The Cap Should Be Over $100 Million Right Now. How Is The NHL going to handle the inevitable post-COVID cap rise?

[Soundwave]

There's a good thread on Reddit posted by a user named tkecanuck341 that discusses the fact that at 6.43 billion in NHL revenue for 22-23, the NHL is millions behind what the cap actually should be based on a 50-50 HRR split:



He goes into big detail on it, but more or less I believe he is correct. 6.43 billion in HRR is 32% higher than the 4.86 billion it was in 18-19, the last year before COVID hit, when the cap used to be 79.5 million. An increase of 32% over 79.5 mill cap (as it was in 18-19) would be 105 million almost. Now granted there's an extra team in Seattle (32 teams instead of 31), but still the cap should probably be over $100 million based on revenue already.

This has been held back because the players had to pay back the owners for losses during COVID, but that was fully paid off last season already I believe, two years ahead of schedule.

Now I believe the NHL has a mechanism where the cap can only rise so much the next two years (6%?) because of COVID conditions, but after that, that stipulation goes away.

I wonder how the NHL will handle this? Maybe they allow the cap to hit 100 mill for the 25-26 season to prevent a massive spike the following year? Revenue is headed towards 7 billion in 2 years, on a 7 billion HRR 50-50 split between owners and players, the cap should be a whopping $110+ million approximately.

How much longer do we think the players/PA will accept far less than 50% of HRR that they're entitled to now that the COVID debt is paid off?

Click to read more...

 

[centipede2233]

I am more worried about paying rent then how the NHL and players handle their billions/millions.

 

[Soundwave]

I am more worried about paying rent then how the NHL and players handle their billions/millions.

Unfortunately inflation sucks for consumers, but is good for corporate entities (which the NHL is basically). A big chunk of the cap rise is probably because of inflation in general, everything being more expensive = higher revenue.

 

[LemonSauceD]

I’m honestly afraid what Jim Benning would’ve done had the cap jumped $15-25M if it weren’t for Covid. LOL.

 

[sena]

I think these numbers originate from Forbes, But they aslo state. "incuding arena proceeds from non NHL events"
So who knows how much that is?

 

[ricky0034]

the current CBA says that the cap can only go up by a maximum of 5% a year

https://media.nhl.com/site/asset/public/ext/NHLPA_NHL_MOU.pdf

Maximum year-over-year increase in the UpperLimit will be the lesser of 5% and the trailing twoyear average HRR growth percentage (measuredusing Final HRR from the League Year four yearsprior, Final HRR from the League Year three yearsprior, and Preliminary HRR from two years priorand after taking into account any FX impactadjustments)

 

[Soundwave]

the current CBA says that the cap can only go up by a maximum of 5% a year

https://media.nhl.com/site/asset/public/ext/NHLPA_NHL_MOU.pdf

That essentially only applies for next season, where it will increase by around 5% (although this year was also supposed to be 5%, which should have meant a 87.7 mill cap but instead it increased to 88 million, so I'm not sure if even this is rock solid or just a starting point).

Based on last season, the cap should be a minimum of about 92.5 million for next year.

However the 5%-ish rule is basically over after that as the CBA expires after 25-26 season and all COVID era stipulations are basically over.

So that means for the 26-27 season the cap could skyrocket well past $100 million even just based on today's revenue, let alone increasing revenue.

If the players asks for the normal 50-50 HRR split, as is their right, the cap could balloon to like $110+ million, lol, that's why I'm asking how the NHL is going to handle this. Maybe the PA can be talked into taking less due to escrow, but I have a hard time seeing them taking way below 50% HRR for years on end.

The cap is way lower than what it should be based on HRR, that can't stay that way much longer now that the COVID debt is paid off.

 

[NVious]

I’m honestly afraid what Jim Benning would’ve done had the cap jumped $15-25M if it weren’t for Covid. LOL.

Don't worry, it just would've went to JT Miller (rightfully so).

 

[Orfieus]

Chances are the league will ask the players for a gradual increase, maybe allow the cap to increase year over year by 15-20% as a massive jump like that will be problematic

 

[x Tame Impala]

I saw this post as well and was wondering if it was legit enough to make it to HF Boards.

I am more worried about paying rent then how the NHL and players handle their billions/millions.

