Salary Cap concerns - all teams

premature estimation,

Heh-heh.

wprager wrote:

premature estimation,

Heh-heh.

lol, pre-mature ejestimation

PKC wrote:I think you guys are blowing this slightly out of proportion. With respect to the impending decrease in the salary cap, you have to remember that it's a premature estimation, and that even if it does decrease, there is a very strong possibility that within a year, the league will experience an upswing in revenue, thereby bringing the cap back up to it's current level of $56.8-million. And that in subsequent years, there is a definite possibility with some product strengthening that the NHL's salary cap can even continue to increase.

It's just on a cycle of highs and lows much like the rest of the global economy.

Even 1 decrease next year of less than 3M will result in massive havoc as teams try to ice teams within the cap limits. I have no doubt that the cap will climb in the next 2 or 3 years, but getting there will be the nightmare for most GMs.

RobbyJ wrote:

PKC wrote:I think you guys are blowing this slightly out of proportion. With respect to the impending decrease in the salary cap, you have to remember that it's a premature estimation, and that even if it does decrease, there is a very strong possibility that within a year, the league will experience an upswing in revenue, thereby bringing the cap back up to it's current level of $56.8-million. And that in subsequent years, there is a definite possibility with some product strengthening that the NHL's salary cap can even continue to increase.

It's just on a cycle of highs and lows much like the rest of the global economy.

Even 1 decrease next year of less than 3M will result in massive havoc as teams try to ice teams within the cap limits. I have no doubt that the cap will climb in the next 2 or 3 years, but getting there will be the nightmare for most GMs.

There will be a couple of GMs up Dung creek for sure. But you have to remember for every GM out there pushing the cap limit, there's a GM pushing the salary floor. It's not hard to envision tons of scenarios where they can shed the salary they need to, especially considering these guys are probably privy to early projections of the following year's cap.

It'll suck for the little guy who makes mid-range money and has to be replaced by the 19 year old because the kid comes cheaper. But that's business. And these players have to remember that they and their agents are just as much responsible for this nonsense as the GMs who spend to the cap are.

There really aren't that many pushing the floor. For instance, Florida has 44.5M committed to 14 one-way contracts in 2010/11. That doesn't include Frolic who is still on an ELC. Add in his contract and your looking at 46.7M for 15 contracts.

PKC wrote:I think you guys are blowing this slightly out of proportion. With respect to the impending decrease in the salary cap, you have to remember that it's a premature estimation, and that even if it does decrease, there is a very strong possibility that within a year, the league will experience an upswing in revenue, thereby bringing the cap back up to it's current level of $56.8-million. And that in subsequent years, there is a definite possibility with some product strengthening that the NHL's salary cap can even continue to increase.

It's just on a cycle of highs and lows much like the rest of the global economy.

Reading through this thread I see expressions like 'cap hell' and 'up Dung creek'...as if GMs are constantly looking down the barrel of a gun.

I disagree with that kind of characterization--and agree with PKC.

This whole salary cap 'crisis' has been artificially dramatized by certain elements in the hockey media...as they constantly have to find SOMETHING to write about, and get fans jacked up in the process.

Hockey GMs are like management in many other big businesses.

They have budget guidelines, and assets whose value fluctuates throughout any given fiscal year.

IMHO it's important to put things in perspective by acknowledging the upward trend in the cap since it was introduced in 2005-06.

That year the figure was $39MM (source: Wikipedia). More background here:
http://en.wikipedia.org/wiki/NHL_Salary_Cap

In five seasons the cap has risen to $56.8MM.

The howling about the cap supposedly, and inevitably, "going down next year", has been again, another scenario amplified by media hysteria.

The hysteria is based on the supposed impact of the US economy on NHL revenues. What is the evidence to support this? And what is the evidence to project the trend going forward?

If they operate as sustainable businesses with any kind of rigour, teams plan their budgets and lay out a variety of scenarios that anticipate changes in the financial landscape.

Furthermore, as GMs get more and more creative with contracts, i.e. the long term deals given by Detroit and Chicago to lock up their core players while reducing their annual cap hit, may become the norm.

