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Notes + A FanPost

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In case you haven’t already heard, the Maple Leafs have broken off negotiations with prospect Bill Sweatt, acquired in the Versteeg trade from the Blackhawks. In a statement to the Toronto Sun, Burke explained that the club would rather keep a spot on the 50 contract limit open than continue discussions with Sweatt. As the talks continued to stall, the Leafs likely turned and upped their offer to Marcel Mueller, whose ELC contract value sits at $1.12 million. Sweatt is likely looking for a figure close to Blake Wheeler’s $2.825 cap hit as a 4-year college free agent, which is a steep price to pay for a player with speed but limited offensive upside.

Missing hockey? Here’s a brief reminder of hockey at its best. Man, that was one heckuva game.

Below is a FanPost kindly submitted by Sarah Koerssen, who takes a look at the pros and cons of the NHL Salary Cap.

Is the Salary Cap Ruining the NHL?

By: Sarah Koerssen

The NHL has had a salary cap system for 5 years now, starting in the 2005-06 season. There is no doubt that the cap has changed much of the business side of the league, allowing for more cost certainty and levelling the playing field. But as we watch the recent Stanley Cup champion Chicago Blackhawks dismantle much of their winning team due to cap constraints, we must wonder — is the salary cap worth it? Or do the negative effects outweigh the positive?

The Pros:

1) Revenue Sharing
Without going into the whole business side of revenue sharing (which blows my non-business-like mind), basically, teams with salaries under the mid-point (mid-way between the cap floor and cap ceiling) qualify for revenue sharing. We all remember last year’s deadline deal which saw the Leafs acquire 3 players and a 4th-rounder from the Tampa Bay Lightning in exchange for a prospect. This was a pure money deal, allowing the Lightning to shed enough salary to be able to qualify for revenue sharing.

2) Level Playing Field
Because the cap margin (spread between cap floor and ceiling) is only $16 million, most teams are spending around the same amount of money, unlike in the pre-salary cap era where one team could be spending $40-50 million more than another team. This has resulted in more equality on the ice as well, with multiple teams within a few points of each other in the standings, causing closer playoff races; although, some of this is also to be accredited to the shootout and points system.

3) Stranger Playoffs
In 2006, the Edmonton Oilers finished in 8th place in the Western Conference at the end of the regular season. They knocked off the Presidents Trophy-winning Detroit Red Wings in the first round of the playoffs (each of the top 4 teams in the West lost their first-round matchups that year) en route to the Stanley Cup Final where they lost in 7 games.
Just this past spring, the top 3 teams in the East failed to get through the first round, which ultimately resulted in the 7th- and 8th-ranked teams competing for the Eastern Conference title. The 7th-place Philadelphia Flyers ultimately fell to the Blackhawks.
Obviously, upsets like this are going to happen on occasion. However, there’s a good chance that we’ll be seeing more and more of these stories of low-ranked teams getting deep into the playoffs because of the equality of the league.

4) Smarter Drafting
As the salary cap has changed the landscape of the NHL, we’ve seen an increase in the value of draft picks and prospects, as more and more teams are relying on the draft instead of trades and free agency to build their teams. Gone are the days of the New York Rangers signing high-priced UFAs yet failing to make the playoffs every year (oh wait, never mind… they’re still doing that, albeit with slightly better playoff success). These days, (most) teams are building through the draft, patiently developing their players until the day their team comes together and they win the Stanley Cup, à la the Pittsburgh Penguins and Chicago Blackhawks.
This has forced teams to be more careful with their draft picks, and smarter with their drafting. Although it’s a bit too soon to see just how well teams have adapted their drafting techniques, it’s important to note that of the 2005 draft class (which of course included Sidney Crosby going first overall), all but 4 of the players drafted in the first round have played in the NHL so far, and quite a few players outside of the first round have played in over 100 games.

Cons:

1) Revenue Sharing
Yes, I listed revenue sharing as both a pro and a con. It’s a pro because the concept is good. It’s a con because it’s executed poorly. In order to qualify for revenue sharing, teams have to have a certain average paid attendance rate, as well as generate a revenue growth rate that is greater than the league average revenue growth rate. Obviously teams don’t want to have to support those teams that have problems selling tickets, but the problem isn’t so much that these teams aren’t selling tickets, but that other teams are creating so much revenue that they’re pulling up the league average.

