their teams, as is your problem with the Pirates, is not a by product of a luxury tax. That is simply called a greedy owner, and unfortunetly there isn't much you can do to make them spend that money on their teams. Wirtz seems to be doing the same thing in Chicago. This is not a result of any bad economic system, it's just that owner and what they decide to do with their money.

    Further, if you are worried about NHL teams not spending the luxury tax money they take in, you shouldn't be. I support a luxury tax but would not have a problem with the small market NHL teams pocketing the tax money they receive because I feel the reason they deserve to receive if is to create an extra revenue stream. It is to help their bottom line. The products of small market teams will be helped plenty on the ice through the decrease in player salaries and a ceiling put on the big market teams that would stop them from signing any talent they can get their hands on. After that, I feel any tax kicked back to them in the NHL is simply to help their bottom lines.
     
  3. Jaded-Fan

    Jaded-Fan Registered User

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    The point is, without a Cap and a Floor, there is no guarentee that a luxury tax will do anything but line the pockets of owners. That is not why I am pro-owner in this argument. And it is not just the Pirates, but other of the small market teams that took the money and ran. As was pointed out in another thread, the TB Devilrays did the same.

    A Luxury Tax would like result in the same result in hockey. Can you or anyone else say otherwise?
     
  4. nyr7andcounting

    nyr7andcounting Registered User

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    I really don't get your point here. I agree that it is a problem that in a luxury tax system or any other system, it is possible that without a salary floor owners could choose to pocket money rather than spend it on players and their teams. So we do need a salary floor, right. That much is common sense. What I don't get is why you are blaming the Pirates ability to line their owners pocket on the MLB luxury tax. The MLB can have any system, luxury tax, hard cap, soft cap, you name it, but without a salary floor owners will be able to line their pockets as much as they see fit.

    If the NHL put a salary floor in, which is going to happen no matter which side budges first, wouldn't that solve your problem with teams like the Pirates and prevent that from happening in the NHL?

    So sure, I can tell you that a luxury tax won't have the same result in the NHL as it does in the MLB because in the NHL they will have a salary floor, therefore your problem with the Pirates ownership and the TB ownership will be non-existent because those teams will be forced to spend a certain amount.

    Does that solve yet another one of your problems with the luxury tax?
    $31 million floor
    $38 million soft-ceiling, enforced by a violent-but-not-inflationary luxury tax
    $48 million hard-ceiling, enforned by a hard cap.
    These numbers are for the current year and are decided upon % of net revenue. These numbers will be floating, they will stay at the same % of net revenue from year to year but of course the actual million dollar floors and ceilings will change as revenues change. Said it before, I'll say it again.
     
  5. Jaded-Fan

    Jaded-Fan Registered User

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    When did the players say that they will accept the above? I must have missed it.
     
  6. nyr7andcounting

    nyr7andcounting Registered User

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    I must have missed something also, where did I say they would? That is my system, one that could work, that is in the middle of the NHL and the PA's postitions'. Problem is, as I have said and as 'eye' said in the thread he started today, is that neither side is man enough to step out of their trench and go to the middle ground. So it is not just the PA that won't accept something like this, I don't think at this point the NHL would either.

    But anyway, knowing you are pro-owner and I am pro-PA, dare I say that we could both agree on that system?
     
  7. Jaded-Fan

    Jaded-Fan Registered User

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    With a bit lower than $48 million, but I would not scream about something similar to that. My goal is to keep competitive balance attainable. That advantage is not that great in your proposed system, the top team unable to even double the lowest spending team, I could live with it even though I would prefer an NFL like system where you can overspend a year or two but pay later.

    But most pro-PA talk only about a Luxury Tax. That alone will not work, as I showed in the example in this thread.
     
  8. John Flyers Fan

    John Flyers Fan Registered User

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    You can certainly create a luxury tax system that would work. Obviously the MLB luxury tax system doesn't work, but it doesn't mean that no luxury tax system would work.
     
  9. Jaded-Fan

    Jaded-Fan Registered User

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    What was proposed above by NYR7 is more a modified Cap, than a modified Luxury Cap. It has a floor and hard Cap ceiling, the fact that he puts in between the two a luxury tax does not make it a Luxury Tax. I don't understand why you can not go all the way to a level playing field, but if that security blanket is needed by the fans of big teams, I am big enough to give it. At least it will limit the advantage to perhaps one or two big players extra for those teams, which will allow all teams to at least be in the ballpark competitvely.