There is a dramatic contrast to the free spending pre-lockout, and a concerted strategy by General Managers in response to the rampant inflation of the past few years. Teams may shift to a salary structure that has core players on so-called 'lifetime' deals, some players on one-to-three year contracts, and affordable entry level talent.

The players who have 'inflated' contracts, like the Brieres, Gomezs, Campbells, Heatleys and the like, are factored into the planning of their respective teams. These contracts reflect market conditions at the time and the percieved necessity to incentivize those players at that level.

Bryan Murray for example, has presented his arguments for having signed Heatley to a contract that made him, at the time, the highest paid player in the league.

One can agree or disagree with that decision, but there was a rationale--as there is with every contract.

On the other hand, a contract that has been amplified by unusual demand, such as we saw last year, can be a two-edged sword which ultimately affects the players even more than the teams. There are now players like the Tanguays, Comries, Nylanders, etc may find themselves either priced out of the market or facing a decision to play for less money.

We already see this happening, and there appears to be significant number of UFAs who may not even get contracts next year.

So who's up 'Dung Creek'? Certainly not the GMs--these players are.

This ancillary effect, of weeding out players in the mid-level, the so-called 'cap casualties' was predicted by NHLPA Director Paul Kelly months ago, and that news was posted on this forum.

Another aspect of the salary cap no one talks about is that GMs actually manipulate their cap all season long by shifting players on and off the roster and the LTIR.

Calgary, Anaheim, Detroit and Philly did this last year to varying degrees.

Fans tend to get caught up in the false drama created by the hockey media and exacerbated by the gossip on hockey forums.

But the management of assets and budgets is just part of what General Managers are paid to do.

To say they are 'in trouble' is an exaggeration.

Did Eugene Melnyk sound worried in his recent radio and press interviews because the Sens are 'over the cap' at the moment? Absolutely not.

Do Ken Holland, Paul Holmgren, Darryl Sutter, Dale Tallon or Bob Murray, to cite a few examples, sound worried about their moves they made or didn't make this June, and the ones to be made going forward?

Not at all. And why should they be?

Yes, it's a difficult job. But these are executives running enterprises valued at anywhere from $150MM to over half a billion dollars.

They're not stupid.

Hockey writers, on the other hand, are in large part, underpaid, disposable employees trying to justify their salaries. They earn their living sniping at players and management, in order to pump their readership and web page views...and rarely offer any profound insights into the complex entertainment business that hockey is today.

As for their salaries, hockey players are paid like rock stars and movie actors. That's the reality. And as long as their team wins and management is convinced they deliver the goods, the money they earn can be justified in one way or another. Risks can be taken, budgets can be adjusted, assets can be moved, problems can be solved.

What hockey writers, and ultimately fans, think, has little impact on this reality.

And while discussion on this subject can be as fascinating as the subject itself, IMHO it's important to understand our knowledge of the processes is extremely limited.

But fun to talk about? Sure.

DTR,

I am not looking at this from a team by team basis, but as a league wide cap. I have made some assumptions sure, but isn't that what projections are:

Assumptions:

1. On average each team will spend to a Cap hit of 54M (not a cap of 54M but the average total cap hit per team). I think this is being overly generous.

2. I am only using 1way contracts. Granted some will be in the minors but probably not a large amount. There will be some two-way contracts in the league but I am not including Tavares, Hedman, Stamkos, Schenn, etc.. because they could always be sent to the minors without passing through waivers as a way to get under the cap.

3. No bonus cushion allowed past this season. The CBA clearly states that options on the CBA will be year by year beginning in 2011, therefore GMs will have to account all bonuses into their cap numbers.

4. An average 22 player roster.

FACTS:

There is currently $1,037,814,182.00 committed to one way contracts for the 2010/11 season. This accounts for 303 contracts. Therefore 357 additional contracts are needed.

Revenues already decreased last year as we know because the NHLPA invoked their 5% escalator which added only 100K to the cap.

The NBA sent out letters to teams informing them to expect a drop in their cap and tax thresholds.

SUMMARY:

Based on the facts and assumptions listed above the Average Cap hit for the required 357 contracts in 2010/11 is 1.63M.

