Setting the cap

[Peter10]

Hi folks,

it might have been (probably) discussed here already but havent been around for a while.

How exactly is the cap determined? I mean, the NHL calculated with an 1.8 billion revenue for this year. Devided by 30 and then 54% of it, makes $32.4m average payroll per team while the cap is at $39m. Most of the teams are above the average $32.4m so the $39m doesnt make much sense, even with 10-15% escrow.

Is there any sort of formular how the cap is set? Like 54% (or 55 or 56 or 57 pending on the revenue) of the the revenue devided by 30 and then adding x% or whatever? Its a question that bugs me since the CBA was signed.

Click to read more...

 

[hockeytown9321]

They take a set % of revenue, divided by 30 to get the midpoint. They have a negotiated range for each season. I think its $16M from now own, so the cap is set $8M above the midpoint, the floor is $8M below.

 

[cringer]

They take a set % of revenue, divided by 30 to get the midpoint. They have a negotiated range for each season. I think its $16M from now own, so the cap is set $8M above the midpoint, the floor is $8M below.

Right, the 39 million is just the top end of the range determined by projected revenue. The 39 million per team figure actually assumes 2.2 billion revenue (roughly).

The range is only in place to keep teams from not spending too much more or less than the ball park of what is estimated to be 54% of total revenue.

As noted, the player's have a chunk of their salaries frozen in escrow, so in the event that, at the end of the season, it is determined that total player payroll exceeded 54% of actual revenue... the owners get re-imbursed.

Team payrolls in relation to revenue are examined periodically throughout the season in order to determine the escrow amount withdrawn from player's paychecks. So theoretically, there should always be enough funds in escrow to cover the difference, even if all teams were spending at or close to the cap limit.

 

[Fugu]

The $39 million cap is based on revenues of $1.8 billion.

Next year's cap will be based on the actual revenue seen by the end of this year, currently projected to be $2.0 billion. That is why the cap's top limit may go to $41-45 million. If revenues get to $2.2 billion, the cap's top limit can be as high as $49 million.

 

[Peter10]

The question that still stands for me is, is there a way to calculate the cap for certain revenues? I mean we all know how to figure out how much money is going to the players with certain amounts of revenues. We can calculate whats the average any team can spend to hit the percentage of revenue for the players. What we cant, is to say with a revenue of $2.2B the cap will be set at $X

 

[GSC2k2*]

The question that still stands for me is, is there a way to calculate the cap for certain revenues? I mean we all know how to figure out how much money is going to the players with certain amounts of revenues. We can calculate whats the average any team can spend to hit the percentage of revenue for the players. What we cant, is to say with a revenue of $2.2B the cap will be set at $X

Yes. The way is to apply the formula.

THe percentage varies slightly according to revenue. 53% at the current level, which goes up to 54 and 55 at certain levels (see the NHL CBA FAQ).

Multiply the revenue by the players' percentage.

Deduct from that figure the players' benefits of about $66 million.

Divide that figure by 30 to find the average payroll per team.

Add $8 million. That is the cap.

Deduct $8 million. That is the floor.

 

[Captain Ron]

Yes. The way is to apply the formula.

THe percentage varies slightly according to revenue. 53% at the current level, which goes up to 54 and 55 at certain levels (see the NHL CBA FAQ).

Multiply the revenue by the players' percentage.

Deduct from that figure the players' benefits of about $66 million.

Divide that figure by 30 to find the average payroll per team.

Add $8 million. That is the cap.

Deduct $8 million. That is the floor.

Can't get any more simple than that.

 

[hockeytown9321]

Yes. The way is to apply the formula.

THe percentage varies slightly according to revenue. 53% at the current level, which goes up to 54 and 55 at certain levels (see the NHL CBA FAQ).

Wrong again. The players' share never dips below 54%. It says so on the site you mentioned but evidently did not read. I'm not surprised.

 

[GSC2k2*]

Wrong again. The players' share never dips below 54%. It says so on the site you mentioned but evidently did not read. I'm not surprised.

You are right. 54% is the base. I don't know why I typed that. I even forgot that it can go all the way up to 56 and 57.

Well done on your correctness. That makes one for you ... and a hundred for me. Booyah.

 

[Captain Ron]

You are right. 54% is the base. I don't know why I typed that. I even forgot that it can go all the way up to 56 and 57.

Well done on your correctness. That makes one for you ... and a hundred for me. Booyah.

Now boys lets try to have a mature, rational conversation without resorting to playground banter.

