Star Player Jay Bouwmeester Amid Empty Seats In Florida, Now Traded to Calgary

A recent discussion topic has emerged with the economic downturn at hand. The talk centers on how drastically the salary cap will fall for the next season. And what effect that will have on general managers’ hands. It was recently announced that for the 2009-2010 season the cap will actually go up about $100,000 to $56.8 million max and a floor that is always $16 million less ($40.8 million). This was due to the players invoking their 5% escalator clause in the current CBA. The cap was going to drop a few million dollars, but the escalator negated that effect. This upcoming season is not the concern. It is the one that follows since the cap uses revenues from the preceeding season. The downturn really hadn’t affect the NHL as most of the cash was already collected before times changed.

Fans and media alike would be Offside if they don’t agree that the owners beat themselves in the last CBA specifically in how the CBA treats the players and owners when the cap drops. It will become obvious to all by the end of this article as to why the players will always invoke the escalator regardless of the conditions of the NHL’s 30 businesses.

When the revenues increases significantly, the owners then have to cut cheques to the players, beyond their regular paychecks to ensure that the players as a whole always reach 54% to 56% of total NHL revenues. Although there are very complicated formulas to decide how much each player would receive as “revenue bonus” money, this is essential cut and dried. This was the easy part.

But when revenues drop, the players’ escrow payments go back to the NHL to re-balance the players' take of 54% to 56% of every dollar brought in (hockey related revenues as the CBA defines them). Now here's the problem for the owners, indeed they get back the money from the players via escrow so everything balances, but when the next year's salary cap is adjusted down to meet the lowering revenues of the previous season, nothing changes to all 800+ player contracts. They are rigid and they are also guaranteed for the entire life of the contract, so long as the player is medically able to play and shows up for work. (Note: MLB, NBA and NFL don’t have guaranteed contracts; that’s why they have massive signing bonuses to somewhat offset that risk to the player.)

So as revenues drop, each team general manager is faced with a reduced salary cap, they can NEVER go over it during the season. Contract obligations must be reduced to meet the lowered salary cap ceiling. Not to worry though, the CBA details how teams can buy out player contracts at 2/3 the remaining value, and those teams then get a reduced cap hit for the remaining seasons for the length of the contract.

It should be pointed out that it is unlikely that the team can trade players away in this scenario. It would be tough since many teams want to unload contracts, not take anything other than picks in return. This is the ultimate buyers’ market, if your team has cap space! Teams are then forced to buy out contracts, just to get under a smaller max cap value. So while the players give back the respective amounts via escrow, the players still stand to make MEGABUCKS when buyouts occur. In a sense, a player could get 2/3 of their season salary to NOT play for the next number of years, then turn around and sign with another team who has cap space at the going market rate, significantly reduced for sure. (Note: This “contract double-dip” was evidenced this past year by Sean Avery being bought out by the Dallas Stars, then later signing as a free agent with the Rangers.) Now you can see why a 15 year contract to a player makes little sense to the Islanders, who started that extreme long term contract trend, nor to any of the teams that followed them.

And all these moves have to happen over the summer at a time when teams and the NHL as a whole would have much less money to operate. The reduced revenues offer less flexibility to the teams in terms of financial decisions with player contracts and it also makes it much harder to get and maintain bank operating loans.

If you are a troubled team, your only saving grace would be a reduced cap floor under this scenario. Revenue sharing contributors will be yelling the loudest for relocations, during these lean seasons, as it might force some of them into losses that would otherwise be their retained profits. A rising cap certainly chokes off the struggling markets for obvious reasons. A lowering one while bad overall to the league, may in fact only slow the hemorraging of losses and not allow the team to be truly healthy. Unless the cap floor drops back to the $20 million range, which is unlikely even with the state of the North American economy, the troubled teams are on death row.

In summary, when the revenues go up, both the players and owners win. When the revenues go down, followed by a reduced salary cap, the owners lose while the players still gain via buyouts and potential double-dips for some.

So both ways, the players "win". Yet the owners only "win" when revenues continue to grow. For the teams making money during the good times, they have the cash to get through the bad times. But if there were teams in trouble when revenues were still expanding, you can just imagine the enormity of the problems facing the NHL's weak teams when revenues start going the opposite way. That creates alot more "Coyote Ugly" headaches for the man running the NHL, Gary Bettman.

Coincidently, Bettman was the one who ultimately signed off on this latest CBA. This might be the biggest NHL-version of Kharma ever! The media will soon realize that Bob Goodenow, Ted Saskin and the NHLPA beat Gary Bettman at the NHL poker table yet again. In the last CBA, Canadian Dollar certainty via an expanded revenue sharing system was achieved. Cost certainty was achieved as well for those markets that can sustain the salary cap floor and more. But that is where the NHL’s wins come to an end. Without Southern USA market certainty and player contracts that flex larger and smaller accordingly with the ever-changing cap, Gary Bettman lost the larger war. History shows that he has lost every CBA war he has every faced with the NHLPA. Look for a changing of the guard to occur before the end of the next CBA occurs. Maybe even during its’ negotiation?

Now you can see why the annual 5% escalator clause is good for the players who have little if anything to lose, why the general managers are forced to rip apart their teams, regardless of their on-ice performance. Fans will wonder even more often why such lopsided trades are made until they realize where their team payroll stands. The CBA was touted as a true business partnership. If it was, then the NHL doesn’t know much about business. Maybe they could bring in free agents like Goodenow or Saksin on board to show them how the business of hockey works? It’s time the NHL owners revisit the sale that gave Manhattan away, several times now in the last 15 years.

If you have a differing idea or opinion, by all means, make it known on the Manitoba Mythbusters Forum. www.mbmbforum.com

Chris
Chair, Manitoba Mythbusters
www.ManitobaMythbusters.com
www.myNHLincludesWinnipeg.com

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