Anyway you slice it, that is "CAP HELL" for most teams.

See list of one way contract info below.

Team /1way Cap Hits /# of 1way contracts
Ana $28,062,500.00 9
Atl $18,223,750.00 9
Bos $41,225,000.00 10
Buf $38,917,007.00 9
Cal $44,009,999.00 14
Car $28,833,333.00 9
Chi $42,484,540.00 12
Col $21,733,333.00 7
Col $31,860,416.00 10
Dal $24,975,000.00 8
Det $40,704,543.00 13
Edm $40,925,000.00 11
Flo $44,425,000.00 14
LA $36,233,333.00 11
Min $32,907,777.00 9
Mon $42,482,141.00 11
Nas $32,162,500.00 10
NJ $38,225,000.00 11
NYI $23,620,900.00 8
NYR $43,012,500.00 11
Ott $46,262,500.00 11
Phi $44,098,213.00 11
Pho $24,308,333.00 9
Pit $41,008,333.00 13
SJ $35,224,999.00 9
StL $24,030,833.00 8
Tam $36,227,272.00 9
Tor $27,950,000.00 8
Van $29,750,000.00 9
Was $33,930,127.00 10

Robby>many thanks.

The media hysteria may already be subsiding, if this excerpt from Eric Duhatschek's Globe & Mail article today is any indication...

"No one can accurately predict next season's salary cap, although the early indications are that the drop may not be as dramatic as some had feared. For much of this past season, the expectation was that the cap would remain flat for 2009-10 and then drop – some estimates put it as high as 20 per cent – for next year.

"Naturally, that would put most teams, operating at or near the cap for the coming year, at a competitive disadvantage, and forced into making all sorts of unpalatable choices next season, if that were to occur.

"Now, however, there is a new emerging sense that the NHL has been spared the larger effects of the slumping economy and that next year's cap – if it shrinks at all – won't be nearly as bad as originally thought.

"The early indications of how the economy might affect the NHL have been mostly positive. Playoff ticket sales were good and season-ticket sales are reportedly going well in most of the traditional markets."

Well, whattya know... :^^^^:

Well, if you believe what the NHLPA has been saying all along, the teams lie about the actual revenues by hiding them. What if that was, in fact, the case? Then the NHL could, in fact, survive this recession without the revenues dropping sufficiently to reduce the cap. And since teams over the cap would be forced to dump salaries (buy-outs and so on) the NHLPA would be in favor of such a move. Or, rather, they would support not disclosing this.

davetherave wrote:Robby>many thanks.

The media hysteria may already be subsiding, if this excerpt from Eric Duhatschek's Globe & Mail article today is any indication...

"No one can accurately predict next season's salary cap, although the early indications are that the drop may not be as dramatic as some had feared. For much of this past season, the expectation was that the cap would remain flat for 2009-10 and then drop – some estimates put it as high as 20 per cent – for next year.

"Naturally, that would put most teams, operating at or near the cap for the coming year, at a competitive disadvantage, and forced into making all sorts of unpalatable choices next season, if that were to occur.

"Now, however, there is a new emerging sense that the NHL has been spared the larger effects of the slumping economy and that next year's cap – if it shrinks at all – won't be nearly as bad as originally thought.

"The early indications of how the economy might affect the NHL have been mostly positive. Playoff ticket sales were good and season-ticket sales are reportedly going well in most of the traditional markets."

Well, whattya know... :^^^^:

That's why I was conservative in my estimate of a 5% drop as opposed to the massive fears.

Read the quote carefully:

"Playoff ticket sales were good and season-ticket sales are reportedly going well in most of the traditional markets"

Note the word "reportedly", and the qualifier "most of the traditional markets"

Q: Where are the reports of playoff numbers coming from, and what credibility do they have?

Q: What qualifies as a "traditional market" and what proportion is "most"? (if it's an original six team, then there's a real problem; even "most" of 24 teams only requires 13 teams, and there certainly aren't only six "non-traditional" markets)

Remember that the only reason the cap didn't drop 5% this year was because of the escalator clause; the major economic hit hasn't come into play yet. We have yet to see the slowdown in the number of personal bankruptcies or job losses; housing will become a greater issue with the rising numbers of prime defaults, coupled with the next round of rate-resets.