    No pure luxury tax will work. Again, as shown in this thread.
     
  10. nyr7andcounting

    nyr7andcounting Registered User

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    In order to keep the hard ceiling $10 million higher than the soft ceiling, and high enough to where a team with money can still spend it if they want I think that the $48 million has to stay. However, in order to further attain competitive balance, revenue sharing would be increased. Between the luxury tax and revenue sharing most teams would be taking a risk by spending up to the $48 million, assuming they are rich enough to do so in the first place. With the right luxury tax and part of their revenues going to small market teams, even the Rangers might balk at spending upwards of $48 million anyway. With that said, I think it is safe to say that every team in the league, with the exception of one or two in a given year, will spend between about $34 million and $46 million. That is the perfect system. A team can easily go from one of the lowest spenders to one of the highest if they feel they need to, and even if they don't they will not be at such a large disadvantage, if at all, to the big markets.

    I do agree that the NFL has it good, where a team can go for it all and spend a lot and worry about paying for it for a year or two after that. But if this were allowed in a luxury tax system than it would be inflationary, because if the Wings were allowed to one year spend $70 million for one year than too much money would be kicked back through the tax. Those big teams need to be stopped at about $48 million, without a doubt.

    One more point that I should have made in my first reply. You argue that some pro-PA falsely support a luxury tax alone and this, because there would be no salary floor, is something that would allow NHL owners to line their pockets as they see fit, such as the Pirates do in MLB. However, wouldn't your side of the argument have the same result? If you support the NHL and you would take a cap at $30 something million, wouldn't this hard cap result in the same problem as would a luxury tax without a floor? Think about it, a team like the Rangers would have about $75-$90 million in profit every year. Talk about an owner lining his pockets! MLB has the problem because owners refuse to spend enough and without a salary floor they aren't forced to. But with a hard cap in the NHL the same would take place, except it would take place because the league would force owners below a salary ceiling and owners would automatically line their pockets, some to an outrageous extent.

    But anyway, I am not a pro-PA that supports a luxury tax alone. But I think that the fact that you are pro-NHL and I am pro-PA and we could come to an agreement about a system that would work, the one stated above, proves that there are other solutions than a hard cap and there is a middle ground that could be agreed upon by both sides that would work for both sides.
     
  11. Jaded-Fan

    Jaded-Fan Registered User

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    NYR7:

    a) I am not pro Cap w/o a floor.

    b) I have no problem with the Rags making 500 million if it came to that and the numbers worked out. I am only concerned with the game and what I feel is best for it on the ice. No one ever said that the revenues would be equal among owners, nor does it matter to the on ice product how much one owner makes over another.

    c) Yes, if the owners and PA thought like you and I do a deal could be had. In fact if the PA thought as you do a deal could be had in my opinion. I think that the Owners, though they, much as I, would prefer a NFL type system, would accept a deal such as you proposed in the same way and with the same thoughts that I had. The players, so far, I am positive would not.
     
  12. me2

    me2 Calling out the crap

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    You are going to need a lower floor if you have a $48m ceiling. ($36m +/- $12m).

    Hard floor at $24m
    Hard Ceiling at $48m.

    Something nice and symetric about those numbers. No teams can be more than twice as expensive as any other.


    This gives teams a chance to rebuild properly rather than throw $10m/y at Brad May just so they can suck enough to get lottery picks and meet cap requirements.

    I love the idea of low salary teams selling their cap space to high salary teams (?Ensane? might have been joking with a similar idea but it could work), especially with in the $24m-$48m range. $12m in sold cap pays 1/2 the teams wages! We have a free market of sorts dealing in cap space.


    Alternatively we have to tie loss of draft picks & and luxury tax to over spending. Losing money alone is insufficient reason for some teams not to spend (as we've seen recently). Loss of draft picks form a nice complement to the tax and makes player hording and UFA hunting hurt a team's depth in ways a tax wouldn't.
     
