2020-2021 salary cap. Upd Sept BOG est $84.5m

Discussion in 'Fugu's Business of Hockey Forum' started by LadyStanley, Sep 23, 2019.

  1. MNNumbers

    MNNumbers Registered User

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    Expansion seems like it would affect the cap, but do the math...
    To lift the cap 1M per team, average team revenue has to rise 2M. That means the revenue from the new team has to be 62M above the prior average. It seems possible that Vegas might be doing that. But not a full 2M increase in cap, which would require 124M above prior average.
    Seattle MIGHT pull a 1M increase, but I doubt that much.

    Later edit...
    The one other factor would be national merchandise sales of the new team equipment. Vegas has been a hot commodity. I think that is due to a general national curiosity with the place, which won't be applicable to Seattle. And this factor is likely to be short lived
     
    Last edited: Sep 30, 2019
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  2. LadyStanley

    LadyStanley Registered User

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    Depends on how the contract is written. Many increase, gradually, over the years of the contract.
     
  3. LadyStanley

    LadyStanley Registered User

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    31 Thoughts: A 'Code of Conduct' is coming to the NHL - Sportsnet.ca

    Friedman with some thoughts on next season's cap
    Still, it could be low to prevent big escrow.
     
  4. StreetHawk

    StreetHawk Registered User

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    Escrow was 14% in Q1. Have not heard what it was set to for Q2. Anyone?

    $3 million bump for next season seems high given that this past season it went up only $2 million and still has a double digit escrow rate. Normally the 18-19 season's final escrow amount is calculated before the end of the calendar year.

    Think that will dictate whether the players want to use the escalator or not.
     
  5. LadyStanley

    LadyStanley Registered User

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    Months to go (like 6) before final decision on escalator needed.
     
  6. USAUSA1

    USAUSA1 Registered User

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    LOL at the term middle class players.
     
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  7. StreetHawk

    StreetHawk Registered User

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    From Friedman’s 31 thoughts he says that the cap could go up more next season because so many players signed contracts which made the 20-21 season a low compensation year.

    so for the players with contracts next season if you compare the total cash payment, salary and SB, it is significantly less than this season. A team may have 12 players signed for next season for $45 mill cash out but this season those same 12 players cost $55 million cash.

    That is an interesting point. Counter point is that the following year the payments kick back up so then logically the cap increase for 21-22 wouldn’t be as high.
     
  8. Ernie

    Ernie Registered User

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    The cap also has been rising more slowly because players have been dialling back the escalator. A few years ago it was at 5%. Now it's at 0.5%. If they had kept it at 5% the cap would be $85m right now.

    They can't go much lower. So we'll likely see more natural return to increases this year and in following years. Of course that depends on what the new CBA looks like in a few seasons.
     
  9. StreetHawk

    StreetHawk Registered User

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    All tied back to escrow. Players don't want to have 10% or so of their paycheck withheld and ultimately not returned to them because the cap was set too high. Revenues are not keeping up.

    They should have gotten their 18-19 season escrow money back. See if we can find out the net amount that was lost to escrow. Was it 7%, 10%, 12% of their salaries? Escrow is tied to cash paid out, not cap hit for the season. So, bonuses/front loaded contracts will skew it higher or lower year to year. Players were planning for a lockout in 20-21, so they moved as much money as they could into SB for that year or salary in other years. I'm sure contracts signed this summer will take into account when the CBA is expected to expire in 2022 into consideration as well and move money around.
     
  10. Zoltar

    Zoltar Registered User

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    The escalator clause is 5% I thought. I don't think the players used the escalator clause last year. And, the players hate paying escrow, so it seems fairly likely they won't use it again this year. That's how I read the tea leaves anyhow.
     
  11. Zoltar

    Zoltar Registered User

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    When does the TV revenue get paid to teams? I'm wondering if cash flow would be a concern for smaller markets. In other words, small market teams would prefer not to have pay big chunks on players' salaries until they have the TV revenue in their coffers.
     
  12. Zoltar

    Zoltar Registered User

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    Well, as far as I know, the amount of large market teams is much smaller than smaller market teams. And, I think the NHL BoG is run on a majority rules basis. My team (Leafs) are rich and will always find a way to spend (throw away) money it seems regardless of what happens and what changes occur.
     
  13. LadyStanley

    LadyStanley Registered User

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    The escalator % is negotiated between NHL and NHLPA. It could be 0%; it could be 10%; it could be 5%; could be 2.5%. Players who hate escrow, prefer a lower escalator % than higher (as they believe lower $$ taken in escrow).
     
  14. Zoltar

    Zoltar Registered User

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    OK thanks. Maybe it was 5% several years and hence, that's what led me to believe it was 5%.

    More importantly, this could mean a smaller cap increase for next year.
     
