Why A Rising Salary Cap Is Bad For Hockey

It was announced not long ago that the NHL's salary cap will be on the rise again for 2011-2012, this time inflating to $64.3 million with a $48 million cap floor. Since being installed during the lockout in 2004-2005, the cap has trended upward every year since it's induction into hockey's rule books. But a rising cap, partially due to the strength of the Canadian dollar, is a horrible thing for the NHL.

The cap was agreed upon during the lockout to help even the playing field for smaller market teams. Pre-lockout teams such as the New York Rangers, Detroit Red Wings, or Toronto Maple Leafs could easily throw cash around with few repercussions, oftentimes luring the best free agents  with gaudy contracts and forcing small market teams to lose star players to big dollars.

When the cap debuted in the first post-lockout season in 2005-2006, the cap was set at $39 million with a floor of $21.5 million. Since then the cap has steadily trended upwards:

The cap has risen $25 million in 7 seasons (Wikipedia image)

But while the economics and  strengthening Canadian dollar would suggest this is a good thing for hockey--and in some respects, it is--the rising salary cap is a very dangerous thing for the league. As of now, the NHL's "Lower Limit of the Payroll Range" is defined as approximately $16 million below the salary cap maximum. At $48 million, the minimum amount dedicated to team payrolls is $9 million more than the original maximum just seven seasons ago. 

When you look at smaller market teams such as Phoenix, Florida, Nashville, Columbus, or St. Louis, just to name a few, increasing salary floors make it all the more difficult to operate an organization. When looking at Forbes' list of NHL valuations for 2010, a few things jump out. By Forbes' numbers, 16 of the 30 teams operated in the red for 2010, representing over half the league. While many teams have been successful, newer franchises have struggled to operate in the black and this is alleviated none by continuously raising the salary  cap.

By Forbes' numbers, only seven teams made more than $10 million in operating income in 2010. Of the seven, five were Original Six teams and the other two were Vancouver and Philadelphia; one a Canadian team and the other one of the most passionate hockey fan bases in the United States. Even teams like Minnesota, who had 25 sellouts at home last season, lost $2 million. With such tight numbers, how are teams supposed to operate successfully, let alone turn a profit? And with teams bleeding money, who is going to want to own an NHL team in the future?

Bettman & Co. instituted a cap and have slowly backed off. (AP images)

We've already seen Atlanta pushed north of the border by struggling at the gate, consistently icing a mediocre team on a tight budget, and failing to find ownership to cover the losses. If it can happen in Atlanta, it can happen in many cities. Pittsburgh, the New York Islanders, Phoenix, and Nashville have all faced ownership uncertainty, bankruptcy, or relocation threats all within the last few years. If the trend continues, more teams could be behind them and the NHL may be forced to contract or relocate it's teams more than it would like to.

The easiest way to combat this? Actually level the playing field. While all teams must have payrolls between $48 million an $64 million and the playing field is technically level, it's really a difficult situation. A $64 million payroll is like lunch money to a team like Philadelphia, while a $48 million payroll is difficult on teams like Carolina or Nashville. Such is the dichotomy of the NHL--the rich will continue to get richer and the poor will suffer, but when the poor suffer in the NHL it's not a pleasant situation.

Despite revenue sharing, a sizable TV contract, and a league-imposed cap, NHL teams are facing financial hardships. By raising the cap annually the NHL is slowly negating what the cap was set up for--to help small market teams compete in the cutthroat NHL. And examining the numbers, it worked--immediately after the lockout Carolina and Anaheim took home the 2006 and 2007 Stanley Cups, respectively. Then in 2008, when the cap shifted over $50 million for the first time, the Stanley Cup went back to big markets in Detroit, Pittsburgh, Chicago, and Boston. 

Is there anything wrong with big markets winning the Stanley Cup? Absolutely not. It's great for the game. But for the overall health of the league, leveling the playing field is crucial in maintaining it's franchises, especially it's non-traditional ones long-term. If the cap isn't addressed in the next CBA and the cap continues to rise, the league may find itself paying a steep price--losing or relocating teams, which is something the NHL tries to avoid. 

As the CBA prepares to expire in September of 2012, the salary cap will again get a hard look. Hopefully the players and owners can understand that the higher the cap gets, the less effective it is. Do I believe hockey players deserve a pile of money for what they do? Absolutely. But in reality, with the NHL economics as such, it just isn't feasible. Lowering the cap for 2012-2013 will only do the NHL good when looking ahead to the future economically for the league.