This isn’t about you

 

[MartyOwns]

 

[Golden_Jet]

There's a good thread on Reddit posted by a user named tkecanuck341 that discusses the fact that at 6.43 billion in NHL revenue for 22-23, the NHL is millions behind what the cap actually should be based on a 50-50 HRR split:



He goes into big detail on it, but more or less I believe he is correct. 6.43 billion in HRR is 32% higher than the 4.86 billion it was in 18-19, the last year before COVID hit, when the cap used to be 79.5 million. An increase of 32% over 79.5 mill cap (as it was in 18-19) would be 105 million almost. Now granted there's an extra team in Seattle (32 teams instead of 31), but still the cap should probably be over $100 million based on revenue already.

This has been held back because the players had to pay back the owners for losses during COVID, but that was fully paid off last season already I believe, two years ahead of schedule.

Now I believe the NHL has a mechanism where the cap can only rise so much the next two years (6%?) because of COVID conditions, but after that, that stipulation goes away.

I wonder how the NHL will handle this? Maybe they allow the cap to hit 100 mill for the 25-26 season to prevent a massive spike the following year? Revenue is headed towards 7 billion in 2 years, on a 7 billion HRR 50-50 split between owners and players, the cap should be a whopping $110+ million approximately.

How much longer do we think the players/PA will accept far less than 50% of HRR that they're entitled to now that the COVID debt is paid off?

What the Reddit guy is missing from Calculation,
items like players benefits, one being health insurance, disability insurance, including career ending, life insurance, (Gaudreau), dental, health insurance for retired players, costs of going into rehab or wellness, moving expenses, players pensions, and other items are not included in cap calculation.
Would need to look back at the CBA, to list all the missing things, but those make the cap lower than shown above. Per diems might be another. There is a good list.

So it’s not just a simple calculation like shown above. It will always be lower than the Reddit guy showed. Just not sure off hand what % those items affect the cap overall.

Another item the OP hasn’t considered is the “lag” formula now in the CBA. I assume the lag formula will be kept in the next CBA, as it smooths out increases

 

[Fatass]

Unfortunately inflation sucks for consumers, but is good for corporate entities (which the NHL is basically). A big chunk of the cap rise is probably because of inflation in general, everything being more expensive = higher revenue.

Isn’t that poster pointing out that as costs increase for basic living expenses the average fan has less money to spend on the NHL? Yes, the cap goes up because of inflation but the fans, especially in Canada, who traditionally spend so much on the nhl spend a lot less. The league will need some non hockey markets in the US to make up the drop in Canadian revenues.

 

[Mrfenn92]

Another lockout incoming

 

[Curufinwe]

Inflation is down to 2% in Canada. Normal service has been resumed after the Pandemic.

 

[RRhoads]

Anyone think their team would be better if all teams had more cap space?

 

[Romang67]

Anyone think their team would be better if all teams had more cap space?

I'm not sure my team would be better if they were the only team with more cap space.

 

[centipede2233]

I saw this post as well and was wondering if it was legit enough to make it to HF Boards.


This isn’t about you

It’s about us

 

[eojsmada]

I would assume that the PA will ask for a "normalization" of the Salary Cap to be upgraded to the proper amount either with an accelerated timeline for Cap increases or just doing it all at one time coming with the new CBA. Walsh seems like an infinitely smarter guy compared to Fehr so I could easily see him negotiating properly against what the owners want. So if the owners want to keep the Cap at the current rate of acceleration, then he could argue for a higher split of HRR or reduction in preseason games or any number of things that are at his disposal. But I would assume an accelerated increase in Cap would probably be what ends up being negotiated. So something like 7-8% increases until a negotiated threshold is reached. Also have to figure that escrow will just go away if there is a delay in acceleration to what should be the maximum.

 

[FriendlyGhost92]

You're just now discovering that the cap is much lower than HRR dictates it should be? Been saying for over a year now that we're going to see 5% increases for several consecutive years for the cap to catch up with HRR...

Realistically, both the owners and the NHLPA know you can't just inject $15M - $20M of new cap into the league. It'd cause that year's pool of FAs to demand absurd amounts of money, and then next year's crop of FAs would want comparable deals even though the cap would only increase ~$3M.

If I'm not mistaken, the NBA did this recently and had issues as a result.

 

[Soundwave]

You're just now discovering that the cap is much lower than HRR dictates it should be? Been saying for over a year now that we're going to see 5% increases for several consecutive years for the cap to catch up with HRR...

Realistically, both the owners and the NHLPA know you can't just inject $15M - $20M of new cap into the league. It'd cause that year's pool of FAs to demand absurd amounts of money, and then next year's crop of FAs would want comparable deals even though the cap would only increase ~$3M.

If I'm not mistaken, the NBA did this recently and had issues as a result.

Maybe one way to do it is to allow the cap to rise a little more than 5% for next season. They did allow for last year, going from 83.5 to 88 mill is technically 5.38% increase so it seems like some discretion is allowed.

