Can a luxury tax system work with escrow?

[BMN]

Yeah, big rich teams being "forced" to pocket millions of dollars instead of giving it to players with contracts that usually turn out either bad or at best just not cost-efficient... and laying the blame for not winning championships on the cap/poor/southern teams!

It's amusing because teams with the same cap and LESS REVENUE have won Cups!

I get it, I'm a Mets fan: baseball has no cap and can spend $300m on payroll (and finish 4th, so everyone can see our incompetence!). I like flexing our financial muscle because it gives me the hope that we won't suck.

It's why they pay Bettman the big bucks:

1--- Big markets that make the most money have fanbases expecting this will mean their favourute team will outspend the others to victory,

2--- Owners of said big market teams actually advocate for and get a cap, for reasons outlined in this thread,

3--- End result is those owners foregoing the obvious route to multiple championships (bury 'em with our profits) in favour of things like cost certainty and moves designed to encourage greater league popularity.

4--- Thus many "poor"/"non traditional" teams can (and do) outperform said "big market teams."

5--- Fans of big market teams..............blame Gary Bettman for "his" project(s).

It's classic rage displacement: "I'm a <insert "traditional big market team"> fan and I'm mad all the money my market's fans are spending on the team isn't making the team better but since firing the last coach/GM didn't solve the problem, I suppose it must be Gary Bettman's fault."

(EDIT: To your Mets point KevFu, this Jays fan knows his team's ownership has all the money it needs to do whatever it wants and never wants to hear the "well the AL East is tough and there are some big spenders in there" excuse ever again..... )

 

[Rob]

2--- Owners of said big market teams actually advocate for and get a cap, for reasons outlined in this thread,

How do you know that?

 

[KevFu]

How do you know that?

Because they're the most powerful teams, and they're going to come up with the system that benefits the most number of powerful teams.

It's common sense.

Baseball and hockey have different setups because the distribution of revenue by franchise is different.

The gap between the Yankees revenue and 4th place revenue is $206m. Teams 2-15 in revenue ganged up to limit the Yankees, but set the soft-cap (tax) just above what they'd be able to afford organically; and not provide enough penalty cash to bring the bottom 15 to their level.


In the NHL, a gap the size of the Yankees (adjusted for league, so say $103m) would be 1st to 25th in revenue, not 4th. Owners 2-15 don't need to gang up on the Leafs. Owners 8-21 formed a consensus that 1-7 and 22+ would go along with.

The NHL has a class of seven (ish) teams who are rich and powerful AND who don't benefit from spending more on rosters AT THE GATE because they're selling 99% of their tickets or more already.

If the cap turns soft with a tax, and the tax is 50%, spending $100m in payroll is costs $22.5m more than now (85 to 100, plus 7.5 tax)... You'd need more than $22.5m in additional revenue to pocket the same amount of profits as the $85m hard cap.

The Leafs have the highest ticket prices at an average of $334. Getting $22.5m at that price is 1,644 per game. But they don't HAVE that many unsold seats per game. So it's not financially worth it to do.

Hence, they like the hard cap just fine, thank you very much.

 

[Rob]

Because they're the most powerful teams, and they're going to come up with the system that benefits the most number of powerful teams.

It's common sense.

Baseball and hockey have different setups because the distribution of revenue by franchise is different.

The gap between the Yankees revenue and 4th place revenue is $206m. Teams 2-15 in revenue ganged up to limit the Yankees, but set the soft-cap (tax) just above what they'd be able to afford organically; and not provide enough penalty cash to bring the bottom 15 to their level.


In the NHL, a gap the size of the Yankees (adjusted for league, so say $103m) would be 1st to 25th in revenue, not 4th. Owners 2-15 don't need to gang up on the Leafs. Owners 8-21 formed a consensus that 1-7 and 22+ would go along with.

The NHL has a class of seven (ish) teams who are rich and powerful AND who don't benefit from spending more on rosters AT THE GATE because they're selling 99% of their tickets or more already.

If the cap turns soft with a tax, and the tax is 50%, spending $100m in payroll is costs $22.5m more than now (85 to 100, plus 7.5 tax)... You'd need more than $22.5m in additional revenue to pocket the same amount of profits as the $85m hard cap.

The Leafs have the highest ticket prices at an average of $334. Getting $22.5m at that price is 1,644 per game. But they don't HAVE that many unsold seats per game. So it's not financially worth it to do.

Hence, they like the hard cap just fine, thank you very much.

