There was a story this week suggesting that the NHL salary cap is going to go up another $3MM for next season. As I understand the salary cap, it’s all based on a mid-point between the ceiling and floor; if every team spent the midpoint and revenues were as expected, the players would get the appropriate amount. Accordingly, if the cap is going up $3MM, it means that the NHL projects an increase of about $163MM in revenue; the players cut of that is $90MM.
What interests me about this is how much of this money has already been spent. I did a very unscientific flip through nhlscap.com and was able to identify about $80MM in increases that have been handed out. I was just looking for players who will see their salaries go up by about $1MM or so next year.
There are a hell of a lot RFA’s who have yet to be signed. My first point is that there’s $10MM left over for all of the increases for all of the other players in the NHL. Anything over that and, assuming that the league has the revenues pegged right, everyone is going to be losing money to the league in escrow. I would suspect, without having yet done a really thorough analysis yet, that next year’s escrow rates will be set higher. I’m also starting to suspect, more and more, that the next labour fight might be the worst one yet, as you’re going to have a PA with deep divisions between the guys who are getting paid movie star money and the guys who are making great white collar job money as well as with a lot more information about the NHL’s finances that they’ve ever had.
There’s a more intriguing aspect to this though. There’s been a lot of talk lately about how teams like the Oilers and Maple Leafs have so much money tied up in mid-level talent; I think that I’ve heard that they both have more than 14 guys making $2MM or something like that. While that’s been a loser strategy historically, I’m not so sure, moving forward, that that’s going to be such a loser strategy. It will basically involve making a concession that the other side is going to have better top end forwards and defence but after that, there should be a substantial edge in favour of your own team. I would think that the market for talent has to be realigning and the problem for teams like the Oilers and the Leafs will be the legacy contracts, signed before the market started throwing large wads of cash at the absolute top end and shorting everyone else. I haven’t shown that to be true yet – this chart is a start – but it’s a pretty strong hint that that has to happen, I think. There’s no other way to address all of the money being paid to the young top end guys in a situation where there’s only so much money that can be paid.