How is money divided between players/owners?

[Not Sure]

I have been wondering this awhile and haven't been able to find any details other then players pay escrow and the final split is handed out.

My question is where is the benefit of icing a team well below cap or with an internal budget. If money is split evenly between the two sides wouldn't spending to the cap make a team more money with a split? Even if each team only uses their own money with no profit sharing the HRR is split according to the CBA

So if team A makes $100 million and only pays out $30 in salary and other expenses it's not like ownership gets to keep $70 million they would still need to split with players, right? What's the point of an internal budget unless it's purely from a standpoint of keeping players contracts from getting out of control and/or having available money for FAs which would break the budget anyways.

I may be completely mixed up on how things work, so I apologize in advanced if this comes across as a stupid question. I was never very interested in the money side of hockey until recently and this point has stuck with me for awhile.

 

[LadyStanley]

$100m in revenue does not equate to $100m of HRR (hockey related revenue).

The CBA goes into some details what is HRR, what isn't.

For instance: Parking income on arena property or arena-controlled lots is considered part of HRR, but parking for city lots or other private lots is not. Teams that sell merchandise get a certain % to claim as HRR (with the rest of the income going to cover costs of merchandise, sales personnel salaries, overhead, etc.). Suites count only a % (based on # of events at venue).

It's "easy" to show a "team" losing $$, when the organization (including arena management) makes a profit.

HRR is split 50-50 with NHLPA.

(It's late, I'm tired and can't get any more details out of my head. Read the CBA; check the stickied BOH info thread.)

 

[Spade]

The actual projection for NHL salary cap purposes is always the direct middle between the ceiling and floor. Obviously a lot more teams are at the ceiling rather than the floor (as Gary Bettman stated in 05, the ceiling acts as a magnet for team salaries).

How it works is that player shares are calculated on a leaguewide rather than a team-wide basis. Let's say the NHL estimated total league revenues of 3.6 billion in a season. 1.8 billion of that goes to the players. That gives each team roughly 60 million to spend on players. They add 9 million to that total to come up with a $69 million cap ceiling, and subtract for a $51 million cap floor.

Teams are gonna take advantage of that extra $9 million, so actual salary ends up being, say, $2.1 billion in contracts across the entire NHL for the season rather than the $1.8 billion midpoint. So in order to make that $1.8 billion midpoint, players end up paying back money in escrow (the amount depends on actual revenues for the year; if the league made more money than projected, players earn more, if the league earns less than projected, players take home less too).

If the NHL's projections were exact, then all players contracts over that season would be docked roughly 14.3% of their listed salary, or whatever it takes to make the $1.8 billion midpoint. Because it's proportional to contract rather than team, teams that are closer to the floor will naturally save even more money than they're already paying. Under this scenario, a team with $52 million in listed salary for cap purposes would only end up paying about $44.5 million in actual salary. For poor teams, that extra $7.5 million can be a huge make it or break it for them.

Even if a team was earning $100 million and paying $70 million to players, the players don't have their contracts dropped $20 million because there are teams out there earning $200 million who raise the total revenue of the league. It's not like the Montreal Canadiens have to pay $100 million is salary just to evenly split revenue with players, if that were the case small teams would go extinct. The cap was meant to help these teams, and part of the way it does that is by ensuring all teams are treated as one entity for cap purposes.

It gets more complicated when you take into account the escalator clause that the NHLPA has every year, and contracts that pay a huge lump bonus at the beginning of every season rather than a salary (like Shea Weber getting paid $14 million a year, except $13 million comes to him in July rather than during the season), as large lump sum signing bonuses do not count under escrow calculations.

I could really go into a lot more detail, but for your purposes that's how it works. The reason players are supposedly losing more than 25% of their salaries is because they've used the escalator clause every season since 05 and actual revenue has not caught up to the cap calculations.

Theoretically, if the league earned enough money that even the cap ceiling calculation wasn't 50% of revenues, players would earn more money than listed on their contracts, but I don't think that's ever happened even right after the 2005 lockout....

 

[Not Sure]

I kinda get that, what I don't get is how having an internal budget is financially beneficial to ownership. If $1 billion is brought in total, players and owners split that 50/50. Players may be owed $600 million so escrow would hold that $100 million until everything's added up at end of year. Now players can lose what's in escrow if they go over the 50/50 split, but can owners take in more if they keep salary low or is that 50/50 split a hard number? Because if team A is near the cap floor, the owner of that team doesn't get to keep overages, they still top out at their 50%? So by putting more salary on the books owners would technically increase their portion of the 50%.

I may be completely backwards on this and I agree there are a ton of nuances in the CBA which makes it hard to comprehend everything that's going on. Much of this is my own ignorance on the business side of things, but I want to learn and people here seem to have a better understanding of this then I could ever have.

 

[mouser]

The 50% is aggregate across all teams in the league, not on a team-by-team basis. Here's a very simplified hypothetical example:

- There are three teams in the league.
- The Salary cap ceiling is $50m and the floor is $40m.

- Team A spends $50m on players
- Team B spends $45m on players
- Team C spends $40m on players
- In total the players are paid $135m. I'm going to ignore non-salary benefits in this example.