    Last edited: Jan 11, 2005
  13. nyr7andcounting

    nyr7andcounting Registered User

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    I understand that in a cap as the NHL is proposing some teams would make more revenues than others, that is a good thing that means they are doing their job right. But my point was that your problem with the Pirates and the MLB system is that owners can line their pockets as a result of not giving a damn about their team and not putting any money into it. However, if the NHL forms a cap at around $34-$38 million than the same thing can happen. Owners in big markets will make unreal profits and line their pockets. Was just an observation. But atleast we do agree on a system that could work.
     
  14. Jaded-Fan

    Jaded-Fan Registered User

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    Out of curiosity, how can you call yourself pro-PA then? Or do you disagree with my analysis that the owners would accept what you proposed if it came to it and the players would, at least right now, reject it? Or at least the owners are much closer to what you proposed than the players are? And if you in fact agree with me instead, aren't you more in the owner's camp?
     
  15. nyr7andcounting

    nyr7andcounting Registered User

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    me2-

    I don't see the advantages of having a floor at $24 million. This will allow the cheapest of owners to spend next to nothing on their teams and have an excuse for doing so. If the floor is too low it basically useless. It will allow prices to fall too much and at the same time it will create a situation like the one Jaded was talking about in the beginning of this thread. An owner can put nothing into his team and have a $25 million payroll and a team full middle of the road cast-offs and line his pockets because of it. It endorses non-competitiveness.

    The idea is to compact NHL salaries, they are too spread out now. Having all teams automatically between $32-$48 million, along with a revenue sharing program, assures that every team, given they have half way decent management, can compete and their fans and city can have a real hope of making the playoffs and doing well. Allowing some teams to drop their payrolls all the way to $24 million doesn't do this.

    I don't exactly follow you with the selling of cap space, but if you are saying that teams can trade cap room with one another, it will ever happen. That would diminish cost certainty enough that the NHL would never approve of a deal that involved that.
     
  16. John Flyers Fan

    John Flyers Fan Registered User

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    You create a pure luxury tax with the following stipulation, no teams with a payroll under XXXXX will receive any of the $$$$ generated by the luxury tax.
     
  17. Jaded-Fan

    Jaded-Fan Registered User

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    So basically you create a floor, in everything but name, but no ceiling. Yeah, the owners in the majority of markets are gonna go for that. The only reason the owners of the small market and mid-market teams bent over and took the bribe money in the rear in baseball was the ability to pocket the money, in exchange for agreeing to a system where they had little chance to seriously compete. Take away that bribe and you get no deal from enough owners to pass this.
     
  18. nyr7andcounting

    nyr7andcounting Registered User

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    Well really I guess I would be somewhere in the middle. I never really thought about it, but really the fact that I believe the best solution is in the middle of where the two sides stand would, in fact, put me right in the middle as far as who I support...as it would put you there also. I could tell you though, I am more anti-NHL than I am pro-PA. I am anti-NHL for reasons further than their philosophy on how to fix what's wrong with the league. I think that the owners and Bettman together have created this whole mess through their incompetancy and have also been untruthful (atleast in my estimation) throughout this process. And really, I don't trust Bettman and his board of governors to create a meaningful solution either. Even if I were to totally disagree with the PA, which I don't, I would not support Bettman.

    As far as what you are saying about how the NHL would accept the system we talked about but the PA would not, I would have to say I do disagree. Now obviously it is almost impossible to argue who would accept what, especially when one side (owners) can't talk publicy. Now I guess the system would seem more on the NHL side, you are right, and that is probably simply because the NHL is the one with the problem here, not the PA, so they may need to be accomodated a little more. But personally, I think that this system is something that both sides could agree to, otherwise I wouldn't talk about it as a workable solution.

    I am hesitent to agree that the NHL would accept this sytem because all they have shown me thus far, through their proposals, is that they are only looking at a $30-something million hard cap. Our system, although it does defer spending past $38 million, still allows it up to the $48 million hard cap and I really don't think that the owners would accept something that high. But, if you say that my system is close to the NHL and they would accept it, than I guess I should believe you as you are mostly on the nhl side.

