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# Predicting the 2015-16 Salary Cap

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

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%