By Bob Trask – The lack of player movement between teams in a year when the race for playoff spots is tight has brought the shortcomings of the hard salary cap into sharp focus and it has become a situation that merits closer examination.
The salary cap was introduced to ensure that small market teams could compete on an equal footing with big market teams but the medicine has often been worse than the illness. The entire league is frozen with regard to player movement because of salary cap considerations. And the Injury Reserve list and the Long Term Injury Reserve (LTIR) list have created a byzantine situation that the most avid fan finds impossible to understand.
Perhaps the solution lies in a soft cap (or luxury tax) similar to what major league baseball has in place. Of course a soft cap also creates challenges and perhaps the format used by MLB is excessively complicated.
A Simple Solution
Here is a look at a simpler solution:
- Establish a soft cap that is equivalent to 50% of hockey related revenues in much the same way the hard cap is established today.
- Establish a salary floor similar to what is used with the current hard cap
- Charge teams a luxury tax based on how much they exceed the cap
- Distribute any luxury tax equally between the NHLPA and all 32 teams.
We can look at some examples to bring more clarity and for the purposes of these examples, I will use a soft cap of $80 million to make the math as simple as possible. The luxury tax would be based on a multiple of the amount by which a team exceeded the soft cap and the penalty would grow exponentially as the excess increases
The salary of Team A is $88 million, which translates into 110% of the salary cap (or an $8 million excess). The luxury would be $88 million x 110% x 110% – $80 million (or $88 million x 1.21 – $80 million) = $26.48 million with the NHLPA receiving $13.24 million and each team (including Team A) would receive $13.24/32 = $413,750.
The salary of Team A is $96 million, which translates in 120% of the salary cap (or a $16 million excess). The luxury tax would be $96 million x 120% x 120% – $80 million (or 96 million x 1.44 – $80 million) = $58.24 million with the NHLPA receiving $29.12 million and each team (including team A) would receive $29.12/32 = $910,000.
While the luxury tax payouts to each team may seem small in these examples, the payouts are based on only one team exceeding the cap. If several teams exceeded the cap, the payouts could become quite significant.
By basing the soft cap and subsequent luxury taxes on percentages rather than arbitrary numbers, there is no need to manually readjust those values each year; they would be derived from the predetermined formula agreed to by the owners and the NHLPA.
Teams could buy out existing contracts on much the same basis as they do now with the annual buyout amount added to the remaining salaries to determine the total cap space used. Because the annual cap hit doesn’t rigidly impact how much remaining cap room a team has to spend, they would be free to add as much salary as they wanted subject to their willingness to pay the luxury tax.
Perhaps the most byzantine calculations under the current CBA and the hard cap rules involve LTIR. Perhaps the entire definition of IR and LTIR would need to be re-defined. An example might be that a player on the IR would be ineligible for a minimum of 5 games and for LTIR they would be ineligible for a minimum of 20 games.
In this example, a player on the IR would have his entire salary count against the salary cap, while a player on LTIR would have only 50% of his salary count against the salary cap while he is on LTIR with the remaining 50% counting against the soft salary cap. While the games played and percentages I have used are arbitrary examples, the principle of the calculation remains valid.
By restructuring buyouts, IR and LTIR, we could see far more player movement than we have this year. Owners would be allowed make calculated financial decisions that are not restricted by draconian rules that freeze the entire roster construction process.
Salary retention on trades would become less of a factor it is today. While teams could offer to retain salary in a trade, it wouldn’t be a requirement necessary to allow the acquiring team to remain under a hard salary cap. The situation at once becomes simpler and more flexible.
As an aside to the salary cap discussion, the minimum salary situation should be addressed. Most of the benefits of the current CBA have accrued to the upper echelon players with those at the bottom of the salary scale seeing only marginal gains. If the NHLPA is really looking after the interest of the majority of its players, that should change.
One idea would be to define the minimum salary as 1.25% of the soft salary cap in the year that the contract was signed. If a contract is offered to a player when the salary cap is $80 million, the minimum amount offered would have to be $1 million per year. If it was a multi-year contract for $1 million per year, the player salary would not increase even if the salary cap did increase.
Any assignment of a player to the AHL would bring salary cap relief to the team not in excess of 150% of the minimum NHL salary in effect that season. In this case, it would be $1.5 million maximum salary cap relief. Once again, salary cap relief would become more a function of an owner’s financial decision rather than restrictive cap rules.
An argument against increasing the minimum salary is that it restricts the amount available to star players who raise the profile of the league and theoretically drive league revenue. The soft cap allows both to happen subject to owners willingness to spend big on star players.
Two words should be applied here: Dump It.
Owners make their individual financial decisions and their employees shouldn’t bear the burden of poor decisions or an unexpected downturn in revenues. It is up to the owners to calculate these risks and structure their businesses accordingly.
The biggest downside is the potential gravitation of star players to the major markets like New York and Toronto.
This could be mitigated by an individual cap limit whereby no one player could have a salary in excess of 25% of the salary cap (up from the current 20%) and no two players could have a combined salary in excess of 40% of the salary cap. Under this structure, the true stars (superstars?) could be attracted to large markets and would command the salary and media attention that would allow the game to grow… but it wouldn’t allow any one team to corner the market by offering outrageous salaries up and down the lineup.
Properly constructed, a soft cap with “guard rails” has the potential to strike a better balance between promoting the game, improving the ability to structure rosters, removing some of the impediments to player buyouts and improving the simplicity if the injury reserve and long term injury reserve lists. There would definitely be push-back from both sides and these ideas are only a starting point that obviously need refinement but they do present basic concepts on what kind of building blocks could be used to create a better environment for players, owners and fans.
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2 thoughts on “The Soft Cap Solution”
You have put a lot of thought into this Bob. I hope that it reaches the decision makers. I would be fun to see how a system like this would affect player movement, team construction and the flexibility and overall financial health of he league, teams and players.
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