Mirtle's Salary cap projections

[Robbob]

owners are just making things worse with fifty heritage classics and out door games. They should have waited a bit to see how everything played out.

[kermitology]

Originally Posted by Oling_Roachinen

But the reason for the cap increasing is increased revenues. You're throwing in an additional 430M on average into the HRRR from the new TV deal alone. And on top of the money the American teams get from it the teams that benefit from revenue-sharing are getting an even bigger piece of that pie. When Mirtle's using the 5B+ HRRR to calculate the later caps, over 6% or 300M+ of that is going into the revenue sharing pot. Despite the cap implications the struggling teams are more than happy with the TV deal.

So I don't think you can just look at the increasing salary floor and call it a death knell. Struggling teams not capable of putting fans in the stands will still be in the red, but that's no different than today and if it's the same teams in 10 years from now it's about time to call it quits with them anyways.

This is first and foremost a gate driven revenue league. Depending on the revenue sharing model, it's going to be extremely difficult for the lesser fortune teams to compete. And personally, I'd like to see more teams being able to compete.

[Tyler]

Originally Posted by Robbob

owners are just making things worse with fifty heritage classics and out door games. They should have waited a bit to see how everything played out.

In a gate-driven league where the revenue from THIS season matters so much, why WOULDN'T YOU have a million of these things?

[Oling_Roachinen]

Originally Posted by kermitology

This is first and foremost a gate driven revenue league. Depending on the revenue sharing model, it's going to be extremely difficult for the lesser fortune teams to compete. And personally, I'd like to see more teams being able to compete.

Yeah, which is exactly why those small market teams are thrilled to see 5.2B of revenue coming in, that they get to see, from something outside of ticket sales. It's reducing the impact of ticket sales. The more money the league generates that isn't driven by ticket sales the better off teams incapable of selling tickets are. So now with the NBC and Sportsnet TV deals the league is going to be making in a couple years 650M from them alone. And since the NHL shares evenly national broadcast revenue (although not all is considered national) that's a pretty huge chunk of the revenue that's being split evenly. It's actually more than half off what the league generating from ticket sales in 2010-2011 (1.2B).

The more HRRR percentage generated from TV deals, merchandising, sponsorships and the like that is split evenly between Toronto and Phoenix the better off those small-teams are.

[Erick Estrada]

Originally Posted by kermitology

This is first and foremost a gate driven revenue league. Depending on the revenue sharing model, it's going to be extremely difficult for the lesser fortune teams to compete. And personally, I'd like to see more teams being able to compete.

Yep. RSN money aside I just can't see teams like Florida, Columbus, Nashville, etc surviving long with a $70+ million salary cap floor. They practically give away tickets in Florida and can't get 10,000 people, even bigger markets like Denver and Dallas play to a lot of half empty buildings. I think people have to realize that just because each owner is going to get a fat cheque from RSN that doesn't mean they will all take that money and use it all wisely or properly.

[Oling_Roachinen]

Originally Posted by Erick Estrada

Yep. RSN money aside I just can't see teams like Florida, Columbus, Nashville, etc surviving long with a $70+ million salary cap floor. They practically give away tickets in Florida and can't get 10,000 people, even bigger markets like Denver and Dallas play to a lot of half empty buildings. I think people have to realize that just because each owner is going to get a fat cheque from RSN that doesn't mean they will all take that money and use it all wisely or properly.

It's not really black and white. Mirtle's arriving at the 69M cap by having an increase HRRR increase by 10% between 2014-2015 and 2015-2016, followed by a 7% increase, and than an increase by 5% both seasons after that.

For ticket, food sales, parking etc to result in the same % increase it would require nearly a 7% increase annually in those 4 years. Those are hefty hefty numbers. Maybe a team like the Islanders turning it around and with the new arena could account for a big increase in the numbers but if we're going with the struggling teams continue to struggle argument, it's the difference between paying $15 for parking and $20 at the Dome, $100 dollar ticket and a $130 dollar ticket. While scalped tickets have gone up in prices, the face-value of tickets in Toronto going up 2.5% was a big enough deal to warrant a news report.

So while revenue climbs from 3B to 5B that additional 2B in revenue may not (almost certainly) wont stay proportionate to the current spit vs non-split revenue stream. Throw in the revamped revenue sharing which is 6% of the HRRR, (and at 5B that's 300M) distributed among the teams losing money and they may not be any worse off if the salary floor rises. When Phoenix filed for bankruptcy they reported that they had a higher revenue result from revenue sharing than ticket sales! When the new owners bought the Coyotes it was after the CBA made them fully eligible for revenue sharing which today could be as much as 20M. By the time the revenue reaches the 5B that results in 70M floor, an increase of 20M from today, there's a legitimate chance that bottom teams could be bringing in as much as 40M from revenue sharing making up for the increased floor.

However, again, if they are in the red now it's not like they would be climbing out of it without major changes. I think it will remain much closer to status quo than not with a bit more room for team disparity but about what we're use to today. Teams that continuously lose money will continuously be rumoured for relocation like today, might even happen (especially with Phoenix's out clause) like when the Trashers moved, but it's not like in 2017 half the teams will be packing up and moving.

