Do The Thrashers Have Large Talons?

Sunday, September 28, 2008

The Salary Cap System Helps Atlanta

At the Townhall Meeting GM Don Waddell said that the salary cap system really only benefited the top 8-10 teams. It is true that the owners of the top 10 franchises are now forced to turn a profit instead of spending every dime they earn in their pursuit of the Stanley Cup. Last season the Detroit Red Wings won the Cup may have cleared $15-20 million dollars.

Don Waddell indicated that the cap system changed expectations and any team that failed to spend the cap max is now viewed as a "cheap" team by their fans. There have always been cheap or free spending teams in the past, the difference is that now fans are much more aware of the $ and not just wins and losses. (The growth of fantasy sports also been fueling the process by making fans try and think like a GM.)

However, I strongly disagree that the overall conclusion that the cap/floor system has been a failure for small revenue teams and here is why:

#1 The cap has GREATLY reduced the gap between the rich and poor teams in the NHL.

Before the lockout the Thrashers spent of roughly $25 million on players and the Rangers spend nearly $75, which means Atlanta was being outspent nearly 3-to-1. Today the Rangers are capped out at around $56 million and the Thrashers must spent around $41. Todya the Rangers can only outspend Atlanta by 39% whereas in the pre-lockout the margin was 200%--that's a HUGE improvement in competitive balance within the NHL. In the old NHL the Ducks could have kept Schneider and Selanne on the same roster, now they can't and Atlanta benefits (Mike Knobler blogged about this as well).

#2 The salary floor requires all owners to put a decent product on the ice.

In baseball a "cheap" team can essentially assemble a roster of cheap minor league players and put them out there for a full season. In hockey that option is now impossible. With the salary floor being set at $41 million every team must have a couple of expensive stars in their lineup. This is giant "fan protection" mechanism. As a fan I appreciate the fact that my own team and other clubs are required to field a respectable looking roster. No team can just throw out a bunch of minor league riff-raff and call it a NHL team.

#3 A salary cap system puts a premium on good hockey management.

The truth of the matter is that both the salary cap and the salary floor have risen much quicker than almost anyone expected. Part of this is the sharp fall of the US dollar relative to the Canadian dollar. This currency shift shows up as a big "revenue" increase for Canadian franchises. Back in the 1990s small market Canadian teams were harmed by a weak currency and now the shoe is on the other foot as sunbelt franchises are being squeezed a bit by the rising floor that is being driven by events north of the border. The big problem is that while player salaries are set by LEAGUE revenue trends, revenues are not split up evenly among the league. Right now there is a very big problm caused by the uneven growth of revenues.

At the end of the day this a problem between owners, not between the NHL and the NHLPA. It could be quickly solved by adopting a new system in which every visiting team gets a cut of the home team's revenues. Problem solved! Good luck getting idea approved by the Board of Governors though. However, until there a big picture solution to revenues there is always going to be a problem with a system where player salaries are determined by collective revenues and yet teams operate on individual revenue streams.

Yes, the Thrashers bottom line is being squeezed by the rapid revenue growth of franchises north of us. However, even with a rising salary floor the Thrashers would be fine if they had been putting a solid product on the ice. The Atlanta organization is poised to take a giant loss this season. The NHL rules are going to force them to spend $41 million and people are staying away in droves because they are fed up with all the losing. In my informal circle of friends I know 10 long term season ticket holders and only one of those has renewed--and he can write it off as a business expense. While it is just anecdotal those are some very ugly renewal numbers.

At the end of the day it is about managing assets. You can contend on a budget--Nashville in an even smaller market with even shakier ownership does it year after year. The bottom line is that the Thrashers simply have failed to get sufficient value out of their payroll budget. In a cap and floor type league the differences between wise and poor management choices is magnified because relatively small errors can have large consequences. What we need in Atlanta is not a different CBA, what we need is a better return on salary investment. Rather than blaming a cap/floor system that fundamentally helps small markets, the organization should focus on getting the most band for their buck--it is the only path out of their current difficulty.

1 Comments:

  • I agree with most of your assessment but wish to point out a few other thoughts as well.

    - There is a problem when the cap floor rises so high that teams in struggling markets, whether American or Canadian, will automatically lose money. That sets teams up for failure and isn't good business. If the NHL is going to stay committed to retaining the smaller market franchises, they likely need to move to a hard cap and find alternative solutions for wealth distribution both to players and teams. (More on this later.)

    - While the cap forces teams to ice theoretically respectable teams, again, when set too high, it places teams in an awkward situation. Case in point, we've discussed before that Atlanta struggles to attract top talent. So if you cannot get the better players to come to your team (those deserving of larger salaries), then those teams might then be forced to overpay for talent, which artificially inflates player salaries across the board. This is not a good thing due to the league-wide repercussions such contracts have (particularly as comparison points for other contract negotiations and arbitration hearings). Again, a more reasonable cap floor might alleviate some of those concerns. If a team is in a rebuilding phase with mostly young talent, the floor really penalizes them or forces these overpayment issues.

    I like the basic precepts behind the structure we have in the NHL, but I feel a little more creativity could be applied to get more desirable results. I'd move to a hard cap that can be re-adjusted every 3-5 years based on aggregate team data. As the League, I would express my willingness to continue compensating players at the 52% threshold, however I would tell the players and NHLPA it's up to *them* to come up with a solution to allocate the excess money. Ie, if hard salaries end up being 48% of revenues, then the NHLPA needs to figure out how to divvy up the additional 4% the League gives them. Whether they want to award it based on production and merit or based upon current individual salary compared to the total salary pay (ie those with the largest contracts get the larger portion of the extra windfall) is up to them.

    Something like that is a way to reward players for their contributions and see them adequately compensated, while still protecting smaller market franchises and stabilizing the player salary market.

    By Anonymous Sara, at 10:16 AM  

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