July can be a really trying and emotional month for Hockey fans. NHL and AHL Contracts officially expire, rendering many fan-favorite players “free agents” of one form another, with some of those players ultimately leaving town for a new team. It’s a cyclical summertime downer and an annual punch to the gut of hockey fans that has no end in sight.
It’s no secret that the the salary cap hurts the fans the most. Year after year fans must say goodbye to their favorite players, hang-up their expensive jerseys, all so that a team can remain “under the cap”. However, make no mistake, the NHL, like any other professional sports league, is a business first. It has to be, or there is no league in the first place. A necessary evil for the sport to exist.
But is there an alternative financial structure that is more of a fan-friendly model available to professional sports leagues? A model that would afford teams the opportunity to keep more of their fan-favorite players? The luxury tax, or the veteran player exclusion model, just might provide improvement to the overall fan experience.
There are currently three primary salary management models currently in use by the four big professional sports leagues (NFL, MLB, NBA and NHL). They include:
- Hard Salary Cap
- Soft Salary Cap
- Luxury Tax
Hard Salary Cap
The National Football League and the National Hockey League both have what is considered a hard salary cap. For the NHL, a salary ceiling is set each year that is approved by the NHL and the NHL Players Association, and that limit is essentially “set in stone”. It should be noted that the NFL’s hard salary cap also includes provision for a “franchise tag”, which is typically applied to a top player at a controlled ceiling, lessening the overall financial demand on the league. As a result, one could surmise the NHL currently has the strictest (hardest), most rigid salary framework in professional sports, with no “wiggle” room, as it were.
Major League Baseball instituted the purest form of a “luxury tax” (competitive balance tax) back in 1997, but the taxing guidelines have undergone several refinements since its inception. Currently the commissioner sets a salary ceiling before each season, with each team paying taxes for salary expenditures that surpass that ceiling. Only eight teams have ever exceeded the luxury tax threshold. (San Francisco Giants, Boston Red Sox, Los Angeles Angels of Anaheim, Detroit Tigers, Los Angeles Dodgers, New York Yankees, Chicago Cubs and Washington Nationals).
Soft Salary Cap
A third option is the “soft salary cap”. A soft salary cap sets an upper threshold for player salaries, but allow teams to exceed the salary cap in certain instances. For example, in the case of the NBA, teams can exceed the salary cap when keeping players that are already on the team. Another adjustment that could be made (but not in use by the NBA) would allow teams to sign one veteran player without being applied to the salary cap. This would allow teams a better chance of keeping fan favorite players. Somewhat similar to a franchise player tag in the NFL, but with a limited salary, that is not applied to a hard salary cap.
LUXURY TAX MODEL
In its most basic form, the so-called “Luxary Tax” model applies a fiscal surcharge, or “tax”, for salaries rising above a certain set threshold, that typically affects affluent, big-market organizations. The funds generated from the surcharge are generally redistributed among the teams that play in the smaller markets, providing less affluent franchises more funding to dedicate to the contracts of high-quality players.
In a “big picture” sense, A luxury tax is another means of effectively distributing the overall revenue generated by the league as a whole, by establishing a soft ceiling, and optimizing the distribution of compensation in a more effective manor. The luxury tax would allow major markets, a significant percentage of the league’s fan-base (customers) and league income, the ability to keep certain players, improving appeal to major markets, and as a result, help fund smaller market teams.
On the flip-side, the luxury tax is a step away from the intent of a hard salary cap number, aimed at leveling the playing field for all teams. But if a good number of teams are more concerned about the “floor” than the “ceiling”, is the salary cap really working in its most basic form? One could argue it’s not.
Professional sports leagues have struggled to find a perfect structure for salary management and distribution of business revenues since the start of professional sports, and will likely never really find the “perfect” system. However, with a new Collective Bargaining Agreement approaching the NHL, now is the time to begin considering changes to the existing financial structure, that might provide for an improved fan experience.
We will continue to explore potential improvements as the new CBA approaches. What do you think is the best financial model for the NHL?