    Where we disagree is that the PA would reject this offer. The PA has shown me, through their proposals, that they have no problem with salaries being at a workable % of net revenues. The way in which they disagree with the NHL is how to enforce that they stay there...they have insisted they won't take that hard cap in the $30 million range. But it is my opinion that the PA would accept any type of hard ceiling so long as it was above about $40-$42 million. Because of that, I think the PA would gladly accept any salary ceiling below $40 million as long as it is enforced in a way other than a hard cap, in other words it is soft...our system would keep them below $38 million with a luxury tax, something I think the PA would agree to. I also believe that the PA would be okay with the $48 million hard cap simply because they know at this point no team is going to be able to spend beyond about that anyway, win or lose and no matter what system is in place. Although you say the PA wouldn't accept it, I definetly think they would.
     
  19. Jaded-Fan

    Jaded-Fan Registered User

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    ...... the above is just my opinion NYR7, as I said above, I hardly speak for anyone but me. You are just trying to get me in trouble now, aren't you? ;)
     
  20. me2

    me2 Calling out the crap

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    I could live with $28m-$44m and a $1 for $1 tax above $36m. You are looking at $40m, the NHL is trying for a figure about $4m lower than that IMHO. $36m +/- $8m gives $28m-$44m and I think that'd work well enough.

    We also know plenty of teams will spend that $44m and pay the tax. Even with $8m in tax and a $44m payroll that is still only $52m total. $52m wouldn't scare NYR, Philly, Detroit, Avs, Dallas, TO, or a few others but would raise $48m+ in taxes for the bottom 12 or so clubs. $4/each to the struggling clubs won't make a massive difference but will help a bit.

    If a team can't ice a $28m team after being given $4m, its hard to see why we should feel that sorry for them. The problem I has is rebuilding teams might not have enough older players to make $28m. Lets say the Penguins are still rebuilding and want to add new elite prospects through the draft, do they pay Brad May $10m/y just to fill out roster worth $18m and make it $28m?

    This to me is a problem a high hard floor. It cruels rebuilding properly. $28m-$44m is workable but I'd rather a higher ceiling and a lower floor to allow proper rebuilding and growth cycles.

    It maintains cost certainty. The NHL say "This year budgets are 54% of $2b divided by 30 teams. Each team now has $36m cap space to deal with.". This ensures that only 54% of the revenues go to salary, they can't do more there just isn't the cap space available. We know many teams will want that space and will pay for it, we know some cheaper small teams will sell it, the current spending patterns dictate there will be demand.

    The advantage of being able to sell cap space is a team like the penguins could be rebuilding while stockpiling cap space money. In 5 years when they are ready to challenge they've got that money from selling the cap space. There is no guarantee they won't pocket it as profit or use it to keep the team afloat through hard times. But being cheap and pocketing it all will eventually come back and bite them via fan disatisfaction.
     
  21. nyr7andcounting

    nyr7andcounting Registered User

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    It is a good point that if salaries dropped so much it might be tough for a rebuilding team to ice a team worth $32 million. What I would say is that because of the luxury tax and the cap, a lot of talented players would be cut or unsigned every year because their teams would have to deal with other salaries. The point is that in a capped enviroment every team is supposed to have the ability to compete every year. There won't be a situation like the Penguins because they will have enough money to spend and talent avalible to them that they won't have to completely gut their team during a rebuilding process.

    Still, a couple of problems with the idea of 'trading' cap space.
    - I see too much legal opposition, owners would have too much ability to greatly decrease salaries in a given year. What if one team trades for $20 million in 'cap' and doesn't end up spending it?
    - From a PA standpoint, what if a team trades $10 million in cap and has to let go of 4 decent players in order to remain under their cap. Although that $10 million might still be in the player pool, those players are not only going to have to move to a different city but they are going to have to sign with a team that already had $36 million in cap space, so they will likely be playing a diminished role, maybe go from 2nd line to 4th line without a drop in their talent. I don't think the PA would go for it.
    - Ability for one team to spend too much. What if the Wings decide they are going to win the cup this year, and trade with teams to get their cap up to $70 million. Now they can sign players for increased salaries, which is never a good thing.
    - What would stop the big market teams from simply paying small markets for their cap? What if Nashville's owner wasn't doing so well and was only paying his players $25 million. What would stop the Rangers from taking all the extra cash they still have and throwing it at Nashville and buying their $10 million in cap room? What would stop the Rangers from doing this 2 or 3 times? Seems like big markets would still have too big of an advantage when it came to this buying and selling cap
     
  22. Wetcoaster

    Wetcoaster Guest

    As part of a proposal put together by 36 hockey experts Russ Conway calls for a payroll tax that help key payrolls in line, and would fund the NHL "Revenue Share" fund. The tax would kick in at $42 million and the penalties for exceeding certain thresholds would not only cost teams money but draft picks as well. Here's how it breaks down.

