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Predicting the 2015-16 Salary Cap

NHL revenues are up but the Canadian Dollar is in free fall

Probably worth more than actual Canadian money at this point
Probably worth more than actual Canadian money at this point

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%