The NHL held a Board of Governors meeting on Tuesday and the news is all about the salary cap:
Gary Bettman after a 4-hour Board of Governors meeting tells assembled media here in NYC that the escrow balance likely will be paid off at end of season by players. And if so, the salary cap will jump this summer by around $4M. But if not fully paid, cap goes up just $1M.— Pierre LeBrun (@PierreVLeBrun) October 18, 2022
In the days before the Memo of Understanding extension to the CBA was signed in 2020, the salary cap was set by a process that used the current year’s projected revenue every summer. Because projections were used, the league and the owners had the opportunity to be too optimistic, and they set the cap way too high many times aided and abetted by the players who invoked the “escalator” to raise the cap even more. This was the direct cause of high escrow and unreturned money to players. The owners want to spend and the PA is dominated by older players who want to get paid more now. The revenue fell below their heady expectations many years running.
The MOU recognizes this and sets up a sensible process to use actual revenue from prior years as well as the current projection in a completely new formula. Their idea is that, if the first estimate of the coming year’s revenue is more accurate, ultimately the cap will be set at the right amount. 2023-2024 is the first year the MOU allows this method, called the “Lag Formula” to be used, but only under certain conditions.
In the interim between 2020, when they signed this agreement, and now there needed to be some method to adjust the cap if the revenues rebounded rapidly — which they have. That method capped the increase at one million, a process we’re all familiar with.
The trigger to go from the interim method to the new formula is the erasure of the players’ escrow debt. That debt is the amount of salary that was paid out to players in 2019-2020 and 2020-2021 in excess of 50% of the actual revenue. That total amount of overpayment was considerable, and the MOU capped the escrow payments for these interim years in ways that would only pay off that debt if things returned to normal very quickly and teams spent right to the cap, which they have. This is good news in that sense.
And that brings us to the media reports that are stating that the cap next year is an either/or thing, either one million or four to four and a half, depending on that debt being paid off. And doesn’t that strike you as kind of dumb? To make the trigger an absolute condition, and have no middle ground?
Funnily enough it struck the authors of the MOU as dumb too:
• Upper Limit = $81.5 Million
• Midpoint = $70.9 Million
• Lower Limit = $60.2 Million
Thereafter (subject to the provisions above regarding the Extension Year):
• Upper Limit will remain at $81.5 Million until Preliminary HRR for the just completed League Year surpasses $3.3 Billion.
• For any League Year where Preliminary HRR is between $3.3 Billion and $4.8 Billion, the Upper Limit for the following League Year shall be between $81.5 Million and $82.5 Million on a pro rata basis (e.g., if Preliminary HRR is $4.05 Billion, the Upper Limit will be $82 Million).
• Once Preliminary HRR for the immediately preceding League Year surpasses $4.8 Billion, the Upper Limit will increase by $1 Million per League Year until the Escrow Balance is paid off.
• The parties can agree to increase the Upper Limit in excess of $1 Million in order to allow for a smoother transition into the ‘Lag’ formula.
• The parties agree to discuss the Upper Limit in good faith in the event projected or Actual HRR decreases on a year over year basis
If you want to read the Lag Formula, go ahead and click the link above.
I am assuming that media reports are largely or entirely based off of NHL press releases and statements. But the MOU couldn’t be more clear that the cap going up next year is not an either/or, one or four proposition, and it’s a little weird that the NHL has told everyone it is.
It’s good the MOU contained this kind of sensible language given the difficulty of predicting the future. Revenue growth has accelerated much faster than the assumptions built into the MOU seemed to expect. It would be absurd to be nearly at the trigger, to have the escrow debt almost paid off, but only increase the cap by 1 million because of “letter of the law” thinking.
The NHL isn’t a nation state, the CBA isn’t the constitution and Gary Bettman isn’t the Chief Justice of the Supreme Court. It pays to remember that (not just when talking about the salary cap).
How does this affect the Leafs???? Well, if you want to predict who gets signed and for how much and make up fantasy rosters and then worry about when, oh, when with Dubas trade Kerfoot, you can do that. Armchair GM has two years into the future you can play with. Go have fun.