    Payroll Tax per dollar Draft Pick Penalty
    More than $42 million $0.50 None
    More than $45 million $1.00 Second round draft pick in next NHL Entry Draft
    More than $50 million $1.50 First and second round draft pick in next NHL Entry Draft
    More than $55 million $2.00 First, second and third round draft pick in next NHL Entry Draft
    More than $60 million $3.00 First round pick in next four consecutive NHL Entry Drafts

    The money collected would be then distributed to the ten lowest payroll teams as long as those teams met the following criteria:

    Club must have had a minimum $30 million player payroll during previous season in which it is applying for "Revenue Share" Fund benefits

    Club must increase its season-ticket base a minimum 10 percent by the opening home game of the following season

    Club must increase its following season player payroll by 5 percent

    Club cannot be a "Revenue Share" Fund participant for more than three consecutive years

    http://www.eagletribune.com/features/nhl-proposal.htm

    For a summary see:
    http://www.eagletribune.com/news/stories/20050104/SP_002.htm
     
  23. arnie

    arnie Registered User

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    You are impolying that the Pirates must be making a huge anount of money and are simply being cheap. This is nonsense. The Pirates are money losers. They have lousy TV and radio contracts. That's where the real local money comes from. The Yankees get something like $50 million a year from radio alone.
     
  24. Jaded-Fan

    Jaded-Fan Registered User

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    I am doing more than implying. Though it is a divergence from the point and topic, I will go into the details. Actually the reality is worse than just pocketing the money. It seems to me that McClatchy 'bought' the Pirates apparently entirely on borrowed money then used all the additional incomes set forth above to pay that debt rather than use any but the barest minimum on player salaries. He talks openly of using monies recieved on servicing debt.

    For instance in this article, several times he dances around the fact that he used most of the money on debt service and did not use monies from higher teams on players. Here is one example but there are many in the article, in which he was trying to paint what he did in a good light, imagine if he had been entirely upfront?:

    Q: The Pirates received $13.3 million under Major League Baseball's revenue sharing in 2003, roughly double the amount of the previous year. That money was not available in previous years. What is the best way to account for this money if the major-league payroll went down? Did it all go in the minors?

    A: No, we didn't pour all of it into the system. We have spent more there than we had. Much more. But we're also trying to get the team back afloat, to balance the ship with our debt. We lost a significant amount of money there in a short time.


    http://www.post-gazette.com/pg/04357/430684.stm

    While we fans supported the team very well, attending in far greater numbers than by rights we should based on how ownership has treated us. And how is using the additional revenue sharing, luxury tax income, etc to basically get the team for free rather than put a product on the field something to be stomached?

    The Pirates may be the worst example because of how he is using the revenue, to get the team for free rather than to spend any at all on the filed, but similar charges are out there for other teams with very low aggregate salalries such as Milwaukie, Tampa Bay, etc. And we want to allow a system that allows the above into hockey as our 'solution'? This is a hockey thread, not baseball, I realize that, but that is why it is relevant, some here argue that hockey needs a similar system, with a small bit more bite. I argue that will not do anything but provide a fig leaf, as shown by how owners under a luxury tax have behaved in baseball.
     
    Last edited: Jan 12, 2005
  25. Motown Beatdown

    Motown Beatdown Need a slump buster

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    There has to be a salary floor with any kind of capped/tax system. The NFL and NBA realize this and does include a artificial salary floor. Basically if your not above the floor teams dont receive any TV revenue. Why MLB ignore this? I dont know but your example of the Pirates shows the system needs to be changed. Also the tax penalty is so weak and the number is set so high it doesn't work either.

    IF the NHL goes with a luxury tax it has to be tied to average revenues. Which last year was roughly 70 million per team. Owners want a 55% of revenues to go to the players which is roughly around 38.5 million. That sould be around the basis of the tax number. Now i wouldn't have a problem with a hard cap on top of that at 50 million or so and tax penalty ranging from 100% to 200% depending on payroll range. (ie 38.5 to 45 million = 100% tax and 45 to 50 million to 200% tax)
     
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