Considering the owners are muzzled you have no idea if the richest teams are in all in favor of a hard cap. You really think MLSE wouldn't be happy to spend more if they were allowed to?

 

[sh724]

Considering the owners are muzzled you have no idea if the richest teams are in all in favor of a hard cap. You really think MLSE wouldn't be happy to spend more if they were allowed to?

This was well covered almost 20 years ago when the cap went into place. No one is stopping you from looking it up.

MLSE actually benefits the most from their being a hard cap considering they have the most revenues. If MLSE spent another say $20MM on salaries it would be very hard for them to generate another $20MM+ in revenues. How do i know it would be hard for them to make another $20MM? Bc if they could without issue then they would already be generating those revenues.

 

[Rob]

This was well covered almost 20 years ago when the cap went into place. No one is stopping you from looking it up.

MLSE actually benefits the most from their being a hard cap considering they have the most revenues. If MLSE spent another say $20MM on salaries it would be very hard for them to generate another $20MM+ in revenues. How do i know it would be hard for them to make another $20MM? Bc if they could without issue then they would already be generating those revenues.

Rich teams across professional sports spend more money than they have to in order to win championships. Do you think the LA Dodgers and NY Yankees are clamoring for a salary cap?

 

[Golden_Jet]

Rich teams across professional sports spend more money than they have to in order to win championships. Do you think the LA Dodgers and NY Yankees are clamoring for a salary cap?

MLB has a bad system, there’s about 200 million gap between bottom spender and top spender. No thanks.

 

[KevFu]

There's a $200m gap in revenue between 1st and 4th place in MLB! Their payroll gap is big, but the two owners who WERE spending more than their revenues on players were the Mets and Padres.

The Yankees did under Big Stein, but he's been dead for a long time now, and his kids really don't have other income besides the Yankees. The team's profits have to fund their lifestyle, so they aren't exactly cheap, but they aren't exactly breaking the highest levels of the luxury tax either.

 

[Ted Hoffman]

NBA has a luxury tax system. But, a lot of exemptions, plus incentives to convince guys to remain with their team. But, with shoe deals and social media, players can make a lot outside of the NBA, so switching to a team that they prefer is something that is worth it since they can make up some of the extra money that they forfeit changing teams.

Can start with that as the template. Not as familiar with the NBA workings of it. Don't hear complaints like the NHLers regarding escrow.

The NBA has a 50/50 split point, and all those cap exemptions cause players to get overpaid ... which, they have to make up for by paying into escrow. It (and taxes and other stuff, as it relates to net pay) was examined here:

When $35M is really $15M: How much NBA stars actually earn

NBA player salaries are enormous, and so are their payroll deductions. See what the top players make and what they take home at the end of the day.

www.espn.com

I think the reason they don't complain about it is because they make so much money comparatively (more revenue, split across fewer people) and the system has been in place for so long.

 

[KevFu]

If you look at the payrolls of the richest NHL teams BEFORE the cap, they were spending a percentage of revenues on players that was equal to, or exceeded to percentage of revenues the poor teams were spending at the end of the first cap CBA -- when they went to the table and negotiated a different percentage.

It wasn't sustainable for them; but if they cut back, their fans would go ballistic.

With the cap, they cut payroll spending by more than the cost of the revenue sharing check. (aka profit more).

And they're not to blame in their fans eyes.


The cap -- but more importantly the floor -- spread out the league's payroll responsibilities. Yes, revenue sharing helps the truly broke teams (like my Islanders back in the day) hit the floor. But the relatively small range between floor and cap encourages a lot more teams to spend "a little bit more" across the board.

 

[KevFu]

The NBA has a 50/50 split point, and all those cap exemptions cause players to get overpaid ... which, they have to make up for by paying into escrow. It (and taxes and other stuff, as it relates to net pay) was examined here:

When $35M is really $15M: How much NBA stars actually earn

NBA player salaries are enormous, and so are their payroll deductions. See what the top players make and what they take home at the end of the day.

www.espn.com

I think the reason they don't complain about it is because they make so much money comparatively (more revenue, split across fewer people) and the system has been in place for so long.

And the NBA has horrific parity compared to the NHL.

Since the NHL went to the cap, TWO teams have finished under 50 points in a season (or a 50 points per 82 games pace). The worst was a .244 regulation points percentage.

Same span, SEVENTEEN NBA teams failed to win 20 games (a .244 win percentage).

EIGHT teams won 16 or fewer games. Five teams won 15 or fewer games. (oh, and the Detroit Pistons are currently 3-30 right now).

