Should The NHL Move To A “Luxury Tax” Salary Management Model?

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.

Luxury Tax
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.

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?


About Jon Sorensen

Jon has been a Caps fan since day one, attending his first game at the Capital Centre in 1974. His interest in the Caps has grown over the decades and included time as a season ticket holder. He has been a journalist covering the team for 10+ years, primarily focusing on analysis, analytics and prospect development.
This entry was posted in News, NHL, Salary Cap, Washington Capitals and tagged , , , . Bookmark the permalink.

8 Responses to Should The NHL Move To A “Luxury Tax” Salary Management Model?

  1. Anonymous says:

    Yes, only because the Capitals are a big market team, and could sign an additional player.

  2. Anonymous says:

    The additional veteran player rule would allow players like Jay Beagle stay with one tea,.

  3. Anonymous says:

    Salary cap leave it alone. Heres the problem with no cap its why NFL went away from that format aswell. In the no cap format like MLB (Luxury Tax see later) you only get 4-5 superteams from the large markets like NYYs,Bos,LA,and now HOU bc they can afford 200-250mil payrolls all the Tax that goes with it. Meanwhile half MLB is tanking for top 5 pick bc most of the traditional mid markets like KC,Baltimore etc cant spend that highly on a per year basis. So they are playing for the future.

    Translate no cap, luxury tax to NHL and you say yay DC is a large Market we can keep all our players and get some. 1st who is to say Leonsis would be willing to spend 150mil-200mil unless its 10 yrs in the future&salary cap says so. 2nd, wake up DC, your not the only large market& the certainly not the most historic hockey market.
    Take away a salary cap, Toronto would open up the vault for any player&every player they wanted, Chicago, NYRs, LA so while it sounds good in theory in practice no cap is a horrible idea.

    Salary cap is best. Cost control, even playing fields, large markets cant control everything

  4. Day One Caps Fan says:

    Hi Jon

    Your article is thought-provoking on one important front: The structure and leadership of the National Hockey League.

    The current “Salary Cap” arrangement of NHL finances brilliantly reflects its leadership. The Salary Cap is an arbitrary, unfair, mean-spirited, autocratic and initiative-squashing economic model. It is a perfect reflection of the NHL’s arbitrary, unfair, mean-spirited, autocratic and initiative-squashing Corporate Dictator. He loves it, and he should. The post-2012 NHL is more despotic and totalitarian than the most Communist dictatorship in the world. Only members of “The Club” can join, backsliders or dissidents are mercilessly hounded out the league, and The Dictator makes a fortune while he sleeps.

    The current system nets BILLIONS for Buttman and his coterie, and it works so well as to make an American NHL fan blush. Buttman’s tyranny runs so deep that he can draw a big red circle around an owner or player he doesn’t like (c.f. Tom Wilson or James Balsillie) and have that person utterly neutered (Wilson) or shut out of the NHL (Balsillie). And now we have the open-ended Expand-and-Bribe system that deforms the NHL into stark Medieval Despotism! Bring me a Billion and you too can have a team! And you can go straight to the Stanley Cup, and to Hades with all who came before you.

    So in short: A Luxury Tax system, or any other system, that is not the current one, the Fixed-Revenue-Certainty model with total autocratic power in the hands of The Tyrant, has zero point zero chance of even being considered, as long as The Tyrant reigns supreme over the National Hockey League.

  5. Anonymous says:

    The misnomer that the current cap is good for competitive Blanca, and that MLB’s soft cap isn’t is simply wrong. Look at the recent World Series winners (plenty of non-taxed teams. And recent Stanley cup winners, where each has maxed out the cap)

    • Anonymous says:

      No you are dead wrong friend. Heres the FACTS OF RECENT WORLD SERIES WINNERS. You have to go all the way back to the 03 Marlins with Josh Beckett, Dontrelle Willis, etc true low payroll small market team won the WS. Since then ever team has been top 10 payroll. Redsox won 04,07, 13 I believe, SFGs 10, 12, 15, Cubs, even “Mid Market teams like St Louis and KC ended up top top payrolls or very close by adding pieces like Johnny Cueto, Ben Zobrist etc. So as competitive as Rays are on 60mil payroll or whatever they aint going to WS. And Marlins have been rebuilding since 03.

      So wrong on idea of no cap is better then having a cap bc clearly rich teams&major markets are able to buy their way to the playoffs minimum yearly and thats half the battle

  6. Anonymous says:

    This sounds like a big market writers opinion, what has been great about hockey is all the teams even small market have a chance

Leave a Reply to Anonymous Cancel reply