Don't be surprised to see 5-10% minimum over the next two years, before things turn around.

Wayne Scanlan of The Citizen provides his view of the so-called 'cap crisis'...

GMs play with math to beat salary cap
Wayne Scanlan, OttawaCitizen.com, July 9, 2009

All these lifetime contracts for NHL players conjure up bizarre images in the minds of hockey fans.

They picture 42-year-old men, such as Chris Pronger or Marian Hossa, creaking as they move, trying to keep up with all those 2016 draft picks.

That's right, if Pronger were to fulfil his seven-year extension with the Philadelphia Flyers -- he has one season left on his current contract from Anaheim -- he would be playing through the 2016-17 season. Pronger turns 42 in the fall of 2016.

Hossa, who celebrated his 30th birthday in January, signed a 12-year deal with the Chicago Blackhawks. God love him, Hossa can skate all day long, but 12 years takes the Slovak winger to 2021, past his 42nd birthday.

These are hardly isolated contracts. Over the past few months and years, players like Henrik Zetterberg, Mike Richards, Alex Ovechkin, Vincent Lecavalier and Rick DiPietro have signed contracts for 12, 12, 13, 11 and 15 years, respectively.
The blogosphere is full of references to these contracts being "insane," "loonie," or just plain stupid.

Have general managers lost their minds?

Are they losing the battle to wily player agents?

To borrow a popular expression of Senators captain Daniel Alfredsson, "No, not really."

There is method to the madness.

In signing players to very long-term deals, GMs are accomplishing several things.
1. They are locking up players identified as key to the future of the franchise, preventing the likes of Ovechkin or Richards from jumping to rival teams via free agency.
2. These freakishly long-term, front-loaded deals are very effective at reducing the salary cap hit by streeeetching the money over many years.
3. The unspoken reality. GMs expect players to retire before those contracts are actually fulfilled -- but that seven- or 12-year term brings the average of the contract down to a very manageable level.

Pronger and Hossa are good examples. On short-term, two- or three-year deals, what could they command as free agents -- between $6 million U.S. and $8 million?

Probably.

Instead, the Flyers and Blackhawks are taking a cap hit of roughly $5 million for each player. To have Hossa, one of the most sought-after free agents this summer, on the roster next season at a $5.23 million U.S. cap hit is a bargain.

But, you ask, wouldn't a player like Pronger hang on for the final two years of his contract just to cash in?

Not likely. He is earning a pittance, $525,000 U.S. in each of the final two seasons of the deal, 2015-16 and 2016-17.

As one NHL GM said on Wednesday, "He won't want to play for that, after all he has made (in his career)."

As long as both parties fulfil the deal, both sides get what they want. The team likes the idea of keeping its best players, at the lower cap hit (also a strong promotional point with home-town fans). The player gets security and a whack of disposable dough in a hurry. Not only does Pronger net a seven-year term, he has control with a no-movement clause. While the cap hit is about $5 million on a $34.9-million deal, Pronger earns $7.6 million, $7.2 million and $7 million over the first three years.

The Blackhawks believe that by keeping Hossa's cap hit close to $5 million they can have their cake and Kane, too. Chicago GM Dale Tallon said the addition of Hossa did not hurt his chances of keeping a stable of good young players, including Jonathan Toews, Patrick Kane and Duncan Keith, all up for new deals after 2009-10.

"We took that into consideration," Tallon told the Chicago Tribune. "The type of contract Marian has agreed to will not influence our core."

Rarely, the smiles-all-around scenario gets destroyed by a player getting hurt or wanting to be traded. The New York Islanders have been mocked throughout the hockey world for giving DiPietro a 15-year, $67.5-million contract. They wouldn't look nearly as bad if DiPietro had stayed healthy over the last couple of seasons.

The Isles felt compelled to go out and get Dwayne Roloson as a free agent ($5 million over two years) because they can't count on DiPietro staying in the lineup.

