Friday, June 27, 2008

$56.7 Million Salary Cap

The NHL announced yesterday that the salary cap for the 2008/09 season will be $56.7 million. The salary floor will be $40.7 million. This means the Nashville Predators, Phoenix Coyotes and Columbus Blue Jackets will be forced to raise their payroll.

Nashville will be forced to raise payroll by almost $6 million. This may be tough given the current ownership problems the team is having. Phoenix will have to raise payroll by almost $4 million. Although they added Olli Jokinen in a draft day trade, this move does little to help as the players they gave up Keith Ballard and Nik Boynton make roughly as much as Jokinen does. Columbus will have to raise their payroll by almost $2 million.

It is interesting that the salary floor is larger than the $39 million salary cap that existed immediately following the lockout. Because the salary cap is linked to NHL revenues, this does not show that the players "won" the lockout. It merely shows that the NHL revenues are rising and the players are getting their allotted share.

Despite leaguewide revenue rising, there are a few weak markets that are not making significant gains. Nevertheless, these markets must pay out more in salary (and hold back the rest of the league due to revenue sharing). These markets are in a bad situation. They cannot keep up with the league financially and make a profit. I think this will lead to changes in the NHL. I think a few weak markets will be forced to move (or less likely be contracted). This CBA puts direct pressure on markets that are struggling financially. They must pay a minimum salary that they may not be able to afford. They must reach certain goals or they lose revenue sharing money. This CBA may have been designed to help those weaker markets, but it may force them to die when they cannot reach salary floors and cannot qualify for revenue sharing.

It is interesting the way fans react to the news of a rise in the salary cap. In general the see this as a bad thing (for example this blog post). There is a deepseated bias against players making big money. It does not seem to be understood that if the players don't get the money the owners will. It does not seem to be understood that the salary cap is directly linked to revenue, so a jump in the salary cap indicates health of the league. These fans celebrate the news of attendance records (for example here) and grimace at the news of a rise in the salary cap. It is not clear to the casual fan that the two events are strongly related. Higher attendance at games likely means higher revenue, which means higher salary cap. Those fans who are excited about high attendance should be even more excited about a high salary cap.

The salary cup in the NHL is up again. It will be $56.7 million. When free agency starts next week, be aware that Nashville, Phoenix and Columbus must be players merely to satisfy the salary floor. It is an interesting situation when teams that are struggling financially are forced to spend more money in the future. It is one of the absurdities of the current NHL CBA.

Here is the TSN story about the rising salary cap.

I'm all for the players making money - heck, I don't even mind the owners making money, since they're the ones with the multimillion dollar investments.

The thing that concerns me with this news is the bottom line for fans. Unlike the other three big team sports in North America, hockey's funding comes from gate receipts rather than a big television contract. Merchandising, local broadcast rights, and other sundries can't make up the whole difference, especially if a team doesn't make the playoffs (and thus loses the most profitable home dates of the season).

A floor of $40.7 million means that a team has to make about a million bucks per home date to make the minimum payroll, to say nothing of their overhead, front office expenses, and such. What does that do to ticket prices, parking, concessions, etc? Years of pricing out lunch-pail fans is going to hurt in the long run.
The salary floor or cap don't change ticket prices. Supply and demand do. If there is no demand for them the prices drop and if there is demand they rise. That's how teams maximize revenue.

That is a point that seems outside the grasp of the "average" fan.
Nashville doesn't need to raise their payroll, and they're not having difficulty signing contracts. They already have roughly $45 million committed to players next season.

Yes, the Del Biaggio situation is a circus, but it's not disrupting the operations of the team.
In trying to trace your claim of a $45 million payroll, I went to nhlscap. Adding up all the salaries for the 34 players they list next year that comes out about right. Of course Nashville will have 23 players in the NHL and that will significantly reduce the numbers. I bet their total payroll according to the cap next year comes in below $45 million by at least a couple million.
Dood. Put away the broad brush until you've learned to color within the lines, willya?

Your salary source is as flawed as your assumption, at least regarding Nashville. NHLSCAP hasn't been updated since just after the resigning of Ryan Suter, and doesn't show the subsequent signings of Shea Weber ($4.5 M), Dan Ellis ($1.75 M), or the lesser but just as important qualifying offers to Kevin Kline and Ville Kloistinen. All in all, the Predators have committed just under $46 million to NHL contracts for next season, and they aren't finished yet.

They far and away have been the most active team in the league in signing players so far this offseason, and are not shrinking away from spending the money they need to spend to lock up their talented core of players.

Now granted, they may shuffle some of that 46 mil around in trades and role player signings, but the point is, the new ownership group announced MONTHS ago that it intended to have a payroll in the $46 million dollar range for this season.

The new ownership group intends to keep the team here and to continue to make it a Cup contender year in and year out. This is no surprise to anyone here; so why is it so hard for you folks who 'know' hockey so much better than we do to believe it as well?

I can't speak for those other markets you claim are near extinction, but if you wouldn't mind, could you please stop speculating about the Preds — at least for a couple more years? I mean, what is it with you people?