[Vinny01]

I sure hope the Flames are able to use their excess cap space to use soon or it will be too late if the cap keeps going up.

$8M+ is going to be the norm for deals moving forward. Maybe the Oilers or it right locking up their kids to $6M deals

[PeteMoss]

The reason I believe the cap doesn't jump next year is because that cap is based on this year's revenue. The new TV money doesn't factor into the cap until the year after.

[kermitology]

Originally Posted by Oling_Roachinen

It's not really black and white. Mirtle's arriving at the 69M cap by having an increase HRRR increase by 10% between 2014-2015 and 2015-2016, followed by a 7% increase, and than an increase by 5% both seasons after that.

For ticket, food sales, parking etc to result in the same % increase it would require nearly a 7% increase annually in those 4 years. Those are hefty hefty numbers. Maybe a team like the Islanders turning it around and with the new arena could account for a big increase in the numbers but if we're going with the struggling teams continue to struggle argument, it's the difference between paying $15 for parking and $20 at the Dome, $100 dollar ticket and a $130 dollar ticket. While scalped tickets have gone up in prices, the face-value of tickets in Toronto going up 2.5% was a big enough deal to warrant a news report.

So while revenue climbs from 3B to 5B that additional 2B in revenue may not (almost certainly) wont stay proportionate to the current spit vs non-split revenue stream. Throw in the revamped revenue sharing which is 6% of the HRRR, (and at 5B that's 300M) distributed among the teams losing money and they may not be any worse off if the salary floor rises. When Phoenix filed for bankruptcy they reported that they had a higher revenue result from revenue sharing than ticket sales! When the new owners bought the Coyotes it was after the CBA made them fully eligible for revenue sharing which today could be as much as 20M. By the time the revenue reaches the 5B that results in 70M floor, an increase of 20M from today, there's a legitimate chance that bottom teams could be bringing in as much as 40M from revenue sharing making up for the increased floor.

However, again, if they are in the red now it's not like they would be climbing out of it without major changes. I think it will remain much closer to status quo than not with a bit more room for team disparity but about what we're use to today. Teams that continuously lose money will continuously be rumoured for relocation like today, might even happen (especially with Phoenix's out clause) like when the Trashers moved, but it's not like in 2017 half the teams will be packing up and moving.

Using your numbers above, with $5B in HRR, $300MM in revenue sharing and a cap floor of $70MM, you're still not going to see much money getting shared among the teams in need. Especially as that cap floor rises, more and more teams will need to tap into revenue sharing. If some teams are only deriving gate driven revenue on (let's say) < 8000 fans, and that list is going to keep growing, those teams are not going to be sustainable in the slightest.

[Enoch Root]

Originally Posted by PeteMoss

The reason I believe the cap doesn't jump next year is because that cap is based on this year's revenue. The new TV money doesn't factor into the cap until the year after.

Yes of course.

But this year's cap is set artificially low and doesn't represent this year's expected revenues.

Remember that the cap would have been about $70m in 2012 if there hadn't been a lockout. There has been nothing to suggest that revenues have regressed since then. Hard to imagine that current revenues are lower than they were 2 years ago.

Then factor in that there will be 6 outdoor games this year and it is pretty easy to come to the conclusion that the cap has to go up quite a bit. North of $70m is my guess.

[getbak]

Originally Posted by PeteMoss

The reason I believe the cap doesn't jump next year is because that cap is based on this year's revenue. The new TV money doesn't factor into the cap until the year after.

The CBA allows for "significant" known increases (and decreases) to be used in calculating the new cap. It defines significant as $20 million or more per season, and includes any source of revenue that can be accurately predicted, such as the opening of a new arena; a new sponsorship deal; or a new broadcasting rights deal.

The process for calculating the new cap is:

1. Take the preliminary actual HRR from the season that just ended
2. Subtract any known significant revenue decreases expected for the upcoming season (for next year, if they reduce the number of outdoor games, it may cause a significant reduction in revenue)
3. Add a 5% growth factor to the total to account for expected increases in revenue due to inflation and growth of the game
4. Add any known significant revenue increases expected for the upcoming season

This will provide the anticipated league-wide HRR for the upcoming season. They then take 50% of that number to determine the anticipated players' share of revenue.

From that number, they subtract the full cost of the players' benefits packages. This gives them an expected total value for all players' salaries for the upcoming season. That number is divided by 30 to determine the per team adjusted midpoint of the salary range, which should be the median team payroll for the upcoming season. Under the new CBA, the cap will be set at 115% of the midpoint and the floor at 85% of the midpoint.

[Oling_Roachinen]

Originally Posted by kermitology

Using your numbers above, with $5B in HRR, $300MM in revenue sharing and a cap floor of $70MM, you're still not going to see much money getting shared among the teams in need. Especially as that cap floor rises, more and more teams will need to tap into revenue sharing. If some teams are only deriving gate driven revenue on (let's say) < 8000 fans, and that list is going to keep growing, those teams are not going to be sustainable in the slightest.

