The Salary Cap Reconsidered

I’m back after taking most of the month of May off. The off-season is approaching and I plan to do a series of posts on the player salaries prior to the start of free agency and another series of posts on the NHL draft prior to the 2006 Draft. These future posts will likely focus more on the NHL than just the Thrashers team.

Today, I’d like to discuss the big picture on team salary payrolls pre- and post-lockout. I went through the salary database on USA today and gathered up all the team payroll numbers for the four seasons prior to the lockout. These payrolls essentially reflect the opening night roster and provide a means of comparing one season to another.

Beginning with the 2000-2001 season the NHL expanded to 30 clubs, so I divided the team payrolls into thirds (each containing 10 of the 30 clubs). I then calculated the average total payroll of teams within the Top 10, Middle 10, and Bottom 10 for that NHL season (see Table 1 below).

You can see that prior to the lockout there was a significant gap between what the average payroll of a top 10 team and that of the average bottom 10 teams. In each of the four seasons prior to the lookout the top spending clubs had team payrolls that were more than double of those of the bottom 10 (I call this the Rich/Poor ratio). This gap has diminished greatly with the imposition of a salary cap and a salary floor in the current CBA. This last season your typical “big spending” club had a payroll that was just 30% greater than your typical “low spending” club. This is probably the lowest this ratio will every fall because next year the salary cap will go up and I anticipate the gap between rich and poor clubs will increase—but it will still be much less than in the old economic system.

Table 1 Average Team Payroll (in millions)

Year……2000-01….2001-02…2002-03….2003-04…..2005-06

Top 10 Teams.$46.5….$54.4…..….$62.9……......$63.7……....$39.0

Middle 10 ….$32.6….…$36.0…..….$37.1…....….$40.3…...….$35.5

Bottom 10 ….$21.0…....$23.5…...…$25.8….….....$29.2…..….$29.3

Rich/Poor Ratio2.2…...….2.3……......2.4…....….…..2.2…….....…1.3

Another thing that is striking about Table 1 is that when you compare the 2003-04 season with the 2005-06 season you can see that the bottom team’s payroll was virtually unchanged under the new CBA. On average they spent $29 million before the lockout and they averaged a $29 payroll million after the lockout. If these teams really were losing money before the lockout, I suspect that they are still losing money—unless they the league revenue sharing money puts them into the black. The top 10 teams are only spending about 2/3rds of what they were before.

For teams like Detroit, Toronto, NY Rangers the salary cap amounts to forced profit taking. Now that they can’t blow all their revenue on salaries they have to make a profit. (I find it interesting that once the NHL forced Mike Illitch to keep more of his money, he declared in the Detroit newspapers that he would “spend what it takes to make the Tigers competitive again”…I’ll let you decide if it is a coincidence. Do Red Wings profits = Tigers signing Kenny Rogers?)

One of the things that I found interesting when I was looking at the salary data is that there was almost no change in which clubs fell into the big spending catagory. In the four year period I examined under the old CBA nine teams were located in the top 10 big payroll every season: NY Rangers, Detroit, Colorado, Dallas, St. Louis, Washington, Toronto, Philadelphia and New Jersey (I’m fudging just a bit on NJ because technically they were ranked 11^th in 2003-04 and were just out of the top 10 that one season.) Teams making cameo appearances in the top payroll bracket were San Jose (twice), Los Angeles and Anaheim (twice) over the four NHL seasons.

When I looked at the middle and bottom thirds I saw much more movement within those ranks. One season a team might be in the middle and the next season in the bottom third. The only real consistent trend was that the four recent expansion teams (ATL, CBJ, MIN, NAS) were in the bottom third each season. (In part this reflects that fact that under the old CBA young stars like Rick Nash, Gaborik and Kovalchuk had low base salaries—around $1 million—but were eligible for up to $3 million in bonus money. Even if you add in $6 million in bonus money to Kovalchuk and Heatley in 2002-03 the Thrasher still rank in the bottom third of the league.)

Next post I'll examine what if any relationship there is between team payroll and team performance in the regular season and the playoffs.