The NHL’s Salary Cap Floor- Bad for Business

The National Hockey League (NHL) and the National Hockey League Players Association (NHLPA) entered into a collective bargaining agreement in 2005, which include the implementation of a hard salary cap system. This system sets maximums each franchise can spend on player salaries, but it also mandates the minimum a team can spend, known as the ‘cap floor’. In theory, the cap floor is a good idea as it would act as a safety net to ensure that each team makes an effort to be competitive. However, the implementation of the cap floor has hurt the league and has made struggling franchises struggle even more. This is because when large market teams make a profit, it increases the league wide revenue totals, which in turn makes the cap-ceiling rise the following season.  When the cap ceiling rises, so too must the cap floor according to the collective bargaining agreement. To demonstrate how this is damaging to small market-franchises we can look at the NHL franchise valuations by Forbes Magazine. Forbes found that seven teams (The Toronto Maple Leafs, New York Rangers, Montreal Canadiens, Red Wings, Philadelphia Flyers, Blackhawks and Vancouver Canucks) combined to earn $241 million, with no one making less than $13 million in 2010. Meanwhile, in the same year sixteen teams lost money, dropping the league aggregate to $63 million. Thus, even though the majority of teams lost money, the salary cap went up the following year. This results in small market teams whose owners have not increased their revenue, and have not made a profit, to pay even more just to keep up with league mandated cap-floor spending that is dictated by the increased revenues of a few large market teams. Put another way, the rich continue to get richer while forcing the poor to get poorer – the exact opposite of the objective of the salary cap. Teams that are challenged to meet the rising cap-floor are forced to take on grossly inflated, front-loaded contracts where the cap hit is more than the salary remaining as an attempt to make the cap floor. The Florida Panthers are a good example of a team who struggle to sell tickets, and have had to stretch to be able to make it to the salary cap floor, in many ways being used as a dump for the healthy franchises in the league to put their contracts that they no longer want. The salary cap floor provides an unfair playing field as league revenues, driven by rich-teams, continue to skyrocket while small-markets struggle to meet the floor. In order to combat this issue, the NHL should eliminate the cap floor provision in the next CBA negotiations and rely on their franchise owners to not milk the system and attempt to be competitive.

SOURCES

http://www.forbes.com/sites/kurtbadenhausen/2012/09/18/nhl-lockout-is-all-about-the-benjamins-and-who-doesnt-have-them/

http://www.capgeek.com/

http://ca.sports.yahoo.com/nhl/blog/puck_daddy/post/blackhawks-gm-brian-campbell-trade-to-florida-in-process?urn=nhl,wp7995

http://sports.espn.go.com/nhl/news/story?id=1992793

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2 Responses to The NHL’s Salary Cap Floor- Bad for Business

  1. bcubello says:

    I believe that forcing teams to meet a minimum salary (cap floor) is bad for the NHL. I am aware that in theory it is meant to maintain a competitive balance throughout the league, but in reality it does not work as intended. Enforcing a salary cap floor may in fact set teams back. Teams such as the Florida Panthers that want to rebuild with young players cannot fully commit to this process because they will be forced to sign an expensive veteran to simply meet a minimum team salary. Therefore, this veteran player that has no future with the team will be taking away ice time from a younger player who may be an important piece of the future

  2. tybrewer says:

    I agree that the cap floor does have a big negative impact on the basement teams. I believe this problem began when the NHL went through their erratic expansion period in the early 2000s. It created a dilution of talent and put franchises in non-traditional hockey cities. With a reduction in talented players casual fans are not going to go to a game due to lack of excitement. I agree the cap floor is a problem for small market teams, but oppose to removing this part, I believe contraction would be more beneficial. League wide revenue would be split across fewer franchises, so the teams remaining who were part of the struggle will get more help. Also increased skill levels will improve the chances of casual fans attending games.

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