 

[GSC2k2*]

My dad could beat up your dad ...

 

[Captain Ron]

One thing you forgot to do though gscarpenter2002 is the 5% revenue growth that is to be figured in.


Here is how the league supposedly will do it.


Let's say the league has $2 billion in revenue.

$2,000,000,000 = Revenue

Take out $66 million in benefits

$2,000,000,000
- 66,000,000
---------------
$1,934,000,000 = Revenue-Benefits

Now add in 5% assumed revenue growth

$1,934,000,000 + 5% =
--------------------
$2,030,700,000 = Total Adjusted Revenue

Multiply that by 54% for the players share

$2,030,700,000 X 54% = $1,096,578,000 = Players Share

Divide that by the 30 teams

$1,096,578,000 / 30 = $36,552,600 = Salary Midpoint

Subtract $8 million to get floor and add $8 million to get the ceiling. You would have a salary range of

$28,552,600 - $44,552,600

Clear as crystal.

 

[Peter10]

Just wondering where do you get that $8m from? This year the Cap is at 39m and the floor at 21.5m, isnt it? That makes a difference of 17.5m instead of 16m. The difference between the floor and the avg payroll per team is also bigger than the difference between the cap and the avg payroll.

 

[Captain Ron]

Just wondering where do you get that $8m from? This year the Cap is at 39m and the floor at 21.5m, isnt it? That makes a difference of 17.5m instead of 16m. .

For this year only the league made the salary range $17.5 million. To give teams a little leeway in adjusting to the new salary cap (so teams didn't have to cut/add too much salary to the roster). Starting next season and every season after that the $16 million salary range will be used.

The difference between the floor and the avg payroll per team is also bigger than the difference between the cap and the avg payroll.

I am not entirely sure what the question is here. Can you rephrase it?

I will try to answer what I think you are asking. You are wondering why the leagues average salary is above the mid-point of the salary range correct?

If that is the case the answer is that the league will allow every team in the league to go to the salary cap if they want. The league put a clause into the new CBA that states that a certain % of the players paycheck will be withheld and deposited into an escrow account. If at the end of the year the players total salary exceeds 54% of league-wide revenues then the league will keep some of the money and return the remainder to the players. The players will never be able to make more than a certain % of league revenues.

Does that answer your question?

 

[Captain Ron]

For the benefit of some here is how they got the salary cap figures for the 2005-06 season.

Revenue Projections

$1,740,000,000

Minus player benefits of $60 Million

$1,740,000,000
- 60,000,000
---------------
$1,680,000,000 = total adjusted revenue

$1,680,000,000 X 54% = $907,200,000 = Player's Share

$907,200,000 / 30 Teams = $30,240,000 = Average Salary Mark

Then add/subtract $8.75 Million to get the salary range.

That makes the salary range $21.49M - $38.99

Then it was rounded to $21.5M - $39M

 

[kdb209]

For the benefit of some here is how they got the salary cap figures for the 2005-06 season.

Revenue Projections

$1,740,000,000

Minus player benefits of $60 Million

$1,740,000,000
- 60,000,000
---------------
$1,680,000,000 = total adjusted revenue

$1,680,000,000 X 54% = $907,200,000 = Player's Share

$907,200,000 / 30 Teams = $30,240,000 = Average Salary Mark

Then add/subtract $8.75 Million to get the salary range.

That makes the salary range $21.49M - $38.99

Then it was rounded to $21.5M - $39M

The one open question is the ~$66M in benefits ($2.2M/team) deducted before or after the multiply by 54% - I have seen examples do it both way. It would make more sense for the $66M in benefits to be taken off after the 54%, since they are part of the total player costs.

Since we don't know the exact magic number the league used for it's '05-'06 revenue estimates or the exact number for benefits, we can't back track the numbers to verify the algorithm, but recently the $1.8B number has been bandied about, so, if we assume that the benefits come out of the players share (post 54%):

Total Revenue Estimate: $1.8B
Players Share: $1.8B * 54% = $972M
Minus Benefits: $972M - $66M = $906M
Salary Midpoint: $906/30 = $30.2M
Salary Cap: $30.2M + $8.75M = $38.95M - round to $39M
Salary Floor: $30.2M - $8.75M = $21.45M - round to $21.5M

The numbers seem to work out for a revenue estimate of $1.8B, benefits of $2.2M/team, and benefits costs coming out of the players share.