Scenario 1: League revenue is $300m, so the players are due $150m, a shortage of $15m. Teams are assessed in proportion to their payroll, so the final costs end up:
- Team A -$5.55m, total spent $55.55m
- Team B -$5m, total spent $50m
- Team C -$4.44m, total spent $44.44m

Scenario 2: League revenue is $270m, so players are due $135m. 50% exactly so no adjustments are needed.

Scenario 3: League revenue is $240m, so players are due $120m, and overage of $15m. Teams receive equal portions of the overage escrow refund.
- Team A +$5m, total spent $45m
- Team B +$5m, total spent $40m
- Team C +$5m, total spent $35m

 

[IU Hawks fan]

The 50% is aggregate across all teams in the league, not on a team-by-team basis.

Bingo. Really all that needs to be said.

 

[Spade]

I kinda get that, what I don't get is how having an internal budget is financially beneficial to ownership. If $1 billion is brought in total, players and owners split that 50/50. Players may be owed $600 million so escrow would hold that $100 million until everything's added up at end of year. Now players can lose what's in escrow if they go over the 50/50 split, but can owners take in more if they keep salary low or is that 50/50 split a hard number? Because if team A is near the cap floor, the owner of that team doesn't get to keep overages, they still top out at their 50%? So by putting more salary on the books owners would technically increase their portion of the 50%.

I may be completely backwards on this and I agree there are a ton of nuances in the CBA which makes it hard to comprehend everything that's going on. Much of this is my own ignorance on the business side of things, but I want to learn and people here seem to have a better understanding of this then I could ever have.

That 50/50 split is a hard number, but it applies to the league as a whole. If Phoenix earns $100 million on a $30 million payroll, they don't pay more to their players until they reach $50 million in payroll.

Teams that have less salary are likely to pay less based on how much players are earning as a whole across the ENTIRE NHL, rather than their own players. You're thinking that the salary cap applies to each team separately, which it doesn't. The league adds up the revenue from each team into one lump sum for the purposes of the salary cap.

Each owner is still responsible for their own team, but the NHL doesn't evenly spread out revenue across all teams, so poor teams might only earn $80 million in revenue, in which case it'd be wise for them to save money on player salary and hope that escrow gives them back a sizable chunk. A team like Toronto who earns $300 million still only pays roughly whatever the cap is, instead of $150 million in salary.

You just need to change your perspective before it makes sense, right now you're focusing way too heavily on an individual franchise rather than the whole picture.

As a whole group, owners don't actually keep more than 50% of Hockey Related Revenue, but on an individual basis each of the 30 owners might earn more or less than 50% of their own team's revenues based on what the cap and what their own team's situations are.

 

[Not Sure]

That 50/50 split is a hard number, but it applies to the league as a whole. If Phoenix earns $100 million on a $30 million payroll, they don't pay more to their players until they reach $50 million in payroll.

Teams that have less salary are likely to pay less based on how much players are earning as a whole across the ENTIRE NHL, rather than their own players. You're thinking that the salary cap applies to each team separately, which it doesn't. The league adds up the revenue from each team into one lump sum for the purposes of the salary cap.

Each owner is still responsible for their own team, but the NHL doesn't evenly spread out revenue across all teams, so poor teams might only earn $80 million in revenue, in which case it'd be wise for them to save money on player salary and hope that escrow gives them back a sizable chunk. A team like Toronto who earns $300 million still only pays roughly whatever the cap is, instead of $150 million in salary.

You just need to change your perspective before it makes sense, right now you're focusing way too heavily on an individual franchise rather than the whole picture.

As a whole group, owners don't actually keep more than 50% of Hockey Related Revenue, but on an individual basis each of the 30 owners might earn more or less than 50% of their own team's revenues based on what the cap and what their own team's situations are.

Yeah I was focusing on one team, thinking that would make it easier but it in fact seems it just made it more complicated. Thanks for the explanation, when you look at the whole picture saving $5- $10 million with an internal budget just doesn't matter one way or the other on that scale.

 

[mouser]

Yeah I was focusing on one team, thinking that would make it easier but it in fact seems it just made it more complicated. Thanks for the explanation, when you look at the whole picture saving $5- $10 million with an internal budget just doesn't matter one way or the other on that scale.

Obviously it matters to the teams or they would all be spending to the cap.

 

[Spade]

Yeah I was focusing on one team, thinking that would make it easier but it in fact seems it just made it more complicated. Thanks for the explanation, when you look at the whole picture saving $5- $10 million with an internal budget just doesn't matter one way or the other on that scale.

Bingo.

1 team at the cap floor doesn't do much for the league as a whole, but saves that one franchise potentially $25 million in player salaries (the gap between the cap and floor, as well as whatever is retained as escrow, which again is calculated on a league-wide rather than team by team basis). If you're only making around $75 million or so in total revenue, it's a very prudent financial decision to make. That's why you see teams like Arizona, Anaheim and Ottawa "on a budget" paying way less than the average, it doesn't change much for anyone else but saves them enough money to keep afloat.