The Big Lie

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    When it comes to trade rumours, generally the first thing we look at is the salary cap, and how much cap space the teams in question have available.  But how important is the cap, in order for potential trades to become reality?

    For a team to assume any kind of salary, the real issue isn’t the salary cap so much as it is the actual money that is spent.   The reason a team such as Nashville doesn’t spend to the cap is they simply can’t afford it.   Many teams have their own internal budget for salaries.  For some teams, it is the cap maximum; for others, it may only be slightly above the cap floor.

    This is part of the difficulty of moving large salaries.   The salary cap is really not the biggest factor in terms of whether or not a trade can be consummated.   What the cap does is determine whether or not a trade or a signing (or a waive or buyout, in terms of the cap floor) will be approved by the league office.  That’s it.

    The real determining factor for a trade or signing to occur, however, is the amount of money a team can afford to spend.  Not cap space, but actual dollars.  This is why the “actual payroll” of a team is as, if not more, important that the “salary cap payroll”.  The amount of real dollars spent tends to get forgotten when people discuss trade possibilities, but it is in actuality the single biggest factor in any deal.

    This is why we have seen all the long-term cap-friendly deals in recent years:   teams are either paying their players more now and less later, or vice versa, depending on their current economic situation.   The length of the deal allows the cap number to stay low, and thus keep the team’s options open in terms of league limits on contracts.   If a team has money in its budget to spend now, but anticipates that it may not have as much to spend in future years, their contract offers will come front-loaded.   And if a team doesn’t have money in the budget now, but anticipates making a sizeable profit down the road, the contract offers will be  back-loaded.   The cap is not the issue when it comes to these contracts; the organization of the actual salary payout is.   Teams that have an extra $10 million in the bank this year, but can foresee the economic situation getting worse before it gets better, would be smart to front-load their contract offers (e.g. $8 million the first year, $4 million each of the next three, which works out to a $5 million cap hit).

    To use the Nashville example, the Predators have tons of cap space (about $10 million worth).   But their ownership is anything but stable, the economy is poor, and there simply isn’t enough money in the bank to pay their players more than the $46 million they are paying in salaries now.  In Phoenix, where the team is now receiving assistance from the NHL, the situation is even worse. The Coyotes are spending appx $42 million and will have a hard time finding the money to pick up any more salary.  Their $47 million cap hit has nothing to do with the amount of money they are spending this year, it simply sets the limit as to what league rules will theoretically allow their average spending to max out at.

    On the flip side of the coin, take the money-making enterprise that is MLSE. They are a corporate giant, and as such can afford to pay right to the maximum, if they so desire. Currently they are paying $48 million in salaries, and this is all but guaranteed to rise in the coming seasons as the team rebuilds.   In theory, they could reach the cap ceiling, and actually be paying $10 million more in salaries in a given year, depending on how the contracts are structured.  And MLSE could probably afford to do that, whereas Phoenix cannot.   Where does the competitive advantage lie, in that season?  To the team that can front-load contracts for prime free agents, or the team that has to hope its draft picks pan out before running the very real risk of losing them as RFAs?

    Remember when the NHL came out of the CBA, all proud of its shiny new toy, the salary cap?  The advertising was that the cap would help parity become reality, that it would keep all teams competitive.   And while that is true in one sense, in terms of teams no longer being able to ice two lines of top-flight stars for more than a couple years at a time (if they are still on entry-level deals), it is only a partial truth.   What is unspoken, in all the rhetoric that is espoused about the salary cap, reveals the truth behind the Big Lie: a significant competitive advantage remains alive and well for the teams who can afford to pay the most.

    The true cap, in essence, is the internal cap on spending set by each team.  It that sense, the salary cap is not the same for each team, only its limits are.  Despite the rhetoric about the cap making all things equal for everyone, in truth, very little has changed in terms of the competitive advantage of the wealthy teams.   And isn’t that exactly what the cap was advertised to change, in the first place?

    True parity is what the NHL claims it desires.   An competitive balance (as opposed to advantage), where any team can be a winner in any given year.  The league tries to claim the salary cap as proof of such a system, but you can ask the New York Islanders, Phoenix Coyotes, Atlanta Thrashers, and a host of other teams if that is truly the case.

    The only solution to ensure true parity, as I see it, might be a revenue-sharing program akin to Major League Baseball.   MLB does very few things right, in terms of the money its players are paid, but their revenue-sharing system, by which all teams pay the same percentage of their revenues into a pot which is then evenly distributed, is one of the few salary-related areas where they’ve hit the nail square on the head.  In theory, such a system operating in conjunction with the salary cap could actually bring about the NHL’s vision of parity.

    Now, I know what you are about to say:  the NHL does have a revenue-sharing program in place.   My answer to that is, they do have a revenue-sharing system, albeit one which is tragically flawed.

    From the Toronto Star, Nov 7, 2007:

    A growing number of small-market NHL franchise owners are wringing their hands over how league’s CBA – particularly Article 49 – governs revenue sharing, several team owners say.

    Here’s the problem: Teams like the Nashville Predators, Florida Panthers and Phoenix Coyotes, which rely on revenue-sharing money, must generate “a year-to-year revenue growth rate in excess of the league average revenue growth rate,” the CBA says.

    Put simply, if the average NHL club increases revenue 6 per cent this season, and the Predators increase revenue 5 per cent, the club would lose 25 per cent, or about $3 million, of its revenue-sharing stipend of $11 million (all figures U.S.).

    Trouble is, large-market clubs like the Maple Leafs and New York Rangers are enjoying terrific seasons financially, pulling up the overall league average and making it harder for the likes of the Predators to reach revenue-sharing targets.

    Put simply, the NHL’s revenue-sharing system is ultimately useless to the financially-struggling teams.   There are too many limits which prevent the teams with less money from being able to receive any sort of tangible benefit from the system.   Compare the above description to the MLB program, where all teams pay the same percentage of their revenues (around 30%) back to the league.  That money is then evenly split among all teams.   The financially sound teams pay out more than they receive back, and the financially-struggling teams receive much more than they paid in.   And thus the competitive advantage of the wealthy teams is reduced, and a true competitive balance becomes more attainable.   Just ask the Tampa Bay Devil Rays.

    Is a true competitive balance ever attainable?  Probably not, but the more that a competitive advantage can be reduced, the more the league can move closer to a competitive balance, and improve its chances for the survival of all its teams immensely.

    But it doesn’t work that way in hockey, and we can in large part thank the money-hoarders at MLSE and Madison Square Gardens, who haven’t exactly kept their opposition toward revenue-sharing a secret, for the joke of a system the league currently has in place.   And until the revenue-sharing program is amended in such a way in the NHL, we will continue to be bombarded with the rhetoric of the Big Lie:  that the salary cap eliminates the competitive advantage of the wealthier teams — when the truth is that it makes little to no difference at all.