That's counter-intuitive. More and more teams can not be losing money if revenue is increasing by 2B. Sure, Toronto, Montreal, and New York will be generating a large amount of that but the only way for revenue to increase as drastically as it's projected to be by the growth of the NHL. Things like the new TV deals, more sponsorships and merchandising will be just as responsible. And when the new Crosby, Toews, Phaneuf and Nash Stadium Series Jerseys go on sale the Predators are getting just as much from the ones sold on NHL.com and in Sportchek as the Penguins, Leafs, Rangers and Hawks.

What's really being underestimated here is the revenue split between the players and owners. Now that the NHL teams are getting 50% of revenue instead of that 43-46% and we're dealing with numbers like 5B, that's a difference of upwards of 350M a year in the owners' favour. A higher cap floor and ceiling is second fiddle to that wonderful news to the NHL owners.

There's certainly teams like pre-new owners Phoenix that were clearly not sustainable and if they don't have a turn around they still wont be. But there's enough check and balances set up and enough business savvy owners in the league that they wouldn't have just negotiated a new CBA that is detrimental to them if the NHL is making too much money.

[kermitology]

It's not counterintuitive. The higher the cap floor goes, the more teams are required to spend, but if gate revenues don't increase, teams are needing more of revenue sharing, and likely more teams will start dipping into that, meaning less for individual teams as payrolls continue to increase. Revenues drive increased requirement for spending, but if teams aren't mostly self sufficient, then they're ability to compete dries up, teams become less competitive, and gate revenues drop further because the team sucks and always will suck because their only able to scrape by at the floor.

[Oling_Roachinen]

Originally Posted by kermitology

It's not counterintuitive. The higher the cap floor goes, the more teams are required to spend, but if gate revenues don't increase, teams are needing more of revenue sharing

Not necessarily. If revenue is going up by 2B to 5B to reach that 70M we need to first find out where that additional 2B is coming from before we can make any judgement at all.

A portion will be increased ticket prices in the big 3, along with increased concessions but unless the ACC starts selling hot dogs for $2000.00 it's not likely that all 2B will be coming from the individual team portions. It's more likely, and actually confirmed, that a large portion will be increased merchandising, sponsorships and TV deals. So Phoenix today has increased their revenue without selling a single ticket just thanks to the new TV deal the board of governors signed. This isn't the same as revenue sharing, this is simply how the NHL deals with revenue. For merchandising sold through the NHL every teams gets 1/30, merchandising licensed to other companies (say Walmart), every teams gets 1/30, the only time a team sees a different share is when they sell it through themselves (Fanattic). When there's a national televised game all teams are getting 1/30th but I think there's a bit more to that.

So now if each team is seeing an additional 20M from those revenue streams and the 50-50 split (again can't underestimate this, it's why there was a lockout) and the cap goes up it might not change the dynamic of the teams at all. However if the average cap goes up 30M and small market team is bringing in an additional 40M from those revenue streams and revenue sharing all of a sudden that's better for these small-market teams because they've got more money to spend and now their gate revenue makes up a less percentage of their total revenue. And also there's simply other static costs that goes beyond player salaries, arena costs being a big one, but other employees, transportation, electricity, etc etc. that means if you're bringing in a lot more money, even if a lot of it has to go to players, that's less a percentage going to those other costs.

For a very simple example, let's say a team that relies heavily on the revenue sharing (15M), paying the cap floor, and is still losing money today. They have 50M in player salary, an additional 20M in other costs, and the cap floor in a couple years will force them to pay 70M, a 20M increase. Seems like that's the end of that franchise. Well not if they are making 15M more from league revenues (hence why the cap is skyrocketting) and the revenue sharing goes up by the same percentage as HRR.

Player salary: 50M-70M
Other costs: 20M-20M
Team revenue: 30M-30M
League revenue: 20M-35M
Revenue sharing: 15M-21M
Net Gain: -5M--4M

They're in near identical situation as today, paying the league minimum (73% what New York is spending on their players) and losing money but in this case a little bit less. You can fudge all those numbers around to put them in a better or worse position, the point is you got to know what those numbers are before making judgement. Yeah it might be a bit more realistic that the super havenot teams will lose a bit more with the increased salary cap but it's not to the extent that it would automatically mean they have to pack it in. If it is it probably means it's about time anyways.

The biggest question you have to ask, is would these NHL multimillionaire and billionaire owners put themselves in a position where they would be in a losing situation if the NHL made more money?

Also not sure why I always want to type HRRR

[TurnedTheCorner]

@TSNBobMcKenzie
NHL govs likely to get (14-15) cap projection from league when they meet early next week in California. Sounds like it may be around $70M.

2:42 PM - 6 Dec 13

[Loyal and True]

One thing that will likely change going forward is the exchange rate on Canadian Dollar.

If CDN dollar goes back to 85 cents US, 75 cents US, 65 cents US then this will make a huge impact on NHL revenue growth (measured in US dollars)

I would wager that a significant part of the revenue growth of the last 10 years would have been wiped out if the exchange rate wasn't so strong.

[Fire]

The UFAs this year must be excited. Cammalleri might get close to $7.5 on a short term deal.