The Maltais Falcon
Registered User
There seems to be this misconception on the part of many posters that a salary cap will be some sort of "Idiot Proof" system that will mathematically ensure the owners will make a profit no matter what. This would be true if players' salaries were the only cost the owners had. If team staff donated their labor for free, practice facilities gave away their ice time, arenas leased their buildings for free, airlines donated their flights for free, hotels donated their rooms for free, and media outlets gave away their advertising then a cap might guarantee profitability for owners. Unfortunately, none of these things happen. Operating costs are substantial and they cannot be linked to revenue the way salaries can. They should more or less stay fixed and even rise slightly over the years with inflation.
According to the Levitt report (if you feel the report is bogus, humor me - the numbers may not be right but the principles remain), league revenues in 2003 were $1.996 billion. Player salaries were $1.494 billion and operating costs were $775 million. This lead to a $273 million loss for the league. Assuming a 54% salary cap is put into place and revenues and operating costs stay the same, player salaries will be $1.078 billion and the owners will see a profit of $143 million (8.5% of revenues.)
Since operating costs are fixed, revenues will need to be at least $1.685 billion for the league to break even. If revenues dip below this point, it won't matter that player salaries are a fixed percentage of revenue - operating costs will tip the league into the red again. If the nightmare scenario that many predict occurs where revenues are cut in half to $998 million, the league will lose $316 million (31.66% of revenues.) Owners will be worse off than they were last year. Players will too.
To make a long story short, a salary cap doesn't guarantee anything other than a fixed relationship between player salaries and revenues. It is not an idiot-proof system and it definitely won't guarantee the owners turn a profit, so let's just nip that myth in the bud and put it out to the pasture where it belongs.
According to the Levitt report (if you feel the report is bogus, humor me - the numbers may not be right but the principles remain), league revenues in 2003 were $1.996 billion. Player salaries were $1.494 billion and operating costs were $775 million. This lead to a $273 million loss for the league. Assuming a 54% salary cap is put into place and revenues and operating costs stay the same, player salaries will be $1.078 billion and the owners will see a profit of $143 million (8.5% of revenues.)
Since operating costs are fixed, revenues will need to be at least $1.685 billion for the league to break even. If revenues dip below this point, it won't matter that player salaries are a fixed percentage of revenue - operating costs will tip the league into the red again. If the nightmare scenario that many predict occurs where revenues are cut in half to $998 million, the league will lose $316 million (31.66% of revenues.) Owners will be worse off than they were last year. Players will too.
To make a long story short, a salary cap doesn't guarantee anything other than a fixed relationship between player salaries and revenues. It is not an idiot-proof system and it definitely won't guarantee the owners turn a profit, so let's just nip that myth in the bud and put it out to the pasture where it belongs.