The San Jose Sharks have nine wins this season with 46 games to go.
The 2010 Philadelphia 76ers won 10 games all year. The 2012 Charlotte Hornets won seven.

 

[dortt]

There would be no NHL without a cap

yeah, there would be. In the pre cap, teams that signed high priced geezer FAs (you didn't reach UFA until 31 then) did not do well. Those who built from within were the ones winning

 

[Golden_Jet]

yeah, there would be. In the pre cap, teams that signed high priced geezer FAs (you didn't reach UFA until 31 then) did not do well. Those who built from within were the ones winning

One problem free agency will never go back to 31. Currently 7 years, so earliest is 25 now.

 

[Flukeshot]

do you guys think that if the NHL had a luxury tax system, can it work with escrow?

or do you guys think a hard cap is the best system for escrow?

i know the revenues are split up 50/50 between the players and owners..

when revenue goes up, so does the cap....

when revenue falls short, some of the money goes back to the owners...

if revenue reach record levels, the players get some money back...

but in a luxury tax world, would it be similar or different?

just asking questions..

I always enjoy these topics so thanks for starting one.

I think the Hard cap plus 50/50 HRR split works for the economics of the NHL and is a big reason for the franchise value increases, particularly of smaller markets that would barely exist without it.

However, there are potential solutions within the current structure. Contract retention is already one of those and Brian Burke was an early advocate for another, trading cap space. I'm not saying I am in favour of it, but it does help accomplish the goal of allowing some teams to spend more within the current system.

Contract retention requires $ to be spent on an existing player/contract. Whereas directly trading cap space would allow for those $s to be spent how the receiving team likes without costing the giving team any real $ or roster issues. There would have to be a lot of restrictions/rules/limits built to make it work.

Example: Chicago enters the season knowing they do not intended to spend to the cap. They trade $5M in cap space prior to season opening to the Leafs who assume that cap space as if it were their own. Ultimately that would still be covered on HRR and Escrow, but it actually just creates a more likely scenario that players would lose escrow.

There would need to be limits like:
- total $ a team could trade or receive
-timing for simplicity
-how many years in advance (if any) can a team trade cap space

 

[KevFu]

I think the other leagues have more reason to want an NHL-style CBA than the other way around.

 

[sh724]

I always enjoy these topics so thanks for starting one.

I think the Hard cap plus 50/50 HRR split works for the economics of the NHL and is a big reason for the franchise value increases, particularly of smaller markets that would barely exist without it.

However, there are potential solutions within the current structure. Contract retention is already one of those and Brian Burke was an early advocate for another, trading cap space. I'm not saying I am in favour of it, but it does help accomplish the goal of allowing some teams to spend more within the current system.

Contract retention requires $ to be spent on an existing player/contract. Whereas directly trading cap space would allow for those $s to be spent how the receiving team likes without costing the giving team any real $ or roster issues. There would have to be a lot of restrictions/rules/limits built to make it work.

Example: Chicago enters the season knowing they do not intended to spend to the cap. They trade $5M in cap space prior to season opening to the Leafs who assume that cap space as if it were their own. Ultimately that would still be covered on HRR and Escrow, but it actually just creates a more likely scenario that players would lose escrow.

There would need to be limits like:
- total $ a team could trade or receive
-timing for simplicity
-how many years in advance (if any) can a team trade cap space

Saying there are "potential solutions" implies that there are problems. The only people I ever see complaining about the current system are fans of teams that spend to the cap and still cant win.

If/when teams start complaining about the cap there could potentially be changes, however that isnt happening. The owners have worked hard to pay the players less, they arent clamoring to start paying the players more. If the owners wanted to spend more money on players there is a very very easy way to do that. It would be as simple as changing the 50/50 split so the players get more of the pie. Obviously the owners have zero interest in doing that. At any point in time the BoG can go to the players and say hey we would like to start paying you more than 50% of HRR, and the PA is happily going to agree.

The PA would never agree to teams being able to trade cap space without other significant changes. If teams were allowed to do this it would artificially increase the escrow, which the PA (as a whole) already thinks is too high.

 

[KevFu]

I'd like to see the NHL switch from a Robin Hood revenue sharing system, to the pool system the other leagues use. Like, everyone puts 33% of local revenues into the central revenue fund, which gets the national TV money and other league-wide revenues added; and that gets split up 32 ways.

The other leagues do that (actually a higher percentage) and you have far, far, far less complaints about "we're subsidizing them." (Which is all non-sense since you can't make $300m in revenue selling tickets to practice; you need opponents to come play you).