Based on that, cap projections can be made with the following adjustments:
- Total revenues are based on this years real revenues plus a 5% inflation factor
- The Cap/Floor spread is reduced from $17.5M this season to $16M next season - midpoint +/- $8M.
- The player share increases to 55% @ $2.2B

'05-'06 Actual Revenues: $1.8B
5% escalator: $1.8B * 1.05 = $1.89B
Players Share: $1.89B * 54% = $1020.6M
Minus Benefits: $1020.6M - $66M = $954.6M
Salary Midpoint: $954.6M/30 = $31.82M
Salary Cap: $31.82M + $8M = $39.82M
Salary Floor: $31.82M - $8M = $23.82M

'05-'06 Actual Revenues: $2.0B
5% escalator: $2.0B * 1.05 = $2.1B
Players Share: $2.1B * 54% = $1134M
Minus Benefits: $1134M - $66M = $1068M
Salary Midpoint: $1068M/30 = $35.6M
Salary Cap: $35.6M + $8M = $43.6M
Salary Floor: $35.6M - $8M = $27.6M

'05-'06 Actual Revenues: $2.2B
5% escalator: $2.2B * 1.05 = $2.31B
Players Share: $2.31B * 55% = $1270.5M
Minus Benefits: $1270.5M - $66M = $1204.5M
Salary Midpoint: $1204.5M/30 = $40.15M
Salary Cap: $40.15M + $8M = $48.15M
Salary Floor: $40.15M - $8M = $32.15M

 

[Peter10]

First of all, thanks for the answer and the math.

My original question came up, because i hadnt heard about the $16m, but with that it makes the calculating easier. Has any of you a prove that it is $16m (not that i dont trust you ) and does it stay that way over the duration of the CBA?

I am not entirely sure what the question is here. Can you rephrase it?

Well my question answered itself, as it came up due to my bad math. I was thinking that the avg payroll per team was like $32.4m and not $30.24 (forgot the benefits). So the difference to the cap was $6.6m and to the floor it was $10.9m.

Btw, has anyone a copy of the CBA who likes to share it?

 

[GSC2k2*]

One thing you forgot to do though gscarpenter2002 is the 5% revenue growth that is to be figured in.


Here is how the league supposedly will do it.


Let's say the league has $2 billion in revenue.

$2,000,000,000 = Revenue

Take out $66 million in benefits

$2,000,000,000
- 66,000,000
---------------
$1,934,000,000 = Revenue-Benefits

Now add in 5% assumed revenue growth

$1,934,000,000 + 5% =
--------------------
$2,030,700,000 = Total Adjusted Revenue

Multiply that by 54% for the players share

$2,030,700,000 X 54% = $1,096,578,000 = Players Share

Divide that by the 30 teams

$1,096,578,000 / 30 = $36,552,600 = Salary Midpoint

Subtract $8 million to get floor and add $8 million to get the ceiling. You would have a salary range of

$28,552,600 - $44,552,600

Clear as crystal.

True for caps going forward. The question was what was the cap for a given revenue number. That was the question I answered. For the other question not asked (albeit relevant), your answer is correct.

 

[Captain Ron]

First of all, thanks for the answer and the math.

My original question came up, because i hadnt heard about the $16m, but with that it makes the calculating easier. Has any of you a prove that it is $16m (not that i dont trust you ) and does it stay that way over the duration of the CBA?

Here is an article from Bob McKenzie about the salary range.

http://www.tsn.ca/columnists/bob_mckenzie.asp?id=130373

Some of the lower revenue teams are a little nervous right now, waiting to see how much they'll get and whether that allows them to close the $17.5 million gap between the low and high ends of the new payroll range.

By the way, that gap will close to $16 million after the first year of the deal.

 

[Ovechkin]

How are they going to do the cap floor? If the cap goes up lets say 4 million, does the floor go up by the same ammount?

 

[Captain Ron]

The one open question is the ~$66M in benefits ($2.2M/team) deducted before or after the multiply by 54% - I have seen examples do it both way. It would make more sense for the $66M in benefits to be taken off after the 54%, since they are part of the total player costs.

kdb209.......using the figures the league has used as examples

According to the formula cited in Article 50.5 (b) of the CBA, $2B in revenue would establish the cap at $44.55M and the floor at $28.55M for next season. Revenues of $2.1B would set the cap at $46.44M and the floor at $30.44M.

If revenues are reported at $2.2B, the PA cut increases to 55 percent. That would account for an upper payroll limit of $49.07M

The $66 million in benefits would have to come out first. Because with revenues of $2 Billion their salary range is $28.55M - $44.55M.

Using your formula the salary range would be $27.6M - $43.6M.