One of the sources of revenue sharing (there are a few sources, not just teams’ revenue) is the player’s escrow. Because the CBA stipulates that players’ salaries cannot exceed 54% of the league’s total hockey-related revenue, a percentage of each player’s salary is withheld on a “just in case” basis — in case the league has a bad year and the total amount of players’ salaries adds up to higher than 54% of revenues. Of course, as fans, this has no effect on us, so whether it can really be considered a pro or a con (or neither) is up to the individual. The players don’t like it, but the teams that are at the receiving end of revenue sharing probably love it. Is it really fair to withhold part of a player’s negotiated and earned income just in case the league doesn’t make as much money as they estimated they might? I know I wouldn’t want my employer withholding part of my salary in case the company doesn’t do very well — but then again, hockey players make a heck of a lot more than I do.

2) The KHL Threat
Between escrow and taxes, the salary that’s negotiated between a player and team isn’t the salary the player actually receives. So when young, skilled European players can’t get the money they want (and perhaps even deserve), they have another option, with less taxes, no escrow, and no salary cap — and with the competition between the KHL and NHL, there are certainly some Russian teams willing to throw big money at players. Maybe the players that use the KHL threat are just after the money, but the point remains that the NHL is losing good players unnecessarily.

3) Cap Floor
The salary cap was instituted to bring in cost certainty and help the small-market teams compete with the big, rich teams. And with the cap margin being $16 million, teams are not in danger of being vastly out-spent. However, the cap has been steadily rising ever since it was instituted, and as it rises, so does the cap floor. The cap floor for the 2010-11 season is $43 million — $4 million more than the cap ceiling a mere 5 years ago (the original cap floor was 21.5 million). The rising cap is great for the teams that spend to the limit every year, but for the very teams that the salary cap was meant to protect, it’s not so great — they’re being forced to spend $43 million this season. We’ve already seen the Phoenix Coyotes go to bankruptcy court (and they still don’t have a new owner); will we see more teams fall victim? The Lightning and Dallas Stars are two teams off the top of my head that are struggling financially, although recent reports suggest the Stars are about to be sold.

4) Long Contracts / Effect on Free Agency
One way teams have tried to save cap space on big-money players is to sign them to long contracts that bring them into their late 30s and even some into their 40s. As the player gets older, their salary goes down until either they decide to retire (in which case their contract comes off the cap since they signed it before they were 35 years old), or their team buys them out at a low price. These long contracts are either genius or crazy — it gives the player the money they want up-front, while giving the team a manageable cap number. The problem, however, is the length. If the player fails to perform to the same standard as he did prior to signing the contract, it can become an anchor, taking up valuable cap space while being difficult to trade. Take, for example, Brian Campbell and Vincent Lecavalier. Trading Brian Campbell would solve most of the Blackhawks’ problems, but other teams aren’t willing to take on that contract — it wouldn’t be so bad if it weren’t so long. As for Lecavalier, he’s still easily a 70-point player, but hasn’t been at quite the same level the last couple years as he was before. There has been some interest from teams looking to acquire him, but ultimately his contract is a tough one to move. There are other players signed to long, expensive contracts, but the jury is still out on those as to whether or not they’re worth it.

Teams are also locking up some of their younger players to long-term deals, partly to keep them around for a long time, but also likely so that in the latter years of the contract, as the cap goes higher and higher, the contract will look like a bargain. This is great for the teams that are able to ensure they keep their home-grown talent, but this has also had a big impact on free agency. With more and more players signed to long contracts, there will be less impact players on the market each summer, plus it’ll be harder to acquire those players through trade. Combine that with the lack of cap space teams have, and it results in a very underwhelming free agency period. See: Summer 2010. Yawn.

5) Effect on Trades
Not only has the salary cap had an effect on free agency, but it’s also had  a big effect on trades. Trades have become rare outside of the trade deadline and entry draft, especially those of the blockbuster variety. When negotiating a trade, not only does the value of the players involved have to be considered, but also the dollar value. Both teams have to be able to not only afford the players they’re acquiring, but be able to make room for them under the cap. Often this means waiting till enough of the season has gone by for a player’s cap hit to go down enough for the acquiring team to be able to fit him under their cap — hence the reason most trades don’t happen until the deadline.