But other than that, I wish pretty much all other aspects of the NHL CBA would be adopted by the other leagues.

It's too complicated being arm-chair GM of the NFL/NBA with their caps; and baseball is like, the same eight teams sign every big free agent, and the same eight teams spend a tiny amount of players.

The last MLBPA negotiation, the players pointed out that total spending on players had gone DOWN for like the first time in 40+ years... and they started talking about "tanking" (which MLB teams don't tank for a draft pick, the draft is two college/high school seasons away when you make your offseason decisions).

Total spending went down because teams had A LOT LESS "Dead money" on the books to bad signings they made previously; and because of what Branch Rickey famously told Ralph Kiner in the 1940s: "We can finished last without you." They were really just whining that GMs stopped being dumb.


If MLB set the midpoint at 50% of average revenue, and the cap at +30% of that, and floor at -30% of that... 15 of 30 teams were between those numbers at the start of 2023.

The four teams over would have to spend $228m less combined to be under....
But the bottom ELEVEN teams would have to spend $367m combined to hit the floor.

And the players would get $139m more in compensation than they got.

 

[Golden_Jet]

I'd like to see the NHL switch from a Robin Hood revenue sharing system, to the pool system the other leagues use. Like, everyone puts 33% of local revenues into the central revenue fund, which gets the national TV money and other league-wide revenues added; and that gets split up 32 ways.

The other leagues do that (actually a higher percentage) and you have far, far, far less complaints about "we're subsidizing them." (Which is all non-sense since you can't make $300m in revenue selling tickets to practice; you need opponents to come play you).


But other than that, I wish pretty much all other aspects of the NHL CBA would be adopted by the other leagues.

It's too complicated being arm-chair GM of the NFL/NBA with their caps; and baseball is like, the same eight teams sign every big free agent, and the same eight teams spend a tiny amount of players.

The last MLBPA negotiation, the players pointed out that total spending on players had gone DOWN for like the first time in 40+ years... and they started talking about "tanking" (which MLB teams don't tank for a draft pick, the draft is two college/high school seasons away when you make your offseason decisions).

Total spending went down because teams had A LOT LESS "Dead money" on the books to bad signings they made previously; and because of what Branch Rickey famously told Ralph Kiner in the 1940s: "We can finished last without you." They were really just whining that GMs stopped being dumb.


If MLB set the midpoint at 50% of average revenue, and the cap at +30% of that, and floor at -30% of that... 15 of 30 teams were between those numbers at the start of 2023.

The four teams over would have to spend $228m less combined to be under....
But the bottom ELEVEN teams would have to spend $367m combined to hit the floor.

And the players would get $139m more in compensation than they got.

Around 35% of revenue sharing is taken from playoff generated revenue.

 

[mouser]

Around 35% of revenue sharing is taken from playoff generated revenue.

Not quite as impressive as the 100% the NFL collects in playoff tickets sales for revenue sharing (minus certain team costs to operate the stadium for playoff game day).

 

[Golden_Jet]

Not quite as impressive as the 100% the NFL collects in playoff tickets sales for revenue sharing (minus certain team costs to operate the stadium for playoff game day).

Oh wow, did not know the NFL model, thanks.

 

[mouser]

Oh wow, did not know the NFL model, thanks.

Wasn’t aware of it myself until last NFL season when the Bill and Bengals had a canceled game after Bills safety Damar Hamlin had a cardiac arrest during the game.

The game had huge Home field playoff seeding implications. To the degree that the NFL was prepared to hold the AFC championship playoff game at a neutral site if the Bills and Chiefs met.

Atlanta’s Mercedes-Benz Stadium selected as neutral-site host for potential Bills-Chiefs AFC Championship Game

Atlanta will be the setting of the AFC Championship Game, but only if the matchup is Bills-Chiefs

www.thefalcoholic.com

There were a lot of questions raised over how financially damaging that could be for a NFL team to lose out on a playoff home game ticket revenues? The answer that came out was the NFL collects all playoff ticket revenue for the shared revenue pool—the individual NFL teams don’t collect a financial windfall for hosting a playoff game.

 

[varsaku]

And the NBA has horrific parity compared to the NHL.

Since the NHL went to the cap, TWO teams have finished under 50 points in a season (or a 50 points per 82 games pace). The worst was a .244 regulation points percentage.

Same span, SEVENTEEN NBA teams failed to win 20 games (a .244 win percentage).