Then there is the Dany Heatley story. Having paid so much of that up-front money ($10 million last season, $4 million on July 1 as an advance on next season), the Senators are understandably ticked that this long-term deal ("only" six years) fell apart because of Heatley's sudden trade demand.

Sometimes the right idea goes wrong.

davetherave wrote:Wayne Scanlan of The Citizen provides his view of the so-called 'cap crisis'...

GMs play with math to beat salary cap
Wayne Scanlan, OttawaCitizen.com, July 9, 2009

All these lifetime contracts for NHL players conjure up bizarre images in the minds of hockey fans.

They picture 42-year-old men, such as Chris Pronger or Marian Hossa, creaking as they move, trying to keep up with all those 2016 draft picks.

That's right, if Pronger were to fulfil his seven-year extension with the Philadelphia Flyers -- he has one season left on his current contract from Anaheim -- he would be playing through the 2016-17 season. Pronger turns 42 in the fall of 2016.

Hossa, who celebrated his 30th birthday in January, signed a 12-year deal with the Chicago Blackhawks. God love him, Hossa can skate all day long, but 12 years takes the Slovak winger to 2021, past his 42nd birthday.

These are hardly isolated contracts. Over the past few months and years, players like Henrik Zetterberg, Mike Richards, Alex Ovechkin, Vincent Lecavalier and Rick DiPietro have signed contracts for 12, 12, 13, 11 and 15 years, respectively.
The blogosphere is full of references to these contracts being "insane," "loonie," or just plain stupid.

Have general managers lost their minds?

Are they losing the battle to wily player agents?

To borrow a popular expression of Senators captain Daniel Alfredsson, "No, not really."

There is method to the madness.

In signing players to very long-term deals, GMs are accomplishing several things.
1. They are locking up players identified as key to the future of the franchise, preventing the likes of Ovechkin or Richards from jumping to rival teams via free agency.
2. These freakishly long-term, front-loaded deals are very effective at reducing the salary cap hit by streeeetching the money over many years.
3. The unspoken reality. GMs expect players to retire before those contracts are actually fulfilled -- but that seven- or 12-year term brings the average of the contract down to a very manageable level.

Pronger and Hossa are good examples. On short-term, two- or three-year deals, what could they command as free agents -- between $6 million U.S. and $8 million?

Probably.

Instead, the Flyers and Blackhawks are taking a cap hit of roughly $5 million for each player. To have Hossa, one of the most sought-after free agents this summer, on the roster next season at a $5.23 million U.S. cap hit is a bargain.

But, you ask, wouldn't a player like Pronger hang on for the final two years of his contract just to cash in?

Not likely. He is earning a pittance, $525,000 U.S. in each of the final two seasons of the deal, 2015-16 and 2016-17.

As one NHL GM said on Wednesday, "He won't want to play for that, after all he has made (in his career)."

As long as both parties fulfil the deal, both sides get what they want. The team likes the idea of keeping its best players, at the lower cap hit (also a strong promotional point with home-town fans). The player gets security and a whack of disposable dough in a hurry. Not only does Pronger net a seven-year term, he has control with a no-movement clause. While the cap hit is about $5 million on a $34.9-million deal, Pronger earns $7.6 million, $7.2 million and $7 million over the first three years.

The Blackhawks believe that by keeping Hossa's cap hit close to $5 million they can have their cake and Kane, too. Chicago GM Dale Tallon said the addition of Hossa did not hurt his chances of keeping a stable of good young players, including Jonathan Toews, Patrick Kane and Duncan Keith, all up for new deals after 2009-10.

"We took that into consideration," Tallon told the Chicago Tribune. "The type of contract Marian has agreed to will not influence our core."

Rarely, the smiles-all-around scenario gets destroyed by a player getting hurt or wanting to be traded. The New York Islanders have been mocked throughout the hockey world for giving DiPietro a 15-year, $67.5-million contract. They wouldn't look nearly as bad if DiPietro had stayed healthy over the last couple of seasons.

The Isles felt compelled to go out and get Dwayne Roloson as a free agent ($5 million over two years) because they can't count on DiPietro staying in the lineup.