  15. LadyStanley

    LadyStanley Registered User

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    Exactly. And why Bettman did not announce any cap $$ at December BOG meeting.
     
  16. mouser

    mouser Business of Hockey

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    The cap is calculated on how much revenue the NHL brings in, not on how much the players are paid.
     
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  17. mouser

    mouser Business of Hockey

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    Just to add on: it could be -2%.

    There’s nothing in the CBA barring the use of a negative escalator percentage.
     
  18. LeHab

    LeHab Registered User

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    5% is the default increase. Any other number has to be negotiated.

     
    Last edited: Dec 16, 2019
  19. Noldo

    Noldo Registered User

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    But in the current circumstances where the escalator is actively used to smooth out escrow, it would not surprise me if the players manage to convince themselves that they may use larger escalator for next season because the total cash paid out next year is lower than typically and hence more salary could be added (allowing for higher cap) without causing increased escrow.
     
  20. Mud the ACAS

    Mud the ACAS St. Louis Blues: 2019 Stanley Cup Champions

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    Remember why the escalator is there in the first place: it's the guess as to how much HRR will increase in the upcoming year over the just-completed year. Regardless of where it's set, when HRR is calculated at the end of the year it requires a reconciliation to ensure the players got paid exactly 50% of HRR.

    A higher escalator produces a higher cap, but then requires a higher escrow if HRR for the then-current year is projected to fall short. The larger the shortfall, the higher the withholding. That's why it's in the best interests of the players to choose the escalator as close to actual expected HRR growth provided that contracted player salaries are projected to be exactly 50% of projected HRR. If contracts project to pay out more than 50% of projected HRR [as it is while teams are on average overspending the midpoint], then escrow necessarily results and it's in the players' best interest to minimize the escalator in order to minimize expected escrow withholding.

    Since teams are overspending the midpoint on average, the only way to mitigate escrow is via a lower escalator. Cranking that up guarantees a larger withholding unless someone can get HRR to grow much more than expected - much more than even the escalator suggests.
     
  21. Fourier

    Fourier Registered User

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    The key is the last line. Aside from a falling $CDN typically the NHL has reached or come close the 5% year over year organic growth in revenues. The vast majority of escrow is due to 1) teams spending close to the ceiling and 2) front loaded deals.
     
  22. MNNumbers

    MNNumbers Registered User

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    And, the fact that teams overspend the midpoint is the reason that the CBA definition of the cap window should change. There is no reason to have a definition of the cap window, and then manipulate the calculated window through another calculation (the escalator).

    In fact, things like LTIR and buyouts also affect this matter, because they do NOT count against the cap, but they do count as HRR spent.

    And, as has been stated often, the right way to do it is like this:
    Empirical data show that spending actually runs at about 97% of the cap ceiling, league-wide, when all factors are taken into account.
    Therefore, we take last year's HRR, add whatever the very best economic projection is for growth (hire some real economists who can be impartial to do this), and you have a best guess of next year's HRR. Half of that is what you want to spend, so it is the goal. That is, it is the 97% in the prior paragraph. Therefore, increase by 3% to make the cap, and create your floor from there. The only other thing necessary is to actually give the owners and GMs a little extra to spend, because the escrow system works best if the players lose 2-3%.
     
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  23. Fourier

    Fourier Registered User

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    I have advocated for quite sometime something similar. Basically a one time 10% roll-back of all nominal salaries and then restructure the spending range so that the ceiling is 5% above the player's share per team from the previous year and the floor is 15% below. The players do not actually take a cut in real dollars but I am sure that they will see this differently and as such it is not likely to happen. New money for FA's comes from growth in revenues.

    In the end, the pie is what it is. THis is pretty much an issue between players as to how they want to share it.
     
  24. StreetHawk

    StreetHawk Registered User

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    Your one time rollback is for the entire value of a players contract. So I think the PA is more likely to just continue to limit the use of the escalator to slowly bring the escrow down.

    Like most have said, when players sign long term deals until they are 38 or whatever and end up on ltir it translates into the team trading that player to a cap floor team and then spending more money on another player.
     
  25. MNNumbers

    MNNumbers Registered User

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    I think the best method, in accordance with my idea above, which is to re-define the cap ceiling and then the cap floor, is not a rollback, but a freeze or a great reduction in growth. I would say some thing like this:

    If escrow losses are 10%, then the cap should be something like 8M less than it is. Yearly HRR growth is probably more like 2M. So, I would either freeze the cap ceiling where it is, or allow it to grow at a max of 500K a year, until HRR catches up to spending (that means escrow losses decrease to the 2-3% range), and then I would implement the full cap redefinition.

    Alternatively, of course, is a system without escrow in which the estimate of next year's HRR becomes critical, because you simply use that estimate, and then make the cap ceiling 103% of it, and call it good. That's a little more risky for owners, obviously.
     

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