Predicting the 2015-16 Salary Cap

I hate the Salary Cap. It's an abomination. It's funny that NHL owners are strident Capitalists when it comes to revenues and hard-line Marxists when it comes to paying their bills. Anyway...

To try to avoid confusion, I'm going to call Canadian dollars "Loonies" and American dollars "Greenbacks".

Hopefully people know that the NHL players get paid 50% of "hockey related revenue" (HRR). I know everybody loves reading the CBA. Section 50.4 (b) says:

For each League Year, there shall be a Players' Share, which shall be equal to the percentage of HRR that the Players shall be entitled to earn in the aggregate as League-wide Player Compensation. The percentage applied to HRR in a League Year to determine the Players' Share shall be known as the "Applicable Percentage." The dollar amount represented by the Players' Share in a League Year (i.e., League-wide Player Compensation) shall equal (i.e., shall never exceed nor be less than) the Applicable Percentage of HRR, as calculated pursuant to this Article 50.

The Salary Cap, Salary Midpoint, and Salary Floor are defined by the CBA. The Salary Midpoint is 50% of HRR divided by 30. If HRR is 3.6 billion Greenbacks, then 50% is 1.8 billion, and the Midpoint is 1.8 billion divided by 30 or 60 million per team. The cap is 1.15 times the midpoint. In this example it would be 69 million. The floor is 0.85 times the midpoint. Here it's 51 million.

Escrow

So why do players have part of their salaries held in escrow? Well, at the end of the season, player salaries have to add up to exactly 50% of HRR. Suppose in the above example, every team chose to spend to the cap. That would be 69 x 30 or 2.07 billion going to players. Can't have that. So each player's salary would be discounted by the amount of the excess. 2.07 billion – 1.8 billion is 0.27 billion. Each player would have to pay back 0.27/1.8 or 15% or their salary. Rather than asking the players to pay it back after the season, an estimated amount is held in escrow until the final accounting is done.

Exchange Rate

In 2013-14 the exchange rate averaged 0.93. It's at 0.8033 as I type this, and predicted to fall below 0.70, with some projections as low as 0.60, by next year.  Imagine Toronto takes in 200 million Loonies every year.  In 2013 that was worth 186 million Greenbacks.  This season it's worth 160 million.  Next year it might be worth 120 million.

Projecting 2014 from 2013

Not accounting for the exchange rate, league revenues are up about 5% from last year. Some teams are up more, some teams are down, but for simplicity's sake, I'm going to increase last year's estimated revenues by 5% across the board. The 2013-14 figures are from Forbes. The first two columns are in local currency. The latter two reflect converting Loonies to Greenbacks at the listed exchange rates.

Team	2013-14 Revenue	2014-15 Estimate	Exchange 0.93	Exchange 0.80
New York Rangers	217	228	228	228
Chicago Blackhawks	172	181	181	181
Boston Bruins	164	172	172	172
Los Angeles Kings	146	153	153	153
Pittsburgh Penguins	141	148	148	148
Philadelphia Flyers	136	143	143	143
Detroit Red Wings	134	141	141	141
Washington Capitals	117	123	123	123
San Jose Sharks	117	123	123	123
Dallas Stars	113	119	119	119
Minnesota Wild	111	117	117	117
New Jersey Devils	111	117	117	117
Anaheim Ducks	107	112	112	112
Colorado Avalanche	104	109	109	109
Buffalo Sabres	103	108	108	108
Nashville Predators	98	103	103	103
St Louis Blues	98	103	103	103
Tampa Bay Lightning	97	102	102	102
Carolina Hurricanes	91	96	96	96
Columbus Blue Jackets	86	90	90	90
New York Islanders	83	87	87	87
Florida Panthers	83	87	87	87
Arizona Coyotes	80	84	84	84
US Total	2709	2846	2846	2846
Toronto Maple Leafs	204	214	199	184
Montreal Canadiens	201	211	196	182
Vancouver Canucks	166	174	162	150
Calgary Flames	131	138	128	119
Edmonton Oilers	128	134	125	115
Ottawa Senators	126	132	123	114
Winnipeg Jets	110	116	108	100
Canadian Total	1066	1119	1041	964
NHL total	3775	3965	3887	3810

So the drop in the Loonie is going to cost the league about $77 million Greenbacks this season. The net effect on revenue is that rather than a 5% increase, the league will only see about a 0.9% increase.