By that same amount the cap should be 92.7 million next season, which is what Elliot Friedman is saying (just below 93 mill). Maybe the NHL can allow the cap to go to 94 million (say) instead as a concession to players.

Then after the 25-26 season (the following year) we have an even larger rise say from 94 to 101-103 million, followed by another jump to 109-110 million the next season.

I think players will have a little patience, but not as much as people think, they're entitled to that money and I don't think they're going to wait like 5-6 years for the cap to catch up to what revenue is. NHL owners are the ones that killed an entire season (2005) to get a 50-50 HRR split, they can't cry now that players should take far less than 50-50 for many more years when the COVID debt has been paid off like 2 years ahead of schedule.

 

[Lazlo Hollyfeld]

I'm guessing a part of the discrepancy is the fact that revenue is not actually split 50/50. That's Garys magic trick.

The cap is calculated from Hockey Related Revenue minus "direct costs." The owners carve as much as possible out of that pool so they don't have to share it with players. For instance, the $600 million expansion fees are not considered HRR. Neither is any interest on money the league is holding (like player's escrow).

Direct costs include things like salaries of employees (not hockey players). And the owners are obviously going to deduct everything they possibly can get away with.

I don't know if that accounts for all of it but it's not shocking that the cap is lower than it should be. There's a reason billionaires are lining up to get their own NHL franchise.

 

[Soundwave]

I'm guessing a part of the discrepancy is the fact that revenue is not actually split 50/50. That's Garys magic trick.

The cap is calculated from Hockey Related Revenue minus "direct costs." The owners carve as much as possible out of that pool so they don't have to share it with players. For instance, the $600 million expansion fees are not considered HRR. Neither is any interest on money the league is holding (like player's escrow).

Direct costs include things like salaries of employees (not hockey players). And the owners are obviously going to deduct everything they possibly can get away with.

I don't know if that accounts for all of it but it's not shocking that the cap is lower than it should be. There's a reason billionaires are lining up to get their own NHL franchise.

Expansion fees have never been a part of HRR, so that's nothing new.

The owners can't just hide that 6.43 billion, probably headed to 6.6 billion from last year's revenue is over 32% higher than HRR from 2019 (year pre-COVID, it was 4.86 billion or thereabouts that year I believe). Even Bettman states publicly the cap is going to rise a lot in the next few years.

As an aside the NHL is doing quite well revenue wise. 6.43 billion for 22-23 season, maybe even more than that for 23-24 is not too shabby. It's not NBA (10.93 billion) or MLB (11+ billion) level ... but being in the mid 6 billions is not bad for a league that just got an OK US TV deal, nothing on the level of what the NBA has.

People who are saying the WNBA is going to be a threat to the NHL maybe need to chill, WNBA revenue is expected to rise to $200 million even with Caitlyn Clark, that's miles behind 6.4 billion. MLS (North American soccer) is a bit under $2 billion.

 

[tucker3434]

Could be wrong here, but wasn't there some sentiment among the players that they didn't want the cap to spike and then potentially have to deal with higher escrows? Has the escrow debt been fully settled? Maybe we've blown past that.

I'd be pretty shocked if the cap jumped next CBA, because I think the owners would want to offset with stricter escrow rules. But maybe the players could get friendlier terms on annual increases to stair-step the cap up over time.

 

[Soundwave]

Could be wrong here, but wasn't there some sentiment among the players that they didn't want the cap to spike and then potentially have to deal with higher escrows? Has the escrow debt been fully settled? Maybe we've blown past that.

I'd be pretty shocked if the cap jumped next CBA, because I think the owners would want to offset with stricter escrow rules. But maybe the players could get friendlier terms on annual increases to stair-step the cap up over time.

I don't think the PA will accept taking massively less than 50-50 HRR, once you commit to that you're showing weakness as a PA and may never be able to claw back to 50-50. The owners are the ones that flushed an entire season down the toilet to get 50-50, it would be hard I think now to tell players they ought to take far less than 50-50.

One thing is for sure, sooner than later the cap has to be at least 100 million. This can't be a thing where this is drawn out for years and years, it really should be approaching 110 million right now, let alone 100 million. I would be surprised if coming out of the 25-26 season players insist on a $100+ million cap *minimum*. They're owed it.

We'll probably hear from Bettman what the HRR for last season actually was about the time the season starts, but I wouldn't be surprised if it's 6.6 billion or more.

Gambling ads + on-jersey ads for more teams + general inflation at even 2-3% + rising ticket prices means more and more revenue.