Make It Work Moment...

I am going to attempt to add some more clarity to the fallout from the end of last week. Or... Maybe I am going to make things less clear.

The Players and their agents stated that their third, non-documented proposal saw an immediate drop to 50/50. The math that people like Allan Walsh were throwing around was, simply put, wrong.

Here is a pretty simple way of looking at it:
Estimated HRR: 3,274,000,000
Total Team Contracts: 1,775,818,000
Percent of HRR: 54.24%

If we are attempting to reach a middle ground where the players are paid the contracts they signed with the owners AND reaching a 50/50 split? That 54.24% of just the contracts owed against the estimated HRR means that is not possible without a clawback, escrow mechanism, or some other "make whole" concept.

Hence, the impasse...

I will not introduce any of the splits in percentage calculations that the NHLPA is throwing out. My primary focus is to attempt, in an objective manner, explain how the two conflicting goals may actually be accomplished. The "Make Whole" concept will be investigated later on, in an attempt to adjust the player compensation to the exact levels of current contracts.

Growth of Hockey Related Revenue models are also useless, in my opinion, as one cannot predict the future. Will revenues grow? "Outlook is Good" (but only if there is a season...) It is the height of hubris to assume a 7% growth model every year. It is also the height of hubris to assume a flat or a low growth percentage. Will HRR stay flat or will it reach the $6B mark in ten years? Will revenues fall?

Locking the Cap Ceiling at a hard $65M, Cap Mid at $57M and a Cap Floor at $49M would drop the calculated Player Percentage to a "nice start" of 52.23%.

Estimated HRR: 3,274,000,000.00
Cap Ceiling: 65,000,000.00
Cap Mid: 57,000,000.00
Cap Floor: 49,000,000.00
Player Share: 1,710,000,000.00
Player Percent: 52.23%

Of course, as displayed above, the current contracts on the books means that players are not "made whole" with this. Most teams would be able to squeeze under the Ceiling, while only the New York Islanders would need to add. The difference with these numbers and the current contracts on the books would be a "small" $65,818,000. That number would require an across the board 3.71% reduction in player salary.

Yes, I would cut the players salary in this scenario. However, the amount by which the player's salary would be cut would be added to a "make whole" fund to be paid at the conclusion of the player's contract. This "make whole" amount, out of the owners pocket, would not be considered a salary cap hit and would be only applicable to the current contracts signed. Let me use the Minnesota Wild as the example, since everyone loves pointing at Parise/Suter as the poster children for this issue.


Player20132014201520162017201820192020-2025EndofTermMakeWholeBonus
Parise,Zach$7,538,462 $7,538,462 $7,538,462 $7,538,462 $7,538,462 $7,538,462 $7,538,462 $7,538,462 $3,635,800
Heatley,Dany$7,500,000 $7,500,000 UFA$556,500
Koivu,Mikko$6,750,000 $6,750,000 $6,750,000 $6,750,000 $6,750,000 $6,750,000 UFA$1,502,550
Bouchard,P.$4,080,000 UFA$151,368
Cullen,Matt$3,500,000 UFA$129,850
Setoguchi,Devin$3,000,000 $3,000,000 UFA$222,600
Brodziak,Kyle$2,833,333 $2,833,333 $2,833,333 UFA$315,350
Granlund,Mikael$2,100,000 $2,100,000 $2,100,000 RFA$233,730
Mitchell,Torrey$1,900,000 $1,900,000 $1,900,000 UFA$211,470
Clutterbuck,Cal$1,400,000 RFA$51,940
Powe,Darroll$1,066,667 $1,066,667 UFA$79,147
Konopka,Zenon$925,000 $925,000 UFA$68,635
Dowell,Jake$700,000 $700,000 UFA$51,940
Kassian,Matt$575,000 $575,000 UFA$42,665
Suter,Ryan$7,538,462 $7,538,462 $7,538,462 $7,538,462 $7,538,462 $7,538,462 $7,538,462 $7,538,462 $3,635,800
Gilbert,Tom$4,000,000 $4,000,000 UFA$296,800
Stoner,Clayton$1,050,000 $1,050,000 UFA$77,910
Scandella,Marco$845,833 RFA$31,380
Falk,Justin$825,000 RFA$30,608
Prosser,Nate$825,000 $825,000 UFA$61,215
Spurgeon,Jared$526,667 RFA$19,539
Backstrom,Niklas$6,000,000 UFA$222,600
Harding,Josh$1,900,000 $1,900,000 $1,900,000 UFA$211,470
$11,840,867