Projecting 2015 from 2013

Here I have increased each team by 10.25% (5% then 5% again) from 2013 levels. Again, the first two columns are in local currency. The latter four reflect converting Loonies to Greenbacks at the listed exchange rates.

Team	2013-14 Revenue	2015-16 Estimate	Exchange 0.93	Exchange 0.80	Exchange 0.70	Exchange 0.60
New York Rangers	217	239	239	239	239	239
Chicago Blackhawks	172	190	190	190	190	190
Boston Bruins	164	181	181	181	181	181
Los Angeles Kings	146	161	161	161	161	161
Pittsburgh Penguins	141	155	155	155	155	155
Philadelphia Flyers	136	150	150	150	150	150
Detroit Red Wings	134	148	148	148	148	148
Washington Capitals	117	129	129	129	129	129
San Jose Sharks	117	129	129	129	129	129
Dallas Stars	113	125	125	125	125	125
Minnesota Wild	111	122	122	122	122	122
New Jersey Devils	111	122	122	122	122	122
Anaheim Ducks	107	118	118	118	118	118
Colorado Avalanche	104	115	115	115	115	115
Buffalo Sabres	103	114	114	114	114	114
Nashville Predators	98	108	108	108	108	108
St Louis Blues	98	108	108	108	108	108
Tampa Bay Lightning	97	107	107	107	107	107
Carolina Hurricanes	91	100	100	100	100	100
Columbus Blue Jackets	86	95	95	95	95	95
New York Islanders	83	92	92	92	92	92
Florida Panthers	83	92	92	92	92	92
Arizona Coyotes	80	88	88	88	88	88
US total	2709	2988	2988	2988	2988	2988
Toronto Maple Leafs	204	225	209	194	169	145
Montreal Canadiens	201	222	206	191	167	143
Vancouver Canucks	166	183	170	157	138	118
Calgary Flames	131	144	134	124	108	93
Edmonton Oilers	128	141	131	121	106	91
Ottawa Senators	126	139	129	120	105	90
Winnipeg Jets	110	121	113	104	91	78
Canadian Total	1066	1175	1092	1011	884	758
NHL Total	3775	4163	4080	3999	3872	3746

If the exchange rate is 0.70, 2015 league revenue increases about 3% from 2013 levels. At a rate of 0.60, 2015 revenue would fall slightly from 2013 levels. Note, too, what happens to individual teams. Toronto falls from 2 to 8, Montreal from 3 to 9, Vancouver from 6 to 18, Calgary from 11 to 27, Edmonton from 12 to 28, Ottawa from 15 to 29, and Winnipeg from 22 to 30.

Cap Escalator

The CBA contains a provision that the estimated mid-point will rise by 5% each year unless either the NHL or the NHLPA requests a different value.

(Preliminary HRR for the prior League Year multiplied by fifty (50) percent (the Applicable Percentage), minus [-] Projected Benefits), divided [/] by the number of Clubs then playing in the NHL (e.g., 30), shall equal [=] the Midpoint of the Payroll Range (which figure shall be considered the Midpoint only for purposes of calculating the Adjusted Midpoint; all references to the "Midpoint" thereafter shall mean the "Adjusted Midpoint"), which shall be adjusted upward by a factor of five (5) percent in each League Year (yielding the Adjusted Midpoint, which shall then become the Midpoint of the Payroll Range) unless or until either party to this Agreement proposes a different growth factor based on actual revenue experience and/or projections, in which case the parties shall discuss and agree upon a new factor.

If the midpoint rises 5% the cap would rise by 5% also. For the NHLPA, this is a doubled-edged sword. On the one hand, it means more money is available to sign free agents. On the other, it is a form of discount on current contracts.

Suppose the NHL and NHLPA agree to keep the 2015 midpoint at it's current value, revenue grows the expected 5%, and the Loonie falls to 0.60 Greenbacks. Money would have to be paid back out of current contracts. The amount would be about 4.9% of each contract. Alternatively, if the 2015 midpoint is allowed to rise 5%, revenue grows 5%, and the exchange rate is 0.60, the payback amount is 9.97%