Salary Cap Inflation

Contract season is here, and with it talk of the rising salary cap. It's going way up so fast the expectations of fans will lag behind reality for years. I have no hope that everyone will stop comparing face value of contracts to past amounts, but you should stop doing it. I assure you, every agent has.

The season not yet ended has a salary cap of $88M. That is an 8% increase over the cap in 2019-2020, what eventually became the first year of the flat-cap era. It hadn't been soaring prior to that year with only a $2M increase over 2018-2019. At that time, the increase every year was effectively capped at 5% with a little wiggle room for a small bump over that.

Everything has changed now. In January of this year, the NHL and NHLPA negotiated provisional cap numbers for the coming three seasons. As they work towards a new CBA, this concept of announcing amounts well in advance will likely become part of the standard process.

The first increase from this year to the coming season is 8.52%. More than the scale of all increases since before Covid. The increases are then going to increase, although the 2026 through 2028 numbers are subject to change. It would take a major financial downturn to make those numbers come down. That is, of course, possible, and these figures are carved in ice, not stone. But you should expect everyone to act like it's a done deal.

What this means is that a player making $5M now on an expiring contract is going to be looking for close to $5.5M just to stay even on a one-year deal. A player on a $10M contract is going to be looking for almost $11M as just keeping up with the rising tide.

As we saw with the rhetoric around Auston Matthews' extension, the desire is strong to compare highly paid players to each other ignoring entirely when the deal was signed. This worked mostly fine since 2018, but any GM who tries it is going to get laughed at. Or, more realistically, decide he needs to trade Mikko Rantanen rather than re-sign him once he gets a look at the scale of the increase.

Whichever team goes for Mitch Marner is going to have some fans outraged at the face value of his deal as a "big raise". But new contracts don't just have to contend with one year of cap increases, they have to contend with three, and possibly many more to come.

To give you an idea of what all that looks like, how a contract loses value relative to cap increases, and what a consistent salary would have to look like just to keep pace, this is a quick version at those two contract points.

Note that the AAV that keeps the $5 million player at 5.68% of the cap over three years is $6 million, and the $10 million player needs $11.9 million just to consider himself not taking a pay cut.

Look, I know you're not convinced, and you think players should always sign for less in AAV and term, but in the real world where competing for salary primacy just goes with the elite athlete territory, players looking for new contracts are going to want amounts that recognize inflation. If you've got dollar-value benchmarks in your mind – someone is a $6M player – the numbers are out of date.

Inflation at the bottom end of salaries is somewhat controlled by the minimum salary amount, which we should expect to see rise in the new CBA. The minimum this season is 16% over the 2018-2019 amount of $650,000. The MOU signed during Covid included a program of catch-up for what had been stagnant and absurdly low minimum amounts. It's gone flat again at $775,000 for this season and last and it's set at that amount next year.

During the flat-cap era Players in the NHL started to willingly sign minimum or near-minimum deals. It used to be considered improper to offer a veteran NHLer in a depth role less than $1M. That changed when it was the only way to get a job, since the harder to find players at the top end of the skill pyramid were still expecting rising salaries when the cap wasn't going up. Those days may well be gone, and amounts in the $1.5M range for a player who isn't much over replacement value are becoming common, while minimum deals are back to being the thing you see only for players expected to play in the AHL.

Long-term contracts signed now will become bargain deals before they're up. That is, of course, unless the cap stops rising due to some real-word financial crisis that eats into the entertainment spending of the people fuelling this revenue explosion and inflationary cap – fans buying tickets.