One big drawback is the effect a player’s contract has on their overall value. If they’re deemed to be overpaid, their trade value goes down. If they’re underpaid, their value goes up. No longer is a player valuable solely for what he does on the ice, but what his paycheque says as well. This can put teams into a hard spot when they’re negotiating a deal, especially when trading away bad contracts — sometimes a team has to add extra value in the form of a draft pick or prospect in order to get a deal done and save some cap space. They also lose negotiating power when it’s well-known that they have to shed money. For example, the Blackhawks this off-season — although they’re doing remarkably well for a team in their position, getting some decent pieces in return.

6) Value of Picks
The salary cap has also resulted in the value of draft picks and prospects skyrocketing. These days, a 1st-round pick is extremely valuable. Teams are reluctant to give them up, and while the pick may end up being a great player one day, they could also draft a player who never plays a game in the NHL. Leaf fans can point out many trades involving draft picks/prospects they wish the Leafs hadn’t made; but hindsight is 20/20, and I’m certain there are more than a few instances in which a team would’ve been much better off making the trade than keeping the draft pick. Draft picks may be the players of the future, but sometimes you’ve got to do what it takes to win in the present.

7) Inability to Re-Sign Young Players
Two words: Phil Kessel. Do you think the Boston Bruins would have traded him if there hadn’t been a salary cap? I don’t. They traded him because they had no choice. They couldn’t afford to pay him, so they were forced to trade him. They got a couple valuable draft picks out of it, but when you consider that they went from being the highest scoring team in 2008-09 to the lowest scoring team in 2009-10, you’ve got to wonder just how much they missed Kessel last year. Either way, you don’t want to be forced into trading a player you drafted and developed just because they’re really good players and want market value for their services.

8 ) Effect of Top-Tier Players on Mid-Tier Players
This is one that people probably don’t think about as much, but it’s come to light recently with the Kovalchuk drama holding up the free agent market. Right now, teams are waiting for Kovalchuk to sign before they continue signing players. There are a lot of pretty decent mid-tier players without contracts right now because most teams are waiting to see how the Kovalchuk signing affects the market (especially as far as trades are concerned). And because there isn’t enough cash or cap space to go around, many of those players will be forced to either take pay-cuts (or more than their previous contract, but less than what they were hoping for from free agency). The star players are the ones who drive the market. They’re the ones that a team is going to make space for, and they can always be assured that there will be a roster spot on an NHL team for them. With the maximum player salary at 20% of the team’s salary, though, that’s a lot of money designated towards one player (or more, if a team has multiple star players). Right now, that’s $11 million, and it means that the team has a lot less money to spend on the players that fill out the roster. That’s why players on entry-level deals are so valuable right now (especially the ones who are performing way above their pay-grade), and why a lot of players find themselves either signing cheaply just to play on an NHL team, or going to the European leagues.

The Solution
It’s highly unlikely that the NHL would considering abolishing the salary cap altogether, so what other options are there that will satisfy the anti-cap group, while still maintaining a cap and helping the small-market teams?

They could implement a soft cap with a luxury tax, which would tax them for any amount they spend over the cap (this money could be used for revenue sharing). Another option would be to allow each team to designate one player (preferably a player they drafted themselves, or a player they’ve had for a certain number of years) whose salary would not count against the cap (similar to the NBA’s Bird rule). Or they could lower the maximum player salary, or set a certain amount of years that a player has to be in the league before they can sign for a certain dollar amount. They could also follow the NFL’s lead of non-guaranteed contracts, where if a player is cut from the team or clears waivers, they become free agents and no longer count against the team’s cap.

So, there you go. I came up with 4 things in favour of the salary cap, and 8 against. Are there any other pros/cons that I missed? Disagree with the ones that I listed? Should the NHL amend the salary cap, and what’s the best way to change it so that everyone is happy?

Thanks and great job Sarah.

Slow days around here folks, so hit me up with some questions for the mailbag!

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