With a deferred plan such as this, the cap calculation would resemble:
Total AAV: 67,381,437.00
Total - 3.71%: 64,881,585.69

Which, would put the Wild just under the $65M hard cap. If the bonus carry over on entry level contracts remains the same, the Wild also have the option of deferring Mikael Granlund's performance bonus to the following year. He could also remain in Houston, which would drop his AAV from the calculation entirely. From a development point of view, leaving both Granlund and Brodin down in Houston for this compacted season would probably be for the best anyway.
If Craig Leipold cannot set aside $11,840,867, staggered, over the next 13 years, then he has greater issues.

Now, the next step is to see how this grows over the course of a ten year cycle;
HRRPlayer SharePlayer Percentage
2012-2013$3,274,000,000.00 $1,710,000,000.00 52.23%
2013-2014$3,404,960,000.00 $1,710,000,000.00 50.22%
2014-2015$3,541,158,400.00 $1,770,579,200.00 50.00%
2015-2016$3,682,804,736.00 $1,841,402,368.00 50.00%
2016-2017$3,830,116,925.44 $1,915,058,462.72 50.00%
2017-2018$3,983,321,602.46 $1,991,660,801.23 50.00%
2018-2019$4,142,654,466.56 $2,071,327,233.28 50.00%
2019-2020$4,308,360,645.22 $2,154,180,322.61 50.00%
2020-2021$4,480,695,071.03 $2,240,347,535.51 50.00%
2021-2022$4,659,922,873.87 $2,329,961,436.93 50.00%

This model assumes a very modest 4% growth rather across the full ten years. As you can see, after the first season of sitting at 52.23%, if the Player's Share is kept locked at 1.71B the following season, with 4% grown, the share drops to 50.22%. The player share would then be "un-frozen" the following season, as with a limited 4% growth, the percent share of HRR drops to the locked 50% while the hard dollar figure increases.

Even assuming a single percent more of a growth rate up to 5% revenue growth, the player share drops to 50% for 2013-2014 with a very modest increase in hard dollars. If we were to assume a much more aggressive growth rate, like the NHLPA does in every single one of their "proposals", the hard dollars of 50% increase by $50M in the 2013-2014 season.

Let me go back to the deferment of player salary cut plan...

With the right wording, one of the concerns on the part of the players would be completely removed. If and only if the rumors of immediate expansion into Markham and Quebec City are true, the wording could be worked out so that any "make whole" scenario, league wide, would be made up from the expansion fees that are not included in HRR. This way, the players cannot state that any "make whole" scenario would be coming out of the players pockets or their future share. League wide, each team owner would easily receive enough in expansion fees to cover a 3.71% contract deferment. The Wild are the team with the highest payroll and if my numbers above work out for them, they easily work out for the rest of the league.

Combine this with an immediate re-alignment plan which accommodates the two expansion teams, owner profits would increase across the board. Greater share of HRR combined with reduced travel expenses from a decent re-alignment scenario should get the owners on board.

Being "made whole" without it coming out of the future players share should get the players on board.

Add in the concept of AAV Cap space "trading" in place of direct revenue sharing? The player portion would remain the same, the richer teams could spend more, parity would be (for the most part) maintained.

If my brain can get this far, and be unstuck in the grid-lock of two conflicting, yet solvable problems?

Why can't the NHL and NHLPA?

2 comments:

  1. Would Parise and Suter's make hole even be that much due to their huge signing bonuses being such a large part of the cap hit? My understanding is the signing bonuses aren't subject to escrow.

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  2. This was a swag at just cutting the AAV by a specific percentage, not exactly straight against salary or bonuses and does not involve escrow.

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