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NHL LOCKOUT
PAST, PRESENT AND FUTURE
Last Update: July 2005
Stats Hockey
Introduction

This is the third time in over twelve years the NHL has had a labor stoppage. A ten day strike by the players in 1992 then followed by half a season lockout by the owners in 1994 and now a lockout that has led to the complete elimination of a season. If the NHL was looking to be new and innovative this was not the direction to go. It seems both sides believe in the theory, first you burn down the business then you rebuild it.

These lockouts and strikes have cost the NHL and its players billions of dollars over the last dozen years and nothing has been learned. And when you include all the people who work or have businesses related to the hockey industry the number is even higher.

The Problem
They can’t seem to decide on a long term system that would fairly compensate the players and help the owners grow their business. The league seems to want a hard cap with minimal revenue sharing which would make it difficult for low revenue teams to hit minimum cap level. The players have agreed to a cap but without linkage to revenues which would lead to problems in the future because if revenues increased the players share wouldn’t increase or if it decreased the owners would share most of the burden.

The Salary Cap
Most sports leagues in North America have adopted the salary cap on team payrolls because it helps to control expenses. The pressure by fans, players, agents and the media on General Managers to sign players is enormous and has led to the escalation of salaries and loses on the Earnings Statements. Agents have known this for years and have taken advantage of this until the advent of the salary cap. No league has been affected more by not having a cap then the NHL with 76% of its revenues going to the players. It’s a lot easier for GM’s to make good decisions when they have a salary cap behind them.

The Solution
What should be the main principles of the new system? Because the league and the players don’t seem to have a deal coming in the near future here is a possible (in theory) new economic system. The main principles would be:
  • A Salary Cap
  • Linkage to Revenues
  • Revenue Sharing
  • Luxury Tax

New Economic System
1) Total Revenues: The league had revenues in 2003-04 of $2.1 billion.
2) Players Share: Staying with the principles of 50/50 that would mean the players share would be $1.05 billion. ($2.1 billion / 2 = 1.05 billion)
3) Salary Cap: That would be $35 million for each team. ($1.05 billion / 30 teams = $35 million).
4) Payroll Range: Between $30 and $40 million. Every team has to be in between those two numbers or their will be penalties. ($5 million over Salary Cap and under)
5) Payroll Tax Zone: Between $40 and $60 million. Teams with revenue exceeding $100 million USD will be able to run their payroll $20 million over the maximum payroll range but will have to pay one dollar for every dollar their over. ($40 million + $20 million = $60 million)
5) Penalties: For being over or under the payroll range or payroll tax zone would result in lost draft picks in the upcoming draft.

Total Revenue - An Independent Forensic Accountant would audit the team books after every season to figure out the total revenues and that number would be used for the upcoming season.
Players Share - Using the 50/50 formula of sharing revenues is the easiest way to calculate the players share. If the revenues went up then the players share would go up and if it went down then the players share should go down.
Salary Cap - Using the 50/50 formula and dividing by 30 teams would give you one single number you can use as the basis for the new economic system. This number would be subject of change every year.
Payroll Range - Having a payroll range that would be $5 million over and under the Salary Cap would give small market teams the ability to meet the minimum payroll range.
Payroll Tax Zone - Because certain teams in this league do not want to share their revenues like other leagues there is only one other way to prop up revenue challenged markets and that is to use a payroll tax. If there are 6 Teams (in theory) that are over the $100 million USD mark in revenues then these teams would contribute one dollar for every dollar they want to be over the $40 million payroll range maximum. It wouldn’t be that difficult for these teams to handle the $40 million plus $20 million payroll tax if they wanted to and intern the league might be able to raise $30 to $100 million (in theory) in tax and disperse it back to the needy teams. This would mean the maximum payroll differential would be set at $30 million permanently. This would keep a lid on inflation because the small and medium markets would have the reins on the big markets. Asset Values and Profits would increase because you wouldn’t have those revenue challenged markets dragging down the bottom line.
Penalties – There would have to be an automatic system that would penalize teams that were either under the payroll range or over it. Losing draft picks in the upcoming draft would be a perfect way to enforce this. Teams with that make less than $100 million USD in revenues would have to be in between the $30 to $40 million range. Teams over $100 million in revenue would have to be in between $30 million to $60 million range.

Synopsis
This economic system would still give the players the opportunity to go for the big dollars because of the $25 million Salary Cap extension for the big market teams. Inflation would be kept in check because the big markets will not be able to exceed the salary cap by more then the $25 million plus the top and bottom team payrolls will only be separated by $30 million maximum regardless of where the salary cap is set.

The Bottom line is the small and medium market teams would be under a hard cap and the large market teams would be under a soft cap and luxury tax.
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