EIGHT teams won 16 or fewer games. Five teams won 15 or fewer games. (oh, and the Detroit Pistons are currently 3-30 right now).

The San Jose Sharks have nine wins this season with 46 games to go.
The 2010 Philadelphia 76ers won 10 games all year. The 2012 Charlotte Hornets won seven.

NBA has lower parity since teams can win with just 2-3 great players and fill the rest with average players. At the end of the day people love dominant teams and brings in a lot of casual fans.

 

[Reaser]

NBA has lower parity since teams can win with just 2-3 great players and fill the rest with average players. At the end of the day people love dominant teams and brings in a lot of casual fans.

The cap didn't even make the NHL have more 'parity' than it did before the cap.

If you take the completed seasons in the cap era and work backwards for the same amount of seasons pre-cap, the slight difference in amount of unique franchises that were Cup winners, to make the SCF, Presidents' Trophy winners, etc. is more due to more teams (30-32) existing in the cap era than the 18 seasons leading up to it (21-30 teams). More teams obviously statistically increases the probability of a different result.

And at the bottom, the difference is less existence of the cap and more expansion rules, Most of the bad teams were expansion teams.

The non-expansion teams that were bad like the 1990-91 Nordiques, didn't have the luxury of getting a point for losing in OT, or the other way, a chance to gain another point in shootouts. So there is a high probability they'd have a higher P% than say the 16-17 Avs, for example. Even the worse 89-90 Nordiques, under OTL (& potenial crapshoot SO wins) would have more points and be closer (gap not as wide) in P% to a team like the 19-20 Wings, who would have had less pts in the same era.

As for spending, can look at the final season before the lockout for that, the two teams that were in the SCF compared to the two teams that had the highest payrolls.

Salary cap didn't do what many purport it to have done -- i.e. keep teams like the Leafs and Rangers from buying the Cup every year as if that is what happened pre-cap, and make bad teams magically better. Nope, bad teams still suck. Again, except for expansion teams which is the primary performance result-based difference in the near two-decades leading up to the cap and the near two-decades post-cap.

 

[Ted Hoffman]

There would be no NHL without a cap

yeah, there would be. In the pre cap, teams that signed high priced geezer FAs (you didn't reach UFA until 31 then) did not do well. Those who built from within were the ones winning

Both of these are correct, to a point. There would be no 32-team NHL without a cap; more than a couple teams probably would have folded without the cap and the rest would be spending as minimally as possible.

But if there was no cap, the age for UFA would have still dropped to at least 27. Teams would still be overspending on those guys, and it would be all the high-revenue teams doing the overspending. "Competitive balance" wouldn't be a thing - or, it would be a thing and tilted heavily toward the high-revenue teams like we saw pre-2004 and there's the hope for some miracle run out of a Carolina or an Anaheim or some heavy internal-development model like New Jersey ... but they would be increasingly the exception.

Contract retention is already one of those and Brian Burke was an early advocate for another, trading cap space. I'm not saying I am in favour of it, but it does help accomplish the goal of allowing some teams to spend more within the current system.

Burke's original idea - "I'm taking on another team's contract, look at me everyone, I traded cap space" was as asinine as every time a team doesn't trade a guy at the deadline and he gets referred to as an "own-rental." It's not like teams couldn't have done that, they just didn't think to do it. You didn't "trade" anything, just like you're not "renting" the guy - it's all still yours like it was before, you're just changing how you account for things.

The splitting of contracts where 2-3 teams may be responsible, ... that's a different story. And while it's made trades easier to do [which fans complained about the lack of, so now this is good], it's also resulted in teams having to get increasingly more creative with trades as they box themselves in with retained salary transactions. And, it's allowed teams to escape some of the responsibility of front-loaded cap hits by shuffling it off on someone else instead of having to eat all of the deferred cap savings.

Example: Chicago enters the season knowing they do not intended to spend to the cap. They trade $5M in cap space prior to season opening to the Leafs who assume that cap space as if it were their own. Ultimately that would still be covered on HRR and Escrow, but it actually just creates a more likely scenario that players would lose escrow.

Exactly this. It's a back-door scenario to moving to the pre-2005 system, but the impact on escrow would be notable for the players; once you throw on escrow caps that the players have pushed for, it would leave them in a massive hole they'd never get repaid and eventually the owners would squeeze them dry over it.

 

[edog37]

yeah, there would be. In the pre cap, teams that signed high priced geezer FAs (you didn't reach UFA until 31 then) did not do well. Those who built from within were the ones winning

But couldn’t keep their talent. That’s the point.