Then there is the Dany Heatley story. Having paid so much of that up-front money ($10 million last season, $4 million on July 1 as an advance on next season), the Senators are understandably ticked that this long-term deal ("only" six years) fell apart because of Heatley's sudden trade demand.

Sometimes the right idea goes wrong.

While I like the Hossa move, the Flyers really messed up and will be carrying the cap hit even if he retires. I think every team will have one or two of these deals going forward.

RobbyJ wrote:
While I like the Hossa move, the Flyers really messed up and will be carrying the cap hit even if he retires. I think every team will have one or two of these deals going forward.

I think you underestimate GMs. Worst case scenario, and this is absolute worst case scenario if they can't get his cap hit off the books from retirement, they buy out his last two years at about 150k per year for 4 years. Marginal numbers for a team like Philadelphia. There are ways to get around this stuff you know...these GMs have legions of lawyers with immense knowledge of the CBA at their disposal.

PKC wrote:

RobbyJ wrote:
While I like the Hossa move, the Flyers really messed up and will be carrying the cap hit even if he retires. I think every team will have one or two of these deals going forward.

I think you underestimate GMs. Worst case scenario, and this is absolute worst case scenario if they can't get his cap hit off the books from retirement, they buy out his last two years at about 150k per year for 4 years. Marginal numbers for a team like Philadelphia. There are ways to get around this stuff you know...these GMs have legions of lawyers with immense knowledge of the CBA at their disposal.

A buyout of a player who falls into the 35 year old category, such as Pronger, makes no difference cap wise. The Flyers have a 5M cap hit for 7 years regardless of retirement of demotion to minors. They screwed up and misread the CBA. I think you overestimate the ability of GMs to manage the cap. There is a reason that NFL teams have a postion called capologist with their own staff.

PKC wrote:

RobbyJ wrote:
While I like the Hossa move, the Flyers really messed up and will be carrying the cap hit even if he retires. I think every team will have one or two of these deals going forward.

I think you underestimate GMs. Worst case scenario, and this is absolute worst case scenario if they can't get his cap hit off the books from retirement, they buy out his last two years at about 150k per year for 4 years. Marginal numbers for a team like Philadelphia. There are ways to get around this stuff you know...these GMs have legions of lawyers with immense knowledge of the CBA at their disposal.

If PHI were to buy out the last year of Pronger's deal, they wouldn't have to pay him very much, it's true -- but the hit against their cap would be much more substantial that you suggest.

The figure would be 2/3rds of $4.9 mil spread over 2 times the remaining years (so, 2 x 2 = 4 years). 2/3rd of $4.9 mil = $3.234 mil, and $3.234 mil divided by 2 = $1.617 mil. PHI would thus have a hit against their cap of $1.6 mil for the next four years after Pronger's 'buyout,' or more than 10 times the cap hit you were suggesting.

Not a great scenario, you have to confess. I tend to think that PHI thought they were going to get away with this, because they signed Pronger to the deal before he turned 35, but it blew up in their faces.

Since they signed after 35 (not before, as they thought), doesn't the full cap hit apply?

Or is that just the fact that retirement for contracts signed after 35 doesn't negate the cap hit?

Acrobat wrote:Since they signed after 35 (not before, as they thought), doesn't the full cap hit apply?

Or is that just the fact that retirement for contracts signed after 35 doesn't negate the cap hit?

If Pronger retires at any point during this contract, the full cap hit ($4.9 mil) will remain on the Flyers' books until the contract expires.

If they try to buy him out, they will get stick with a cap hit of 2/3rds the value of Pronger's cap hit ($4.9 mil) spread out over twice as many years as remain on the contract (so, if they buy him out with 3 years remaining on the contract, they get stuck with a cap hit of $1.617 mil for 6 years; if they buy him out with 2 years remaining, they get stuck with a cap hit of $1.617 mil for 4 years; etc, etc).

The bottom line is that this deal is going to cause some havok for PHI's cap situation moving forward, especially during the last 2-3 years of the deal, when Pronger will be in his late thirties and early forties.