Sorry for the rant, but next time, I would suggest you do your homework before making such broad generalizations, okay?
I am not optomistic about the Predators future. $46 million payroll or not. They do have a good group of young players who will get more expensive to keep together. And this is what we are seeing. $46 million is a strategic value for the team. It is below the salary midpoint so that qualifies them for the extra revenue sharing that comes from leftover escrow money. Without revenue sharing, there probably would be no Predators right now.

The team is in financial trouble. How will they find a buyer for the 27% of the team Del Baiggio was supposed to buy? How will they handle a bump in payroll by about $12 million from last year given the US recession? That is a big jump in payroll and they were not profitable with a lower payroll.

Financially the Predators are not on stable ground. Things are very close to falling apart completely and have been for over a year.
Look, I'm not going to get into a p*ssing match with you over whether or not the team is on tenuous ground financially; they are, obviously, just like a dozen or so other teams in the NHL — even ones in established markets.

The point I tried to make that you and others of your ilk keep missing is that this is not the same ownership of years past. What happened in the fire sale of 2007 was on the watch of the outgoing ownership. The new ownership has only now in recent weeks been able to begin placing their own stamp on this team and, as you say, "this is what we see."

Yes, they're likely to keep the salary budget below the line in order to qualify for profit-sharing; why the hell shouldn't they? But give them a freakin' chance to do something, is all I'm saying.

Craig Leipold, the Preds' original owner did not live here and had absolutely no juice within the corporate community, hence no corporate support, which is the only thing the Preds are missing as an organization.

That however has already begun to change with the new owenership group, who now are ALL local and well-integrated and greatly respected within the corporate Nashville community.

And yes, that $27 mil of Boots' former share will be hard to replace, but they WILL replace it. This group had already been approved to purchase the team BEFORE Del Biaggio changed his position from attempting to buy the team outright. They didn't NEED his dough to buy the team, but they sure all heck didn't reject it when he wanted to keep from getting shut out of the action altogether.

They will continue to push, and bring on more of the corporate community to purchase season tickets, which is something Leipold simply could not do and then stamped his feet like a crybaby because they just "didn't get it."

It wasn't hockey the local corporations didn't like, it was the Preds excuse for a marketing department and the sense of entitlement in which they approached them.

But it is hard now, as everyone is hurting in the States with the value of the greenback. However it wasn't long ago that the roles with the Canadian dollar were reversed, and it was several of the Canadian teams that comprised the 'dead weight' of the league. Is your memory that short? And listen, if you don't think that this situation will eventually correct itself, well, you're obviously no fan of history.

I hope desperately for an economy in which BOTH the Canadian and US dollars are strong, and you should too. But if that's the case, then you should also be considerate of the obvious role that the current situation plays on the financial circumstances of the entire NHL, and not selectively tune out those factors based upon what appears to be your bias towards NHL teams in 'non-traditional' markets.

All I'm asking you to do is look at your own reasons (and potential bias) before you leap to conclusions.

And specifically, I'm asking you to give the new ownership group and the management of the Nashville Predators a chance to make inroads into the community, build a more secure fan base, and change the culture here just as Dallas and Tampa Bay had done before them.

It can happen. Give it a chance.

Thanks for allowing me to chirp a bit here. Take care.
Don't "average fan" me, bro. And I know my basic economics. So do the owners. Of course they're going to raise prices to meet increased costs on their end. That's what businesses do when they can't cut costs - and the salary floor represents a cost that cannot be cut any lower.

Had you taken more than three minutes to reply to me you would have seen my point - making the extra money to pay the players means raising prices, which hurts demand, which lowers revenue... but too low prices means that even in a packed house the team loses money, and can't cut payroll to avoid losing their shirt.

A national TV deal would help make teams less gate-dependent and stabilize their income. In the NFL, the braodcast contracts are so large that each team's share pretty much covers their payroll before the first preseason kickoff. Now, the NHL will never get that kind of a deal, but they've got to get something in the States; even a little bit would help.

Hell, you're the one who goes on about teams losing money in many markets despite the league's record attendance levels. If those fans can't afford to attend games any more, what's going to happen then? I doubt the owners are each going to volunteer to lose money ever year no matter how much they love hockey. And if the revenues go down so do salaries, and the players aren't going to be happy about that either.
Financially, teams want to maximize revenue. There is a point on a supply and demand curve where revenue is maximized (it is not always a point that maximizes the attendance). Teams might find a partially filled house generates more money than a filled house if ticket prices are higher for a partially filled house.

Of course the theory breaks down a bit because teams do not know exactly what the shape of the supply and demand curve is and they do not know where on the curve they are. They have to find this point with a bit of guesswork.

Teams have lowered ticket prices in St Louis and Dallas (and I am not certain if they are the only markets) in the last two years in order to find that point.

That point is independant of costs. It doesn't matter what player salaries are. They still want to maximize revenue.

Sure they claim increased costs as a reason to increase ticket prices, but on an economic level that doesn't make sense. The real reason to increase ticket prices is because they believe they will make more money with higher ticket costs. They would lower ticket prices if they believe that will draw more fans and thus make more money, were that the situation.

Would a better TV deal help teams make more money? Of course it would. Would it lower ticket prices? No. Fans have already shown they will pay big bucks to go to games, so the smart thing is to charge them big bucks and increase the amount they are chanrged whenever the market can withstand it.
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